The Morningstar advisor website features a comprehensive analysis of the failure of active managers to outperform their respective indices despite the bear market conditions when active managers were supposed to shine:
by Daniel Culloton | 03-03-09
This is the big one; a bear market so fierce and unrelenting that it'll expose index funds for the dumb investments they are and allow active managers to show their quality.
Or maybe not.
I recently looked at how actively managed funds have fared versus similarly styled benchmarks thus far in this the worst stock market crash since the Great Depression. What I saw probably won't end up in any actively managed fund's marketing materials. While the typical active manager has beaten certain benchmarks from when the major market averages peaked on Oct. 9, 2007, through the end of January 2009, the victory hasn't been clear-cut. Also the typical stock-picker's inability to beat the Standard & Poor's style benchmarks in most categories undercuts the argument that active managers would hold up better in a severe downturn by favoring so-called higher-quality stocks.
There have been individual managers, management teams, and strategies that have limited the damage during this bear market. As the bear market drags on, active managers collectively also could improve their relative standing somewhat. And losing 37.1% in an S&P 500 fund instead of 37.2% in an actively managed large-cap blend fund shouldn't make anyone feel happy. But the average active manager's absolute and relative performance so far makes it hard, to paraphrase Vanguard founder and index fund creator Jack Bogle, for the active funds to claim superiority over the market averages.
But talk about disconnect !the same website contains an article about an "undiscovered" active manager with great returns and the curren issure of the affiliated magazine Morningstar Advisor contains an article entitled "Four Picks for the Present" three of the four funds are actively managed,