In the active vs. passive debate, actively managed mutual funds have a new champion. Howard Present of F-Squared, a company that provides indexes that track the best of the best mutual fund managers, said that active always trumps passive when you choose the right fund managers.

Most studies look at the all the active managers lumped together, Present said, and this puts the best and the worst managers together and takes the median. F-Squared is different because it weeds out all the mediocre managers and only invests in the best.

The F-Squared index strategy hinges on three main tenets: selecting an institutional class manager who in-turn selects the best active managers; creating a diverse multi-manager portfolio with those best-in-class managers; and conducting the aforementioned yearly review of all fund managers to ensure they still meet the best-in-class standard.

The three consultants that manage F-Squared's indexes are; Mesirow Financial, Klein Decisions, and Kanon, Bloch, and Crarre.

F-Squared methodology is not new, Present said, but was previously only available to institutional investors with billion of dollars on hand. "Now individual investors can take advantage of the same type of strategies," Present said.  

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