Remember that study suggesting active fund managers should "closet index" in downturns?

Morningstar's John Rekenthaler didn't buy into the study and still doesn't.

He doesn't dispute that the math was correct. Yet he says a year by year analysis doesn't indicate how investors make investment decisions. The professors also equal-weighted the data, which counts all funds as the same.

Rekenthaler said most of the money went to big, well-known and well-promoted funds that dodged the 2000-02 crash in 2003. Capital Group's [profile] American Funds, Vanguard [profile], Dodge & Cox [profile] and Fidelity [profile] were in the top 6 of stock fund shops that brought in the most sales. The same firm names appeared in 2005.

Rekenthaler's conclusion is that bear-market performance was the driving force for which stock funds reached the top sellers list in the past 10 years. He notices the same trend with active vs. passive funds. Investors favored active funds that performed well in bear markets until 2008, when they failed to outperform the benchmark, and have been out of favor since.

To read more, click here.  

Edited by: Casey Quinlan


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