Actively managed mutual funds fall short again - and investors notice In the last five years, stock mutual fund managers had two big opportunities to show how much they deserved your money - and trust. First, they could have limited your losses in the harrowing 2008-09 market crash. Second, they could have anticipated the market's powerful rebound and loaded up on the shares that would end up performing best. But instead of demonstrating their brilliance, the majority of fund managers came up short: In most major categories of stock mutual funds, investors would have been better off just owning the market as a whole instead of trying to beat it, data show. If this sounds familiar, it's because the debate over "passive" versus "active" investing has been going on for about 40 years. Proponents of passive, or index, investing say the odds of finding a money manager who will trump the market return over time are too low to justify the search - let alone justify the management fees you'd pay. They note that much of the historical evidence favors their camp. Now, get ready for a new chapter in the debate. With U.S. share prices already up 150% or more since 2009, actively managed equity funds argue that adept stock picking will be crucial for future gains. Stick with them, they say. The normally publicity-shy American Funds group in Los Angeles, the biggest U.S. operator of actively managed funds, last month began touting a new research report stressing the "active advantage" of the firm's funds. In the bond market, meanwhile, actively managed funds pitch themselves as the solution to negotiating what could be a wild period ahead as the Federal Reserve wrangles over what to do with interest rates. The active versus passive question isn't simply an academic exercise for investors. Many Americans who have saved too little for retirement are desperate to boost their nest eggs. The fund choices people make in their 401 (k) plans or with other investment options will determine how much ground they can make up. Consider: In the 10 years that ended June 30, $10,000 invested in the average fund that owns a diversified mix of large-capitalization, or blue-chip, U.S. stocks grew to $18,840. But the same amount invested in the Vanguard 500 Index fund, which tracks the Standard & Poor's 500 index, grew to $20,002 - $1,162 more than the average fund, according to data from financial research firm Morningstar Inc. Over 25 years the numbers are more striking. A $10,000 investment in the Vanguard 500 fund grew to $99,503, or nearly $24,000 more than the value of the average large-cap fund in that period. How many retirees could do with an extra $24,000? For many veteran financial advisors, there's no contest. Dale Yahnke, a principal at wealth manager Dowling & Yahnke in San Diego, said his firm has been using low-cost index funds as clients' core portfolio holdings since he co-founded the business 22 years ago. The performance numbers don't lie, said Yahnke, who oversees $2.1 billion in client wealth. Neither is he persuaded by the argument that an aging bull market gives active managers a better chance to beat index portfolios. "If I had a buck for every time someone said, 'It's a stock picker's market,' I wouldn't have to work anymore," he said. But even some die-hard fans of indexing advise investors against a blanket condemnation of active funds. John Rekenthaler, vice president of research at Morningstar in Chicago, said the discussion increasingly "has been a very one-way debate" that obscures the value of many active portfolios. Not surprisingly, some of the actively managed funds that have become most popular with investors have racked up market-beating returns over time: the $49-billion Dodge & Cox Stock fund, for example, and the Pimco Total Return Bond fund, the $250-billion behemoth managed by bond guru Bill Gross in Newport Beach. American Funds, which has been managing money since the 1930s, also boasts impressive long-term track records in many of its stock funds. The return on the company's $123-billion Growth Fund of America edged the Vanguard 500 fund in the 10 years through June, even allowing for the upfront sales fee that brokers may charge to buy the fund. Except for retirement savings plans, American Funds sells its funds exclusively via brokers and financial advisors. Yet many investors, or their advisors, have pulled the plug on American Funds over the last five years. The company's stock and bond funds have suffered total net cash outflows of $263 billion since September 2008, Morningstar estimates. The funds' assets now total about $1 trillion. The heavy cash outflows set the scene for the data-laden study American Funds published last month. The company's research-driven stock picking has generated "clear advantages over index investing during every meaningful period of time for decades," the study declares. "We wanted to raise our voice in the debate" between passive and active investing, said Steve Deschenes, co-author of the report and a senior vice president at American Funds. The firm's track record, he said, "isn't luck."