Index Funds Outperform Actively Managed Funds


Score one more for index funds. In the continued debate about which offer higher rates of return, actively managed mutual funds or passive index funds, a new study from Morningstar(MORN) gives the prize to index funds.

Over the past three years, while about half of actively managed funds outperformed their respective Morningstar indexes, only 37 percent did on a risk-, size-, and style-adjusted basis. The numbers hold up similarly for five and 10-year returns. Furthermore, in some cases, the extra risk didn't justify the returns earned, said Russ Kinnel, director of mutual fund research at Morningstar.