Index Funds Fare Better with Bears: Study

July 18, 2001 ( - The advantages of investing in actively managed funds in a bear market may be overstated, since index funds perform about as well as actively managed funds in these markets, results of a study suggest.

Analysts at The Schwab Center for Investment Research compared the performance of over 120 large-cap index funds and more than 2,100 actively managed large-cap equity mutual funds during the 20 market declines that occurred between December 1986 and March 2001.

Detailed analysis of the data shows that index funds outperformed actively managed funds in 55% of the down markets, or 11 of the 20 periods studied, and for a longer time within those down periods.

In addition, the study, Index or Actively Managed Equity Mutual Funds: Which Way to Go in a Down Market, found that:

  • when actively managed funds outperformed index funds, they did so by a margin of 1.64% on average
  • compared with a margin of 0.58%, when index funds outperformed active funds.