From the May 2009 issue of Boomer Market Advisor • Subscribe!

What, exactly, are we paying this guy for?

The Wall Street Journal weighs in on the active versus passive management debate, and the verdict goes to passive in the current bear market, according to the paper:

"Active managers haven't shielded investors from the debacle: From the end of October 2007, a few weeks after the stock-market peak, through the end of March, diversified U.S.-stock funds that are actively managed lost an average 47.6 percent, according to fund researcher Lipper. That's just a hair better than their indexed or 'passive' peers, down 47.8 percent."

After a similar analysis, researcher Morningstar concluded, "active managers don't have a lot to crow about," as Dan Culloton, an associate director of fund analysis, wrote in a February report.

Fans of active stock pickers have argued that those managers should do better than index funds in a bear market, because they can move to cash or more defensive shares.

But that may be mostly wishful thinking. Knowing when to shift -- and where -- isn't easy. For instance, over the past year or two, the meltdown in once-loved sectors like financial and energy stocks has bruised many active portfolios that overweighted those areas compared with stock benchmarks.

Active funds also typically have higher fees than do index funds, which is an additional hurdle the stock-picking managers have to overcome. And many stock-fund managers, by policy, stay fully invested even when the market is trending down, leaving allocation decisions to the funds' holders.

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