Actively managed mutual funds' returns lagged their related indexes for all Morningstar "style boxes" between 1995 and 2004 after "survivor bias" was taken into account, according to a study released today by Savant Capital Management and the Zero Alpha Group. The study argued that purging the weakest funds from the data boosted "apparent returns" by an average of 1.6 percentage points a year over the 10 years. The analysis is the first to show "conclusively" that the Morningstar data that most individual investors and many financial professionals rely on significantly overstate the historic returns of actively managed funds, according to the study's executive summary.
Don Phillips, managing director of Morningstar, said his firm is pro-investor rather than pro-active management or anti-passive investing, and the formula that the study backs for calculating broad averages would result in its own distortions. Earlier this year, however, Morningstar launched a major initiative to address the survivor bias problem in calculating averages and will provide both numbers for investors in the future, he said.