The Fund Industry's Talent Problem

The past three years' storm gave large-cap fund managers a great chance to outshine index funds. But most blew it anyway.

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For years we've heard that most big-cap fund managers have a tough time beating cheap, large-cap S&P 500 index funds, which simply replicate that index. Over the past couple of years, however, active managers could've used bets on smaller stocks or even cash to top the index. Unfortunately, less than half did so in 2001 or over the past three years. And less than seven in 10 big-cap funds beat the index over the past five, 10 and 15 years, according to Chicago research house Morningstar. ...