CHICAGO -- Just when you thought it was safe to go indexing with abandon, active managers might give you a run for your money.
Active managers will do better this year than last, and they have the potential to beat their indexing peers, said Don Phillips, chief executive of
. What's more, they'd better -- if they want to justify their existence to the investing public, Phillips said.
"Active management is approaching its nadir in terms of the public acceptance of its popularity," Phillips said Monday night during the kickoff session of the
Morningstar Investment Conference
. He said that it's "incredibly important" that active managers do better this year, both for their own sakes and for the well-being of the fund industry.
The good news is that he thinks market conditions are ripe for managers to do just that. With a broadening of the market in recent weeks to include both value stocks and smaller issues, Phillips thinks the time is right for active managers to shine.
"You have to keep in mind that the typical fund manager truly comes out of this U.S. investment methodology that's very much rooted in a value orientation," Phillips said. "Large growth really runs counter to the training of a lot of active managers."
In the past few years, with a select group of large-cap growth stocks being the companies to own, he said the deck was stacked against active stock pickers.
He also noted that the "typical" active manager's portfolio has little resemblance to the top stocks in the
Citing anecdotal evidence, Phillips said the popularity of indexing -- and the public's perception that active managers can't outperform -- shows that the "average person on the street
thinks the services of mutual funds are somehow substandard."
That contrasts deeply with when Phillips joined Morningstar as the company's first analyst in 1986, he said. Then, when he told people he tracked mutual funds, they would refer to the stellar track record of Peter Lynch, then manager of
Now, they talk about how many managers underperform the market instead.
"That's something this industry really needs to rally against," Phillips said. "People need heroes. The industry needs heroes."