Our team recently investigated how stylistic differences between active and passive managers contribute to the variation of active managers' performance within Morningstar Categories. While these differences can help explain when actively managed funds outperform their passively managed peers, investment style differences don't account for everything, nor do they always line up how we'd expect. It's not advisable to attempt to time exposure between index and active managers because this is akin to timing just about anything else in the market--it's hard to do successfully.
Investors can avoid U.S. equity fund style decisions by selecting a total market fund like iShares Core S&P Total U.S. Stock Market ETF (ITOT). This is an attractive choice for diversified exposure to U.S. stocks of all sizes and spans the value/growth continuum. The exchange-traded fund efficiently tracks a broadly diversified and representative benchmark at a low cost, which gives it a persistent edge over its peers. It earns a Morningstar Analyst Rating of Gold.
Adam McCullough, CFA has a position in the following securities mentioned above: VTI. Find out about Morningstar's editorial policies.