But before you take your money to a straight index fund, Ferson suggests looking at non-traditional performance measurements. During bull markets, so much money pours into mutual funds that managers don't invest it all at once. Using a model that does not penalize funds for holding more cash during a bullish market, Ferson found that only 52.4 percent of the sample funds underperformed the S&P 500.
"The bias is to see mutual funds as underperforming. My studies seem to indicate that those criticisms may have been overblown," he says.
However, mutual funds managers are also considered bad at market timing. "My current project tends to confirm that," Ferson says. "Mutual funds tend to sit on more cash under high market returns."--Tom Griffin
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