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Investors Pull $221B From Equity Funds

Equity mutual funds suffered redemptions in 2008, only the third time in their history that they have had outflows. Actively managed funds lost $221.08 billion, while index funds took in $17.6 billion. "Some people who get their hands burned by these market drops move from active to passive [management], and every time some of them stay there," Scott Burns, an analyst with Morningstar, told Dow Jones. Passive investing "gains more converts" each time the market crashes.

"It could be that some people are adopting [Vanguard founder] Jack Bogle's long-held advice of not buying too many funds, staying well-diversified and keeping costs low," agreed Tom Roseen, a senior analyst with Lipper. "Perhaps they've just said to themselves, 'We do know that actively managed funds can win, but not all the time, so let's just shift to indexing."

Index funds, with $490 billion in assets under management, now comprise 13.2% of total assets in mutual funds, up from 11.8% in 2007. Actively managed funds hold $3.2 trillion.