(Dow Jones) Among mutual funds, the pain from the recent market downturn was felt far and wide-but not shared equally. The same can be said of the relief experienced so far in the recovery.
The classic type of mutual fund, which employs an army of stock pickers to invest in big U.S. businesses, has fared a lot worse than low-cost index funds which simply ride the ups and downs of the market.
During the past three years, as the market plunged by more than half then began a historic rally, investors have yanked more than $174 billion from large-company U.S. stock funds, according to analyst Morningstar Inc. The funds haven't enjoyed a month in which investors put in more money than they pulled out since June 2009.
Some of the industry's best-known names have bled investment dollars, including American Funds Investment Company of America, which has seen investors pull $16.1 billion, Dodge & Cox Stock Fund which has lost $9.5 billion, and Fidelity Contra Fund, where investors have withdrawn more than $1 billion.
Main Street investors almost always pull money out of the stock market during a bear market, and are often slow to return when the market turns around. If the current rally continues, they could start returning in droves.
But index funds, which many investing experts say are a better option for small investors in the long run, have suffered much less from this pattern. In fact, large-company stock index funds and exchange-traded funds have actually seen investors pour in more than $147 billion in the past three years while their active cousins were hemorrhaging.
Among the big winners: Vanguard Total Stock Market Index Fund, which has grabbed $47.3 billion in new money, and the SPDR (SPY), an ETF which has accumulated $35.7 billion, although some of the SPDR's haul may be from active traders on Wall Street who also use the vehicle.
"It seems like even though flows into U.S. stock funds have been tepid, passive funds are getting respectable flows," says Morningstar analyst Sonya Morris. "Investors have been catching on to index funds over the past several years."
If the trend continues, it could vindicate investing experts and academics who have long questioned why individual investors pour money into active funds that, as a group, seem unable to beat the market. Few think their long campaign is near its end, however: While index funds have slowly been gaining market share since they first appeared more than three decades ago, large-company active funds still hold about $5 for every $2 in equivalent index funds.
Moreover, investors are still pouring money into actively managed mutual funds that target other more exotic types of stocks and bonds, especially hot areas like emerging markets. In all, active stock and bond funds have actually pulled in more than $300 billion in the past three years overall, despite dollars draining out of large-company U.S. stock funds.