(Bloomberg News) Stock pickers in the U.S. have suffered half a trillion dollars in withdrawals since they started losing ground to index-tracking funds five years ago. Now, active bond-fund managers are beginning to feel the heat.

Passive funds won 39 percent of all new money garnered by bond strategies this year, up from 22 percent two years earlier, according to data compiled by Morningstar Inc. in Chicago. Assets in exchange-traded funds that track bond markets more than quadrupled since the beginning of 2008 to $168.3 billion, data from the Investment Company Institute show.

Investors are paying closer attention to the value added by active managers as yields hover near record lows and top long- term performers such as Bill Gross and Dan Fuss are trailing markets this year. Eight out of 10 bond-fund managers have underperformed the U.S. market in the past 20 years, compared with 72 percent of stock-fund managers, according to research compiled by Vanguard Group Inc., the firm best known for its low-cost index funds. BlackRock Inc., the world's largest asset manager, and Legg Mason Inc. said their clients are shifting bond investments increasingly to passive products.

"We're moving to the second phase of the index revolution," Peter Fisher, head of fixed-income at BlackRock, said in an interview. "The world is a frightening, uncertain place and investors want to make their portfolios much simpler so they can sleep at night."

Bond funds have largely been shielded from passive, low- cost competitors because investors had few incentives to scrutinize fees as the 30-year rally in Treasuries lifted returns. Active bond mutual funds garnered $537 billion in deposits between 2008 and 2010 as investors rushed to the perceived safety of bonds, according to Morningstar. This year, active bond funds attracted $52.1 billion in estimated net deposits through September.

Bond markets are also harder to track because of the number of securities in many bond indexes. The Barclays Capital U.S. Aggregate Index has more than 7,500 securities, 15 times the number in the U.S. benchmark stock index, which contains the 500 largest U.S. companies.

Active U.S. stock pickers such as Fidelity Investments' Harry Lange and Legg Mason's Bill Miller, who at their peak collectively managed $4.2 trillion, have suffered $537 billion in withdrawals industrywide since redemptions started in 2006. Miller, whose main fund ended a 15-year record streak outperforming the Standard & Poor's 500 Index that year, has seen assets tumble from a peak of $21 billion in 2007 to $2.5 billion. Miller on Nov. 17 said he would step down as manager of the fund in 2012 after a 30-year career running it.

For most bond investors, active managers such as Gross and Fuss, who are unconstrained in their ability to invest in the sectors they deem attractive, are still able to add more value over long periods of time than "plain vanilla" funds that don't have the same flexibility, said Geoff Bobroff, an independent fund consultant based in East Greenwich, Rhode Island. Deposits into bond index funds may be more driven by institutions rather than individual investors, he said.

"In a less volatile environment, active management in fixed-income is better and the primary reason for that is that they are more nimble and not constrained by their benchmarks," Bobroff said in an interview. "Indexation in bonds is very different from equities as you're seeing more institutional investors wanting to mix and match ETFs in their bond portfolios whereas on the equity side you see more retail investors."

Pimco's Total Return strategies have driven deposits since the 2008 credit crisis, as investors flocked to top-performing bond managers. Gross's Total Return open-end strategies drew $15.4 billion in 2008, $51.2 billion in 2009, and $23 billion in 2010, according to estimates by Morningstar. This year that Pimco strategy has had $2.9 billion in redemptions, according to Morningstar.

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