"The case for active management is the opportunity to outperform," Philips said, stressing the word opportunity. "But higher costs are there and so is the risk of underperformance."

Ebb Tide

While a bad stock pick can undo any manager, recent academic research reinforces the argument that active management provides benefits to investors in the long-run.

Antti Petajisto, a former Yale University finance professor who now works for BlackRock Inc, concluded that the most active stock pickers in the industry have been able to beat their benchmarks by about 1.26 percent a year after all fees and expenses, according to his results published last year in the Financial Analysts Journal.

Fidelity's Hogan said he believes investors will eventually notice, turning the tide of money flows back in his company's direction. "It would be great to get those flows, but they're a lagging indicator," he said.

Still, executives from Fidelity and other mutual funds acknowledge that a significant hurdle to drawing risk-averse investors into actively managed funds is less about the long-term performance, and more about the short-term volatility that sometimes accompanies stock-picking.

The $1.5 billion CGM Focus Fund, for example, beat the S&P 500 Index last year by 5.22 percentage points with a 37.61 percent return. Run by Ken Heebner, the fund's composition was 97 percent different than its benchmark. But a key volatility measure was nearly 80 percent higher than the S&P 500, according to Morningstar. The takeaway is that investing in Heebner's fund is akin to a roller coaster ride.

Fidelity and OppenheimerFunds have said they want their portfolio managers to pick stocks while keeping a sharp eye on tracking error, which measures the volatility of a portfolio's returns relative to its benchmark.

If done perfectly, an active manager can look different from his benchmark without straying too far from the benchmark's risk profile, said Laton Spahr, portfolio manager of the $2.4 billion Oppenheimer Value Fund.

"With active share you can keep the risk profile of your benchmark, but your returns can be better," Spahr said.

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