Star mutual fund managers are beating the soaring stock market in 2020 — but customers are abandoning them for index-trackers anyway.

Will Danoff’s $134 billion Fidelity Contrafund returned 32% this year through Wednesday, nearly 15 percentage points better than the S&P 500, yet investors yanked a net $23.4 billion, according to Bloomberg estimates. American Funds’ $255 billion Growth Fund of America jumped 37% but lost more than $10 billion to net outflows. Their struggles have been replicated across an industry that’s in danger of being overthrown by low-cost alternatives.

After decades as the dominant savings vehicle for long-term investors, U.S. actively managed stock mutual funds are heading for their worst ever year of outflows: around $500 billion, according to Bloomberg Intelligence estimates. By contrast, more than $200 billion has poured into equity exchange-traded funds, whose passive investing approach and tax-efficient structure have put them on course to permanently supplant human decision makers. If even the best managers can’t lure new money, there’s scant hope for everyone else.

“It’s like a freight train,” said Russel Kinnel, director of manager research at Morningstar Inc. “People got religion on fees and the big passive funds in general have delivered better returns because they’re cheaper.”

Companies that manage active funds say the data isn’t as dire as it may seem. They note that a growing number of investors have moved away from mutual funds to separately managed accounts with similar strategies at the same firm, even with the same portfolio manager.

Capital Group, which runs the American Funds lineup, saw higher redemptions during the early months of the Covid-19 pandemic. But its assets are up 12% this year to $2.2 trillion and its outflows are far below the industry average, a spokeswoman said, calling that “a testament to our focus to help investors grow their wealth over the long term.”

Fidelity Investments declined to comment on fund flows but stands by its broad lineup of active products.

“The mutual fund structure still has a great place in portfolios,” Tim Cohen, Fidelity’s co-head of equity, said in an interview.

Mutual fund companies that rely on stock picking benefited in recent years from an historic bull market that inflated assets even as investors peeled away, and there’s no guarantee that run can continue. Market volatility and falling fees intensified pressure on fund companies to consolidate this year, with Morgan Stanley agreeing to buy Eaton Vance Corp. and State Street Corp. exploring potential mergers for its asset-management arm.

“In the past, performance was all that mattered,” said Kyle Sanders, an analyst at Edward Jones. “Performance is important, but cost is becoming more and more important.”

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