According to the Wall Street Journal many large institutional investors are turning too index funds after finding that actively managed mutual funds have not performed well during the downturn.
They would rather have the guaranteed lower cost of an index fund vs. the unfulfilled promise of better performance through an actively managed fund.
This is the strategy that I use with my clients. Although some actively managed funds will out perform an index fund the percentage that do is actually less than chance would predict. It is also difficult to predict which managers will outperform and index fund year after year. This is especially true for bond funds. According to Morningstar the Vanguard Total Bond Market Index Fund has outperformed 83% of its peers over the last 10-years.
Index funds charge substantially less than their actively managed peers. A low cost index fund costs about 1% per year less than its actively managed peer. That means that the actively managed fund would have to outperform the index fund by 1% per year just to be equal. That is very difficult to do for almost all managers.