Index funds: a good driver of investment returns
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Recall that strange era: In 1999, the Year of the Froth, the S&P 500 benefited much by such tech holdings as Microsoft, Intel and Cisco Systems, returning 21 percent that year. But dozens of zany Internet funds ran circles around the index on the rather flimsy promise that their holdings would post earnings in five years or so. A couple dozen of these funds produced returns in excess of 100 percent.

What a crazy time that was, and many straight-laced value fund managers with investment disciplines based on solid fundamentals nevertheless cheated by buying a few Internet stocks so they wouldn't be eating too much dust left by funds in the forefront.

Things are different
Most professional money managers aren't falling headlong for high-risk stocks with no earnings in sight, at least, not at the moment. Nevertheless, active fund managers are still under considerable strain. Their performance can be measured against their benchmarks at the end of every workday.

Just last week, The Wall Street Journal ran an article titled "As stocks near a high, pressure builds for a professional investor." It's actually more suspenseful than many good mystery novels. It chronicles the investment decisions of Jon Brorson, a money manager with Neuberger Berman who oversees three mutual funds. He's under constant pressure to outdo the competition by a comfortable margin.

Your stomach churns in empathy when you read that he confronts changes in the market he doesn't expect. He finds himself selling stocks that he believes in and shifting into defensive names as Wall Street's preferences change like those of philanderers. In May he was on top of the world; in August he was reeling from a blow. On a given day he was trying to assimilate the surges in sectors he bet against -- retail and technology -- and holding onto energy shares that had served him well despite pleas from his colleagues to dump them.

He gleans information, trying to divine the future of the market by watching CNBC, checking the Bloomberg terminal, listening to conference calls, checking e-mails and looking at technical charts. He has difficulty sleeping at night. You can't help but like him. He's a successful money manager, sweating the market noise on a daily basis.

Recent academic findings
You might think that active and passive index funds are mutually exclusive of one another. But of course their holdings overlap. The accusation that many active funds are "closet index funds" has been flying around for years. A recent study by two Yale School of Management assistant finance professors found that the average large-cap fund that uses the S&P 500 as its benchmark has an active component of 66 percent. That means about one-third of its assets mirror that of its benchmark.

Investors ought to know how much of their actively managed funds are clones and how much are the results of their money managers' creative inspiration, since actively managed funds charge higher fees. The median expense ratio for no-load large-cap funds is 1 percent, according to Morningstar. Index funds are generally cheaper to run, because it doesn't take a rocket scientist to run a fund that mimics the S&P 500 or any other index.