The equity stars have been in alignment for actively managed large-cap funds, with 55.8 percent of portfolios beating the Standard & Poor's 500-stock index so far this year, according to S&P.

Managers with the discretion to boost their exposure to market leaders in energy, utilities and real estate have had an advantage in 2005 over funds that simply track the broad index. But maintaining that edge over the longer term remains a challenge, said Rosanne Pane, S&P's mutual fund strategist.

"There are times when active funds can do better, such as when the market is declining. If active managers are in cash, they're obviously going to minimize their losses," Pane said. "Secondly, if a certain sector starts to lead the market, and managers are already in that sector and they're overweighted, they're going to do better."

Despite the success of large-cap managers through the first three quarters of this year, however, longer-term results show indexes consistently outperforming active funds. The S&P 500 index has beaten 69.4 percent of actively managed large-cap funds over the past three years and 63.6 percent over the last five years.

The same is true of indexes tracking small- and mid-cap stocks, both so far this year and over the longer term. Small- and mid-cap portfolio managers have had a tough time beating their benchmarks in 2005, according to S&P. At the end of September, the S&P MidCap 400 outperformed 72.1 percent of mid-cap funds, while the S&P SmallCap 600 beat 72.3 percent of small-cap funds, in keeping with three- and five-year trends.

Some investors interpret this kind of data as a reason to eschew actively managed funds in favor of the more passive indexing approach, either through traditional mutual funds or exchange-traded funds. By owning the market, the reasoning goes, you're guaranteed market returns. Adding to their appeal, index funds and ETFs tend to have significantly lower expenses than their actively managed counterparts, which leaves more money for shareholders. Meanwhile, advocates of actively managed funds prefer to focus on the 30-some percent of portfolios that do beat their benchmarks over longer periods.

In many years, especially when the market has moved wildly up or down, indexing has proved to be a winning bet. "When the whole market moves up, the indexes move up with it," Pane remarked. "All boats rise when the tide comes in."

But when the market drifts sideways, or slightly down, as it has for much of 2005, the advantage seems to go to active managers, said Andrew Clark, a senior research analyst at Lipper Inc.

"We looked at a wide variety of diversified equity funds, and one of the things that jumped out at us was that in flat, to moderately rising, to moderately falling markets, active managers tend to beat their index. They do well, basically, when there isn't too much movement going on," Clark said. "When there's strong movement up or down, then passive tends to beat active."

An example of this occurred in 2003, when every stock in just about every category seemed to move up, and indexes easily outperformed actively managed funds. In 2004, actively managed funds held the advantage for most of the year, but the market's fourth-quarter surge ultimately helped indexes win again.

So, which approach is best? Devout followers of one or the other may disagree, but experts such as Pane and Clark say you do not have to choose. You can build a portfolio that incorporates the best of both worlds, getting cheap, broad exposure to huge swaths of the market with index funds that track the S&P 500 or the Wilshire 5000, which holds virtually every publicly traded stock. Good, inexpensive options are offered by indexing giant Vanguard Group as well as Fidelity Investments.

Then, with a little homework, you can round out your holdings with carefully selected actively managed funds. As always, it's important to keep costs in perspective, as fees can take a big bite out of total returns over time. There are excellent, low-cost actively managed funds available; providers known for running good, tight shops with an eye toward lower expenses and shareholder rights include Dodge & Cox, T. Rowe Price and Fidelity.

With careful research, it is possible to find managers with longer tenures who have consistently outperformed their benchmarks. Once you're convinced of the management team's experience, you can drill down into their investing philosophy and decide if you're comfortable with their approach. Do this, and you have a good chance of finding a consistent performer.

"Indexing versus active investing shouldn't be an either-or decision," Pane said. "You can do both. Index a portion of the market and then look for the exceptional managers as sort of an added option to your asset allocation."