<beliavsky[at]aol.com> wrote
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access to this article as of July 1.

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The premise of your statement seems to be that index funds
have been argued to outperform their respective
corresponding actively-managed funds for any time period.
The articles, including research, on index funds with which
I am familiar make no such argument.

Generally, reputable publications say that index funds will
beat most actively managed funds over long time periods.
Yahoo's finance site makes the case even more blandly:

"Index [fund] investors aspire to be average.
...
[Still, b]y eliminating the costs of researching stocks and
keeping trading costs such as brokerage commissions low,
index funds don't have to take as large a bite out of fund
returns. So their average return before expenses has
provided the opportunity for above-average return after
expenses."
http://biz.yahoo.com/funds/vami.html

The Yahoo site goes on to present 10-year data.

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I agree this needs clarification.

Importantly, for any mutual fund investment category, I
suspect the historical data shows that index funds are more
likely to have underperformed the averages during bubbles or
bull markets than they are in bear or flat markets.

Real estate mutual funds have been stridently bullish for
the last several years. I am not surprised that their
corresponding index funds lagged a bit for this short,
bubbly period.

Also, I think as a matter of statistical science, the
following observation from the article is a good one: "It's
easier to outmanage an index in a more narrow field than a
broader field," [a senior analyst at Lipper said]. The
underpinnings of this statement should be mathematically
provable, using simple concepts such as average, standard
deviation, and statistical significance.

Rising interest rates denote trouble for certain categories
of REITs. Let's see how the next five years pan out.

Real Estate Funds: Pilot or Autopilot?
By VIVIAN MARINO
New York Times
Published: June 25, 2006

"The Lipper data show that for a longer period - the last five years
- the managed funds have also done slightly better, on average, than
index funds. The managed funds returned 18.93 percent, annualized,
versus 18.08 percent for index funds. And in years when real estate
funds were declining over all, index funds performed worse than
actively managed funds. In 1999, for example, they declined 4.08
percent, on average, while all real estate funds lost, on average, just
1.78 percent, according to Lipper.

Fund analysts pointed out, however, that when the fees and expenses for
managed funds are factored in, the differences are slight or
negligible. "It's like a horse race, only the actively managed funds
are starting with a little more saddle weight," said Donald Cassidy, a
senior analyst at Lipper."

Overall, the article supports the idea that actively-managed REIT funds
can outperform indices. The second paragraph above does not make sense
to me. I assume the Lipper indices of managed funds use the total
returns of the funds, which include expenses.