Active managers have fallen out of favor with fund investors, according to recent data on investor dollars flowing in and out of various funds.

The data show fewer investor dollars are flowing into actively managed stock mutual funds, compared with passive funds that simply track indexes without the influence of a stock-picking manager.

During the first eight months of the year, investors pulled $50.4 billion out of actively managed equity funds, while putting $27.2 billion into passive funds, according to Morningstar. During the same period a year ago, they pulled $19.8 billion from active equity funds and put $30.4 billion into passive funds.

Passive equity funds have actually recorded positive inflows for more than a decade, while active equity funds are on track for a third consecutive year of outflows after a turnabout in 2008.

Vanguard, the fund firm that essentially invented index funds, has recorded more than $48.8 billion in inflows year to date.

Fund families like Fidelity and American Funds, known for active investment strategies, are among those with the biggest outflows, $2.77 billion and $28.99 billion, year to date.

A Fidelity spokesman says the vast majority of those outflows stem from a broad retreat from money market funds, citing net inflows to the firm s equity mutual funds and bond funds of $3.6 billion and $8.7 billion, respectively, for the year to date.

At American Funds, each product is actively managed, but the company defends its funds performance. Over the 10 years leading up to Jan. 1 2010 a period some call the Lost Decade nearly all of its equity funds (14 of 15) bested the S&P 500 Index, a spokeswoman says.

We believe the shareholder benefits from our fundamental research, experience and careful stock and bond selection, the spokeswoman says.

Industry watchers says the more recent data are indicative of a broader effort to curb risk.

I think part of it is tied to people moving out of equities and into fixed income, says Todd Rosenbluth, S&P mutual fund analyst. People lost a lot of money in 2008. We think those wounds are still open. He adds, It is a challenge for a fund to outperform its peers or a benchmark year after year.

Some firms have taken advantage of the trend or benefitted from it through the proliferation of low-cost, index-based ETFs. Just the very presence of ETFs has driven more money into indexed-based investments than we ve seen in the past, says Rick Genoni, head of ETF product management Vanguard.

The popularity of index funds comes down to two things, Rosenbluth says. First, actively managed funds are, on average, more expensive. Second, it s difficult to pick which ones will outperform (making it difficult to justify the added expense) from year to year. The average large cap core or blend actively managed fund that S&P compares to its S&P 500 for a benchmark has a net expense ratio of 1.3%, while the average S&P 500 index fund has an expense ratio of just 0.66% ($13 in fees for every $1,000 invested vs. $6.60).

The average fund lost money in 2008, so it s hard for many investors to see the value in paying more to track an index, so some are turning to ETFs or index-oriented mutual funds as cheaper points of entry, Rosenbluth says. (Of course, some actively managed funds will outperform their benchmarks, but the funds that did well in 2009 fail to do well in 2010, he says.) Many investors feel they might as well pay less if they re only tracking the market s performance.

They may be on to something. Lower costs were a better predictor of good fund performance over a five-year period than a rating based on the fund s actual returns and volatility, according to a recent study by industry firm Morningstar.

To be sure, there will always be managers who outperform, but it s not easy to predict which ones will shine and when.

We don t think that anyone can consistently identify those active managers, says Adam Leone, an advisor at Modera Wealth Management. They change every year.

There is some grey area what Leone describes as hiring a manager who has a passive investment philosophy but will still make tactical judgments.

Of course, if active managers stay too close to indexes, then they don t offer enough of an advantage from index funds to make it worth the extra expense, says Morningstar s Scott Burns, director of ETF research. He calls them index huggers. They lose or win, but never by a lot, and people say Why would you pay for that? he says.

Still, active management makes more sense in certain cases, for instance, in a growing group of alternative funds that use hedge-fund like strategies, says Modera s Leone. These might include the Absolute Strategy Fund (ASFIX), the Highbridge Statistical Market Neutral Select Fund (HSKSX), or the iShares Diversified Alternatives Trust (ALT) . They are active funds by definition, he says.

S&P s Rosenbluth says actively managed funds can be appropriate, depending on an investor s goals and how much they are prepared to pay for attempting to outperform.