http://www.savantcapital.com/sbiasstudy/sbiasstudy.pdf Executive Summary The mutual fund industry systematically and significantly overstates fund performance in a way that falsely makes actively managed mutual funds occasionally look competitive with indexes. When the little-understood âsurvivor biasâ factor is taken into account, actively managed mutual funds in all nine of the Morningstar PrincipiaÂ® âstyle boxesâ lagged their related indexes from 1995-2004. In all but one of the 42 narrower Morningstar fund categories, the survivor bias effect worked to inflate fund returns. The analysis shows that the purging of the weakest funds from the Morningstar database boosted apparent returns on average by 1.6 percent per year over the 10-year period. âSurvivor biasâ is a kind of grade inflation for mutual funds that occurs when the funds with the worst performance are made to disappear from the database while strong performers move forward. The result: skewed performance numbers that make the remaining active managers look better since poor performers vanish before they can drag down the overall performance numbers for the indexes. Very few investors know about survivor bias, but it should be a major concern. For example, over the 10-year period studied, the Mid Blend category returned a whopping cumulative 72 percent less than Morningstar data would suggest. The Corporate High Quality Fund category demonstrated the least survivor bias with 0.4% cumulative return difference. The largest evidence of survivor bias exists in the Aggressive Growth Fund category at 116%.