Vanguard or Fidelity? Active or Passive?

Should investors in low-cost mutual funds consider active ones? In his April 2023 paper entitled “Vanguard and Fidelity Domestic Active Stock Funds: Both Beat their Style Mimicking Vanguard Index Funds, & Vanguard Beats by More”, Edward Tower compares returns of active Vanguard and Fidelity stock mutual funds to those of style-mimicking portfolios of Vanguard index funds. He segments active funds into three groups: U.S. diversified, sector/specialty and global/international. For U.S. diversified funds, for which samples are relatively large, he regresses monthly net returns of each active fund versus monthly net returns of Vanguard index funds to construct an index fund portfolio that duplicates the active fund return pattern (style). For sector/specialty and global/international segments, for which samples are small, he instead compares active fund net returns to those for respective benchmarks. He uses Vanguard Admiral class funds when available, and Investor class funds otherwise. He applies monthly rebalancing for all fund portfolios. Using fund descriptions and monthly net returns during January 2013 through March 2023, he finds that:

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