Two less-conventional thoughts on this front:
a) I don't love the s&p500, even though I do love indexing. I think we should compose a balance of large cap and small cap ourselves with the latter comprising a much bigger percentage than any of the major or broad indexes contain. Why? Small cap trounces large cap over long periods of time -- more risk, more reward. Ok in a well-diversified portfolio.
b) Value -- I also think we should be tilted toward value vis-a-vis a major stock index, eg. SP500-- (anything to get away from hype-infested large growth stocks, I guess). And, although value indexes exist, value managers may have a role. why? Value stocks are not a permanent group. Although some stocks remain value stocks for years, many get re-classified as value stocks when they get beaten up. They might not make it into a value index at all (if only temporarily beaten up for a few quarters or so) or they might not make it in until the next year when the index gets re-jiggered.
Plus, you have the problem of not knowing if you are buying an Enron which went to flatline, or a Tyco, which went from 50 down to 8 and is now back above 30. Even though we can all argue the virtues of indexes, a value manager might be able to distinguish between the Enrons and the Tycos with enough analysis, frequently enough to warrant their fee. Barrow and team at Windsor II seem to outperform the Value Index by a point or so pretty consistently, even over long periods of time.
I view picking an actively managed value fund not so much as active fund picking or stock picking that Scott Burns so rightly pokes fun at, but more as a smarter way of indexing Value than the 'dumb/passive index" which is snapshotted annually. Anyone else thinking along these lines?
ESRBob