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Illustration by Zak Tebbal for Money.com

It’s the active-passive paradox – almost every investor agrees that it’s nigh impossible to beat the market, and almost every investor tries to anyway.

Even Vanguard Investments, the fund firm founded by Jack Bogle, high priest of passive investing, is guilty of this stock-picking exceptionalism, according to a new study. The research by Index Fund Advisors suggests that Vanguard's active funds, just like those of rival fund companies, struggle to consistently deliver above market returns.

Vanguard, which disputed the findings in an email, launched its first funds in 1975, and all 11 were actively managed. It was, however the S&P 500-tracking Vanguard 500 Index Fund, which appeared the following year, that cemented the firm's reputation and built its cult following. Still today about one quarter of the Pennsylvania firm’s assets under management, or roughly $1.3 trillion, are in actively managed funds. Some of Vanguard’s highest profile launches this year, including the Vanguard Commodity Strategy Fund and the Vanguard Global ESG Select Fund, are actively managed products.

In the IFA study, authors Murray Coleman and Mark Hebner, looked at the performance of 57 actively managed Vanguard funds with at least five years of a track record through 2018 to gauge their “alpha,” or returns in excess of benchmarks. The study accounted for the “hard costs” or expense ratios quoted in fund prospectuses and also indirect costs, the tax implications of buying and selling stocks, as measured by the funds’ “turnover ratio.”

The results of the analysis are consistent with Jack Bogle’s adage: “don’t look for the needle in the haystack…just buy the haystack.”

The funds in the study had slightly better than a 50-50 chance of beating their Morningstar-assigned benchmarks.

The odds got even worse when the authors controlled for risk, trying to distinguish between reckless gambles and “repeatable…management expertise.” By screening out dumb luck, the authors found just two of the 57 funds consistently outperformed their benchmarks. They concluded that all of Vanguard’s active strategies could be replicated “more cost effectively through the use of index funds.”

In an e-mail, Vanguard spokesman Charles Kurtz disputed IFA’s conclusions. According to the firm, 78% of its actively managed funds have beaten their benchmarks over the last two decades. Of course, in measuring fund performance discrepancies are inevitable. Vanguard, for one, selects its own benchmarks, tailored more closely to each fund's goals, according to the firm, than Morningstar's tend to be. IFA also looked at funds’ performance since their inception dates, not over the past 20 years.

Kurtz said the active funds likely navigated market crashes in 2000 and 2008 better than passive funds, which remain tethered to the broad market no matter how deep it sinks. Returns, in Vanguard's view are always "highly time-period dependent."

Another factor, and one that would make the actively managed funds consistent with Bogle's philosophy, is the funds' bargain-basement prices. “For active to deliver alpha for investors, it must be low cost,” said Kurtz, pointing to average equity-fund expense ratios below 0.3%,