Query: how have actively-managed funds that are not mandated to be fully invested at all times fared against index funds during bear markets and specifically very extreme bear markets?
I am sure you know this and have the info at your fingerspitzengefuehl for market history. I am curious. There ought to be certain circumstances where some actively managed funds that are designed for downside protection and/or can either go short, buy puts, and/or hold a very substantial cash position at will which will outperform a pure index investor during a protracted and obvious ongoing bear market, such as '72-'74.
I look to you for comment on this given your deep study of market history and of mutual funds (which were much less common before the 1980s).
Perhaps there is insufficient data to answer this question.
Usually the Herd is wrong. And with so many people flocking to S&P500 indexes, I wonder whether the contrarian view might be correct this time. Even an index fund can become too popular and create unforeseen risks. (For our purposes, you can ignore funds focused on ex-USA equities.)
The SP500 overamplifies (and overweights!) the valuation of 'winner' stocks. Simply inclusion in the SP500 can increase the valuation of a stock. I am thinking for example of Tesla here, but we could also consider former beauty queens like AOL. Many of those high-flyers are precisely the ones that will be slaughtered in a prolonged, deep bear market.
