(Bloomberg Gadfly) -- Just when nearly everyone had counted outactive managers, they are punching above the market again, but bewary of performance enhancers.

U.S. large-cap, actively managed equity mutual funds are on their hottest streak inyears.

July was the fifth consecutive month that more than half of thefunds outperformed passive index funds.

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That was the longest streak of market-beatingperformance since at least 2009, according to a report thisweek from Bank of America Merrill Lynch. What's more, large-capU.S. equity funds have outperformed the indexes in nine of the past12 months.

This, of course, goes against everything that is preached abouthow individuals, and even large pension funds, should invest theirmoney, and also increasingly how people actually do it.

Since 2009, about $2 trillion has flowed into lower-cost andgenerally better-performing passive funds.

At the same time, about $500 billion has flowed out of activelymanaged funds. Of U.S. domiciled funds, 37 percent are nowpassively managed, nearly double the figure in 2009.

The question, of course, is when does all this passive investingbecome a liability to index-fund investors. Until recently, itclearly hasn't.

The big index funds and ETFs follow established indexes, likethe S&P 500. As more money flows into passive funds, more moneybecomes concentrated in the same shares, leaving stock managerslooking for hidden gems in the leftovers.

That can't go on forever. And people have talked about an indexbubble for a while, with the thought that those picking the unlovedstocks will be rewarded eventually.

So have we hit the breaking point, when money will flow back tothe actively managed funds?

It's clear the vast majority of investors don't think so.Despite the better performance, money is still steadily going intopassive funds and out of active funds.

In July alone, investors poured nearly $300 million into passivefunds and pulled almost $100 million out of active ones.

What's more, there is no evidence to suggest that37 percent is the ceiling of how high passive can go beforethe market breaks.

Other countries' stock markets are much more passively managedthan the one in the U.S. In Japan, for example, more than60 percent of domestic Japanese fund assets are now in passivefunds.

The biggest problem is the driving force behind the betterreturns for large-cap active U.S. stock funds. Bank of America saysthat active funds have been loading up on both higher multiple techstocks and companies that tend to have volatile earnings.

It estimates that the average active fund has 1.6 times moreallocated to stocks that receive a quality rating of C or D fromS&P Global Ratings than the average index fund.

Loading up on risk may be a way to boost short-term performance,and perhaps stem some outflows, but it's not really a recipe forlong-term success, even if performance improves.

What sent investors to passive funds in the first place wasthe massive blowup many active funds had in 2008. Another missteplike that and active mutual funds will be further left fordead.

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