The average FTSE 100 Index Tracking fund rose 15% between January and the end of November, meaning a £1,000 investment made on the first day of the year would now be worth an acceptable £1,158.

Investors appeared to react to the bumper year for stock markets by turning to cheaper passive funds in their droves.

According to execution-only broker, TD Direct Investing, there was a 44% increase in the use of passives among clients over the last 12 months and passive products now account for 13% of total funds on the TD Direct platform compared to 5% in 2008.

But in many ways 2013 was the year in which ‘easy money’ was made. Markets rose strongly, in most cases from a low base, once investor confidence over the global economic outlook improved.

Now experts suggest investors cannot rely on a repeat performance next year, meaning pouring money into passive funds may not be as profitable.

They believe 2014 will be the year of the active fund manager – or stock picker.

One of the main reasons is that stock markets are looking expensive following this year’s sharp rises, making it much harder for fund managers and investors to find value to generate returns.

“The drawback to passive investing is that you hold stocks simply because they are in the index and not because they are good companies where profits, margins, sales or market share is growing, an approach that I have always found slightly odd. Active managers hold stocks they believe have better prospects than those in the market as a whole,” says Tim Cockerill, a chartered wealth manager at Rowan Dartington.

“I would suggest that investors holding passive funds think about switching to an active manager who has the flexibility to buy and hold those stocks where they do see value.”

Rob Pemberton, investment director at wealth manager HFM Columbus, agrees that next year will be “tougher sledding” for markets and investors will not make as much from index tracking funds.

“Index funds will not do it for 2014. There is more downside risk as markets have gone up and look more expensive. An active fund manager will be able to better navigate the rocky ride,” he says.

However, Steve Martin of Smart Financial Planning, remains a strong proponent of passive funds for 2014.

He says active fund managers are no better armed to manage volatility in stock markets or avoid negative market news because they cannot predict the future, so investors are better off sticking to low cost passive funds.

He uses the example of the massive market sell-off in May and June, following talk of the US withdrawing its stimulus programme, to illustrate his point.

“Active managers cannot exploit future market moves because they have access to the same information at the same time as everyone else. Active managers may have tried to exploit quantitative easing tapering but the only way they would have been able to do so was by knowing exactly when the market was going to drop off and getting out before,” Martin says.

He says investors should not take any unnecessary risk and stick to low cost, passive funds even if they are considered the “dull, boring static approach” to investing.

Adam Laird, passive investment manager at Hargreaves Lansdown, believes the costs of tracker funds will drop in 2014.

“The cost of investing is falling and investors can now access tracker funds from as little as 0.1% Total Expense Ratio. There is a lot of competition between managers of tracker funds and I predict we will see charges fall, which will benefit investors.”

He also predicts more innovation and more choice for investors in the passive space.

Shares are often the first asset that comes to mind when tracker funds are mentioned, but passive makes sense for bonds too, especially while interest rates are so low and cost remains such a crucial factor, Laird says.

Morningstar’s top rated passive funds:

BlackRock Japan Equity Tkr D Acc Bronze
BlackRock Corporate Bond Tkr D Acc Bronze
BlackRock North Amer Eq Tkr D Acc Bronze
BlackRock Overseas Corp Bd Tkr D Acc Bronze
BlackRock Overseas Govt Bd Tracker D Acc Neutral
BlackRock Pacific Ex Japan Eq Tkr D Acc Bronze
BlackRock UK Equity Tracker D Acc Bronze
BlackRock UK Gilts All Stocks Tkr D Acc Bronze
HSBC American Index Retail Acc Silver
HSBC FTSE 100 Index Retail Acc Neutral
L&G All Stocks Idx Linked Gilt Idx I Acc Bronze
L&G Pacific Index I Inc Silver
L&G UK Index Trust I Bronze
Vanguard Emerging Market Stock Idx Inv Acc Bronze
Vanguard EUR Gov Bond Index Inv EUR Silver
Vanguard FTSE Dev Wld ex UK Eq Idx Acc Silver
Vanguard FTSE U.K. Equity Index Acc Silver
Vanguard Global Bd Idx GBP Hdg Acc Bronze
Vanguard Global Stock Idx Inst USD Bronze
Vanguard Japan Stock Idx Inst USD Acc Silver
Vanguard Pacific Ex-Jap Stk Idx Inst USD Silver
Vanguard U.K. Government Bd Idx GBP Acc Silver
Vanguard UK Inv Grade Bd Idx GBP Bronze
Vanguard US 500 Stock Index Ins USD Silver
Vanguard US Inv Gr Crdt Idx Inst USD Bronze