BlackRock balance index and active funds?

BlackRock Inc.’s purchase of Barclays Global Investors for a record $13.5 billion is the first attempt by a top-ranked fund manager to unite two opposing investment philosophies.

Managers at New York-based BlackRock, who oversee $1.31 trillion, select investments based on research, and have a reputation for spotting value in hard-to-sell fixed-income securities. BGI, based in San Francisco, has $1.5 trillion in assets, mostly in funds whose holdings are determined by the indexes they are designed to mimic. For BlackRock, which is renowned in fixed-income investing, this will be a significant departure.

BlackRock’s Chief Executive Officer Larry Fink called the deal a “transformational transaction” in a conference call with reporters.

The conventional wisdom holds that if you want to be a dominant money manager, you have to be flexible about style and strategy, in other word, you have to offer everything a potential client might want.

The debate over which style produces better returns for investors over the long term has carried on since index-based funds first appeared in the mid-1970s. Money managers focus primarily on one approach or the other. Active managers look for companies they expect to beat the market. Passive investors try to track benchmarks such as the Standard & Poor’s 500.

Diversified U.S. equity index funds declined 38 percent in 2008, edging out their active peers, which fell 39 percent. That helped persuade more investors to move to passive investing.

Index funds attracted $34 billion in net deposits last year while all U.S.-registered stock and bond mutual funds lost $230 billion in redemptions. Exchange-traded funds, which also follow indexes and trade throughout the day like stocks, added $177 billion through new sales.

Active funds have performed better so far this year. Diversified active U.S. equity funds returned an average 10 percent through June 10, compared with a gain of 7.3 percent for diversified equity index funds.

BlackRock, which acquired Merrill Lynch & Co.’s asset- management business in 2006, will become the world’s biggest money manager with BGI. The combined company, with more than $2.7 trillion under management, will dwarf Boston-based rivals State Street Corp., which oversaw $1.44 trillion as of Dec. 31, and Fidelity Investments, with $1.25 trillion.

One risk of the deal is losing customers as BlackRock seeks to fold in BGI. Any large merger between asset managers can make big clients of both firms nervous. It might spark getting put on a watch list, and it can slow down a firm’s pipeline of new business, especially in alternative investments.