Comparing the returns of a basket of all mutual funds to the returns of one large-cap stock index over a highly volatile period isn't very meaningful. The mutual funds weren't even 100% equities, so you're partially comparing the returns of entirely different asset classes.

As the article mentions, it's impossible to invest in the total mutual fund market. There is no index fund of mutual funds, nor is there any need when you can diversify across the entire market through existing index funds.

See also The Arithmetic of Active Management: http://www.stanford.edu/~wfsharpe/art/active/active.htm