In one of his annual letters to Berkshire Hathaway investors, Warren Buffett extolled the virtues of passive investing based on index funds.
According to the response by Timothy Armour, Chairman of the Capital Group of actively traded mutual funds, Buffett bet $1 million with a group of hedge fund traders that the S&P 500 index would outperform them. So far, he’s on track to win the bet.
As recently written up in The Financial Times, the concept of passive index fund investing has become so popular that it’s reducing the bottom lines of the top mutual fund families such as Fidelty and T. Rowe Price. Now Vanguard is the mighty giant.
That made Armour decide to stop passively accepting the trend, and to actively begin fighting back. In his response to Buffett, he makes the case that the eighteen funds run by Capitol Group have a collective life long enough to qualify as “the long term,” and their average return is 1.47% higher than their respective index benchmarks. And that is after accounting for expenses.
Therefore, he says, it is possible for actively traded funds to outperform index funds. He also cites the top 5 American funds managed by Capitol Group and learn more about Tim.
After graduating from Middlebury College with a degree in Economics, Armour went to work for Capitol Group in their Associates Program. To do so, he turned his back on the opportunity to operate a surf shop. After over 30 years of success, he took over Capitol Group as Chairman in 2015 and Tim’s lacrosse camp.
He’s also on record as foreseeing the world economy picking up steam after years of the doldrums following the Great Recession. He believes trade will flourish, and interest rates and inflation will both go up.