Over the past 50 years, one of the most successful investors in the world has continued to be Warren Buffett. Buffett, who has successfully become a self-made billionaire, has stood by several investing principles. One of his key principles is for people to avoid investing in expensive hedge and mutual funds.
While some people criticized this approach, Buffett officially quieted some of them this year after successfully winning a bet against several top hedge fund managers. Over one year ago, Buffett bet that he could get a better overall return by investing in an index funds as opposed to actively managed funds. In the end, Buffett was proven to be the winner of the bet.
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While Tim Armour did win, some are still not sure that non-active management is the best way to go. One critic of the approach is Tim Armour, who is the head of the Capital Group. Armour pointed out that the bet took place during a period of prosperity and that actively managed funds show their true value during downturns. During bear markets, hedge funds are able to take downside risk protection while index funds are not.
Over the course of the past 20 years, Armour has led the portfolio management side of the business for the Capital Group. During this time period he has pointed out that his firm’s return on investment, net after all fees, is more than 1.5% higher on an annual basis than the overall return of the S&P 500 and other related indexes.
Check Bloomberg.com for more details about Timothy Armour.