In an article for CNBC, Tim Armour, chairman and CEO of Capital Group, has offered a rebuttal to Warren Buffett’s claim that investing in actively managed mutual funds does not pay. Buffett has made a $1M bet that investing in a passive S&P 500 index would outperform a group of hedge funds’ returns.
In his piece, Tim Armour argues that Buffett is right, but only to an extent. He concedes that that there are many high-cost mutual funds that rarely outperform their benchmarks. However, Armour points out that all of the major indices have been on a long, steady march higher since the financial crisis, and that some investors are not even aware that index funds expose the investor to 100% of any downside. These facts contribute to a sense that index funds are unbeatable and more information click here.
The fund manager CEO noted that a collection of the best performing mutual funds does outperform passive indices. He also noted two characteristics of active funds that are common to high-performing funds: low fees, and high manager ownership. These two qualities denote funds that outperform they benchmarks and learn more about Tim.
Armour has argued that active management protects investors more than passive index funds in other publications as well. In the Wall Street Journal, he argued that finding a fund with the above two qualities leads to performance above their benchmark 89% of the time. Additionally, he has noted that baby boomers are worried about downside exposure, yet are doing little to protect against it when invested in passive indexes and resume him.
Timothy Armour has over 30 years of experience, all of which at the Capital Group. He was voted chairman of the company in 2015. He graduated from Middlebury College with a bachelor’s degree in economics.