Timothy Armour On Why Warren Buffett Is Wrong About Active Funds

Recently Warren Buffet made a bet that he could achieve better investment returns than several hedge fund managers simply by investing in an S&P 500 passive index fund. It looks like the one million dollars he wagered, it would have gone to charity, is going to be his to keep.

However, Timothy Armour, Chairman and CEO of Capital Group, still disagrees with Buffett’s faith in passive funds despite his winning the bet.

Recently Mr. Armour challenged Buffett’s assertion that passive index funds are the safest path to bigger long term returns. He does agree with Mr. Buffett that there are many active funds that charge exorbitant fees and deliver only middling returns for investors. He admits that the combination of high fees and volatile, ever changing markets is what leads to these low returns. However, Mr. Timothy Armour argues that lucrative actively managed funds do exist and that the way to identify them is to look for two things: low expenses and high management ownership. He argues that by using those two criteria investors are able to identify the exceptional fund managers who will be able to consistently deliver higher returns for investors over time.

With millions of Baby Boomers retiring every year and younger Americans worried they will not be able to save enough to ever retire Mr. Armour asserts this active fund strategy is something investors should seriously consider.

Timothy Armour was elected Chairman of Capital Group in 2015. He has over 30 years of investment experience. Mr. Armour has a bachelor’s degree in Economics from Middlebury College and holds and M.B.A from Columbia University.