On 27th Feb 2017, the chairman and CEO of Capital Group, Mr. Tim Armour, was commenting on the recent $1 million bet for charity by Warren Buffet that he can invest in an S&P 500 passive index fund and beat hedge fund managers in terms of investment returns.
Tim acknowledged that Mr. Buffet was correct in the sense that, investors are at times shortchanged by some mediocre mutual funds due to their high management fees. He, however, argued that passive index investors are ignorant of the volatility risks involved in these types of investments. According to him, low-cost investments are the key to long-term investment returns, active or passive notwithstanding.
For several years, many individuals have viewed passive index returns as the surest avenue to a good retirement. Mr. Armour argued against this theory, quoting an online survey they did in 2016 where only 50 percent of passive index investors understood the effects of down markets on passive index returns. Armour revealed that during market downturns, investors are at 100 percent risk of losing their investments.
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According to Tim Armour, as much as the returns realized in an S&P 500 investment may sound good and satisfactory, they cannot surpass those realized from the best active funds from the American Fund. The American funds include the AMCAP, The Growth Fund of America, the Washington Mutual Investors Fund, the American Mutual Fund, and The Investment Company of America.
There are no set parameters to pre-determine which one between active and passive funds will earn more. Tim, however, argued that low expenses and high manager ownership are possible indicators of who will outperform whom in the end.
About Tim Armour
Mr. Tim Armour is an economics graduate from Middlebury College. Prior to becoming the CEO of Capital Group, Tim had served in other positions in the company, including equity investment analyst, equity portfolio manager, and participant in The Associates Program.
Recently, Capital Group and Samsung Asset Management Company partnered to develop investment strategies for Korean investors. Tim is optimistic that this new partnership will yield results for the mutual benefit of the two companies and the Investors in Korea.