So what is the world’s most legendary living investor doing touting passive index funds? Warren Buffett is an iconic voice who considers index fund investing as a viable alternative to actively managed funds. He’s even undertaken a high-stakes wager that his investment in a simple S&P 500 passive index fund will outperform active management. All winnings are to be donated to charity of course.
While it’s hard to question someone like Warren Buffett, there may be more to the story. Tim Armour is the chairman and chief executive officer of Capital Group and he offers a different perspective. He says that outperforming index funds is possible with the right combination of factors in place. Two crucial factors, in particular, are necessary to beat the benchmark.
The first critical piece of the puzzle is low expenses for accessing the fund. High overheads necessarily make it more difficult to achieve that elusive outperformance. It’s like excessively handicapping a champion horse, the race becomes that much more difficult. The second factor is equally as important as the first. Fund managers who invest significant amounts of their own money into the fund are more likely to achieve superior results. When these two factors are combined, investors may profit handsomely.
Armour has recently detailed his thoughts on the new economic agenda proposed by President Trump. He believes that global markets are approaching a new period of quicker growth and it could be considered a seismic shift. He considers that interest rates have been steadily trending down throughout his career and may finally be approaching a bottom. Investors may have a unique opportunity with Armour and Capital Group.
Tim Armour has been with Capital Group throughout his entire career. He started in their Associates Program and has worked his way up through the ranks. He has over three decades of investing experience and was named Capital’s Chairman in 2015. They are one of the world’s largest investment funds and home to the successful American Funds.