Are Low Cost Index Funds Always The Right Answer?

In 2008, Warren Buffett wagered $1 million that his pick of a low cost S&P 500 Index fund would outperform five funds chosen by money management firm Protégé. The winner will be declared in 2018 after 10 years, and the money will be donated to charity.Timothy Armour, chairman of Capital Group, believes that although Buffett is a wise investor, carefully selected funds chosen by seasoned hedge fund managers will outperform low cost index funds in the long run. Even though low cost index funds seem like a good idea during a bull market, when the market faces a downturn these investors will be left more vunerable. The reality is that noone is able to predict the direction of the market at any given moment.

On July 28, 2015 the Board of Directors of Capital Group announced the election of Tim Armour as their new Chairman. This was a significant promotion from his previous position as Chairman of Capital Group’s management committee and Capital Research and Management Company. Jim Rothenberg, the former Chairman had passed away. Armour holds a bachelor’s degree in economics from Middlebury College and 32 years of investment experience.

Tim Armour believes that the strategy to “find active managers who earn their keep”, involves working with managers who consistently research the companies they invest in and invest their own money in the funds they recommend to their clients. His argument on why hedge fund are better than index funds is mainly due to the lack of control an investor has in an index fund.The chief of Capital Group has also commented on how the surprise election of Donald Trump as the President of the United States will impact the market. The interest rate has been dropping for his entire career, he says, and therefore he believes that it has reached the bottom and we should expect them to climb going forward.

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