We have previously commented on Warren Buffet’s bet against Protege Partners – a pre-eminent hedge fund firm based in New York.
As a reminder, Mr Buffet placed a personal $1m bet that a large index fund (Vanguard) would outperform any combination of 5 hedge funds selected by Protege over a 10 year period. The loser would donate $1m to charity.
The results are out for the year ending December 2015 – the end of the eighth year of the bet. With 2 years to go Buffet is up 66% vs 22% for Protege.
Interestingly, Protege reigned in Mr Buffett very slightly during 2015, delivering a 1.75% return for the year, ahead of the Vanguard fund’s return of 1.36%.
So, it does appear as if his indexing investment strategy may deliver superior returns when compared to a highly regarded, high-conviction active fund manager – at considerably lower risk.
As a last comment, we have noted a number of active fund managers who outperformed their respective index over the last year – a highly volatile year in which positive returns were hard to come by. The vast majority of active fund managers continue to underperform respective index funds over the 3, 5, 7 and 10 year periods ending 31 December 2015. We remain comfortable that last year’s outperforming managers are impossible to select in advance, and that over time – for most investors – a broad-based investment strategy will deliver superior risk-adjusted returns.