For the first time in the five-year history of his "Million-Dollar Bet" against the "experts" of Wall Street, Warren Buffett is now in the lead.
Back in 2008, the Berkshire Hathaway chairman made a 10-year wager with Protege partner Ted Seides. Buffett put his money on a low-cost S&P stock index fund from Vanguard. Seides backed five funds of hedge funds.
The strategy with the best return at the end of 2017, including the costs associated with the funds, will be the winner, with a guaranteed $1 million going to either Buffett's designated charity (Girls Inc of Omaha) or Seides' (Absolute Returns for Kids.)
Fortune's Carol Loomis reports today that Buffett's chosen fund is up 8.69 percent, easily ahead of the hedge funds picked by Protege with their 0.13 percent average increase.It's vindication, at least so far, of Buffett's long-held argument that over a number of years, the "experts" aren't able to outperform the overall stock market. It's the basis of his belief the fees "helpers" charge investors usually aren't justified.
Both strategies suffered big losses in 2008, the first year of the challenge, and Loomis notes it took until now for both sides to get into the black.
In arguments on a web site recording the wager, Protege contends that hedge funds are trying to "generate positive returns over time regardless of the market environment," not just beat the market. Even so, through a cycle, "top hedge fund managers have surpassed market returns net of all fees, while assuming less risk as well."
Protege believes that since there's a big difference between the returns of the top hedge funds and the average ones, "funds of funds with the ability to sort the wheat from the chaff will earn returns that amply compensate for the extra layer of fees their clients pay."