Active Investing To Offset Bear Markets

On February 27th, 2017, CNBC.com featured an article by Timothy Armour, Chairman and CEO of Capital Group. In the article, Armour challenges Warren Buffett’s belief that passive index fund investing is the best strategy for the average investor. Mr. Armour agrees with Buffet’s belief that too many active funds shortchange average investors through fees and other charges. He also agrees that passive index funds have consistently done well when they have durable portfolios. However, Timothy Armour makes a strong argument that properly managed active funds can outperform passive index funds.

Timothy Armour is not making an adversarial argument in his commentary. He is makes his case by advising investors to turn to the basics of fundamental long term investing. That is, demanding good long-term investment returns and keeping costs low. Armour reminds you that passive index funds only do well in a bull market. He then argues that having a well managed active fund can out perform passive index funds in bear markets. By having the proper active funds, Armour is saying an investor can achieve more long-term wealth.

Read more: Capital Group Names Armour Chairman to Succeed James Rothenberg

Timothy Armour expresses the complexities involved with choosing the right active funds. He advises investors to use two simple filters. A fund that has low expenses and high manager ownership is essential. That is, fund managers whom invest their own money alongside investors is a good sign the fund is legit. Armour concludes his argument by stating that Capital Group’s active funds have performed 1.47 percent above relevant index benchmarks.

Timothy Armour has been the CEO of Capital Group since July of 2015. He has been with Capital Group for almost 35 years. He has been an equity portfolio manager and an equity investment analyst. He began his career at Capital as a participant in The Associates Program. Timothy Armour earned a bachelor’s degree in economics from Middleburg College.

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