Because they can invest in a wide variety of complex ways, hedge funds are seen as a way for the very wealthy to achieve above-market returns while the hedge fund traders take home enormous paychecks.
But can hedge funds – or for that matter any kind of stock picking approach really produce consistent above-market returns? In 2008, Warren Buffet placed a million-dollar bet with Ted Seides, pitting the performance of the Vanguard 500 index fund against 5 hedge funds of funds selected by Seides over a 10 year period. It wasn’t close—the Vanguard Fund produced almost 4 times the return of the hedge fund vehicles.
For decades, investors have paid substantial fees to mutual fund managers and other advisors in an effort to maximize returns and minimize risk. But over the last thirty years, investors have increasingly turned to simple index funds, funds with low expenses that simply mirror large segments of the market.
What sounds like a simple concept was actually a bit complicated to develop, particularly against the backdrop of the exciting industry. The story of how index funds and their cousin ETFs came to be is laid out in Robin Wigglesworth’s new book, Trillions: How a band of Wall Street renegades invested the index fund and changed finance forever. We are lucky to have Mr. Wigglesworth with us this morning.
