Jason Zweig, writing in the Wall Street Journal reports on an on-going debate between John Bogle, founder of Vanguard funds, and Jim Grant of Grants’s Interest Rate Observer. Zweig notes: “[Grant] pointed out that investing in an S&P 500 index fund means buying stocks picked by the committee at S&P Dow Jones Indices headed by David Blitzer and holding them in a market fueled by low interest rates determined by Janet Yellen’s Federal Reserve ‘When you buy ‘the market,’ you are buying David’s market and Janet Yellen’s [policies]… are you quite sure you want it all?’”
John Bogle needs no assistance from S&P Dow Jones or anyone else in explaining or defending index investing. His comments about fees and expenses are correct. Jim Grant argues that an “accomplished professional investor” should achieve superior returns without indexing. Given Grant’s experience and the research in his newsletter and books, he would qualify as an accomplished investor. S&P Dow Jones Indices publishes a series of SPIVA reports (for S&P Index vs. Active) comparing the returns earned by indices and actively managed mutual funds. These confirm Jack Bogle’s views that expenses matter. Moreover the reports show that in a typical period of a year or more, indices outperform two out of three actively managed funds. The results, which extend back ten years, are consistent with numerous other index vs. active studies. If you knew which one of three active funds would outperform, choosing the right fund and investing would be easy. The real problem is that fund performance has very little if any persistence – selecting the one right fund of three is very difficult and how a fund did last year says nothing about how it will do this year.
I would like to thank Jim Grant — it is a pleasure to be mentioned alongside Janet Yellen, the chairwoman of the Federal Reserve. As for index investing, the SPIVA reports and the recent returns on the S&P 500 are available on our web site, www.SPDJI.com; Jim Grant can check which accomplished professional investors are among the one third who outperform the index.The posts on this blog are opinions, not advice. Please read our Disclaimers.