Surprise, surprise, Warren Buffet was right: machine-managed investment is a better bet

A recent Bloomberg report reveals that low-cost automated index funds are poised to overtake active asset management in the United States by 2021, disrupting a decades-old system. As a result, many professionals who make their living advising clients on their investments are likely to be made redundant, no longer able to justify the fees they charge. That said, in Spain, less than 2% of the volume of investments are in automated indexed funds, with most people still saving through traditional banks’ active management products, revealing a lack of financial nous compared to more advanced markets.

In 2008, Warren Buffett, the oracle of Omaha, publicly bet that an unmanaged fund such as the S&P 500 would, over ten years, offer a higher return than a hedge fund portfolio, evaluating the performance net of commissions, costs and expenses. Buffett’s argument was simple: working on Eugene Fama’s efficient market hypothesis, the funds handled by managers would not be able to beat the market in the long term, and therefore, the commissions they would charge their clients for trying to do so would make those funds less profitable than the alternative of investing in a low-cost indexed fund, as automated as possible. In short, the only winners in active management funds are those who manage them, never the…