Warren Buffett's S&P 500 index fund bet outperforms hedge funds

Warren Buffett's 2007 wager that a low-cost S&P 500 index fund would outperform a selection of hedge funds over a decade has yielded significant results. The bet, which spanned from 2008 to 2017, saw the Vanguard S&P 500 index fund chosen by Buffett achieve a total return of 125.8%, averaging approximately 8.5% annually.

In contrast, the five hedge fund baskets selected by Protégé Partners co-manager Ted Seides underperformed. The top-performing hedge fund group returned 87.7% over the ten-year period, while the other four averaged annual returns of 3.6% or less. One fund returned only 2.8% before being liquidated in 2017.

Buffett attributed the disparity largely to high management fees. In his 2017 letter to Berkshire Hathaway shareholders, he noted that hedge fund investors often pay average annual fixed fees of around 2.5%, plus performance-based incentives. While the index fund initially struggled during the 2008 financial crisis, losing 37% in its first year, it maintained superior long-term growth compared to its professional counterparts.