Warren Buffett Again Backs Vanguard S&P 500 ETF

Warren Buffett once again extolled the virtues of passive funds in his recent Berkshire Hathaway shareholder letter

Kevin McDevitt, CFA 13 March, 2017 | 3:32PM
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Warren Buffett once again extolled the virtues of passive funds in his recent Berkshire Hathaway shareholder letter and reiterated his recommendation of Vanguard 500 Index (VUSD) as his preferred vehicle. Buffett also idolises Vanguard founder Jack Bogle, who introduced the first retail S&P 500 index fund in 1976.

What strikes me is not that Buffett recommends indexing for most investors, but that he recommends an S&P 500 fund in particular. For years, the S&P 500, which celebrated its 60th anniversary on March 4, was synonymous with indexing. A whole ecosystem has sprung up around the benchmark. There are futures, options, and other instruments that all reference this index.

But as time has gone on, a general consensus seems to have emerged that while adequate, an S&P 500 fund is not necessarily the best building block for a portfolio. Of course, the answer also depends on an investor's individual circumstances. Yes, it captures about 80% of the U.S. equity market’s capitalisation, but it’s not the broadest representation of the market. Its constituents are selected by a committee, which adds a layer of subjectivity and, dare I say, active management.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Vanguard S&P 500 UCITS ETF84.14 USD-0.27Rating

About Author

Kevin McDevitt, CFA  Kevin McDevitt is an Editorial Director with Morningstar.

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