Robots will always beat star fund managers: How Warren Buffet is set to cash on incredible £1m bet he made against his own profession

Warren Buffett is quite possibly the world’s greatest ever investor. He has turned a $1,000 investment into more than $13.8 million since he took over the Berkshire Hathaway investment company in 1964.

That’s a stonking average annual return of 19 per cent. His success has been down to an uncanny knack of spotting companies on the up — and then investing early.

But in 2008, the American made an extraordinary $1 million bet against the profession that made him rich.

He wagered that a so-called tracker fund, which follows the stock market up and down like a robot, would return more money for savers in a decade than highly paid fund managers like him.

Wager: Warren Buffet bet £1m that a tracker fund, which follows the stock market up and down like a robot, would return more money for savers than highly paid fund managers like him

He even let the investment firm he bet with, Protege Partners, choose the men who would try to beat him. Nine years on, he is on the verge of a big win.

His tracker fund — which followed the S&P 500 index of major American companies — has risen by more than 85 per cent, while the five funds trying to beat him have returned a measly 22 per cent.

So, with the stock market hitting record highs, should you follow his advice and put your faith in a robot fund?

The popularity of trackers has rocketed in the past decade. Last year, savers pumped in £4.8 billion — 180 times more than the £26 million invested in 2007.

The price is the selling point. Because trackers blindly follow the stock market, your returns are not eaten away by fees to pay fund managers.

Mr Buffett’s bet was based on a simple fact: just one in 100 European fund managers investing in U.S. shares beats the stock market after fees are deducted. In the UK, the figure is 23 in 100, according to investment index provider S&P Dow Jones.

Mr Buffet, 86, reckons he knows just a handful of people in the world who can consistently beat the stock market. Ben Yearsley, of Wealth Club, says: ‘The reality is that most funds are managed by people who aren’t that special.

Shrewd move: Buffet is now on the verge of a big win

‘There are only a few managers out there who you can trust to achieve top returns year in, year out. If you can identify them, you’ll make a fortune — but it’s a real challenge.’

So, who are the managers with the Midas touch? In Britain, Neil Woodford and Nick Train are two who have proven themselves over the long-term.

Mr Woodford, who runs CF Woodford Equity Income, has turned £10,000 into £290,500 in his 29 years as a fund manager.

Nick Train, who manages CF Lindsell Train UK Equity Fund, has turned £10,000 into £365,100 since 1986.

Laith Khalaf, of broker Hargreaves Lansdown, says: ‘These two pick stocks that will perform well over the long term and keep your nest egg growing.

‘The problem is that some fund managers have a good couple of years and then flop, so it’s hard work sorting the wheat from the chaff.

‘If you don’t want to, a tracker fund is a good low-cost option.’

The experts say one option is to use a tracker as your basic investment and then put the rest of your cash with a proven manager, giving them at least ten years to work some magic.

On average you’ll be charged £90 a year by a fund manager for every £10,000 you invest. With a tracker, it’s nearer £15.

However, not all tracker funds charge the same.

For example, the L&G UK Index Trust, recommended by Mr Khalaf, charges 0.1 per cent a year. It has turned £10,000 into £15,760 in five years — £240 less than the FTSE All Share index that it tracks.

Mr Yearsley recommends the Vanguard FTSE UK All Share Index, which charges 0.08 per cent a year. It has turned £10,000 into £15,930 in five years — £70 less than the FTSE All Share.

By contrast, the Aberdeen UK All Share Tracker K Net Acc, which also tracks the FTSE All Share, charges 1.5 per cent. It has turned £10,000 into just £14,670 — £1,330 less due to higher fees.

To invest in smaller UK firms, Mr Khalaf recommends the HSBC FTSE 250, which charges 0.18 per cent a year.

Trackers are also better suited to some markets than others. In the U.S., for example, so much is known about big companies that fund managers find it difficult to spot an investment opportunity that no one else has.

That’s why more than 99 in 100 fail to beat the market — making a tracker a good bet, according to Jason Hollands, of advisers Tilney. He recommends the HSBC American Index, which charges 0.07 per cent a year.

Mr Yearsley suggests the L&G U.S. index trust, which charges 0.1 per cent a year.

Even in growing economies such as Brazil, India and China, only four in 100 fund managers beat the stock market.

Mr Khalaf tips Blackrock Emerging Markets Equity Tracker, which has turned £10,000 into £13,020 in five years and charges 0.24 per cent.

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