Burton Malkiel, the Princeton professor who wrote A Random Walk Down Wall Street, would index the “vast majority” of Australia’s $1.4 trillion of superannuation investments because index funds offer better returns with lower cost.

“The vast majority of it, if I was czar and doing it, yeah,” Australia’s superannuation would be indexed, he says.

Malkiel was in Australia speaking on behalf of index fund manager Vanguard.

Seventy per cent of general Australian active equity fund managers have under-performed the S&P indices over five years, according to Vanguard data.

Malkiel wouldn’t be drawn on what percentage of superannuation he would index. But by way of an example of how much to index for long-term investing, he says he has put 85 per cent of his grandchild’s money in index funds.

The rest of his grandchild’s funds are in Brazil and China funds.

He says index funds will never account for the greatest proportion of investments. Asked why there is continuing popularity of for actively managed investments Malkiel says: “There are always people who believe Santa Claus exists.”

4 comments on “Burton Malkiel would index “vast majority” of superannuation”
  1. Those who use index funds do so because it’s easy. Fair enough. However those who prefer to put the work in to identify talent – indivuals/groups with insight, x factor, whatever you call it and are not distracted by reference to an index – can be significantly rewarded above an index return. Warren Buffet, Peter Lynch, Peter Morgan, Robert Maple Brown etc are all our Santa Clauses. As long as index fund proponents include all funds even those that are constrained by tracking error as ‘active’, they’ll always ‘prove’ their argument. Surely guys like Malkiel are not that naiive. Go figure!

  2. Those who use index funds do so because it’s easy. Fair enough. However those who prefer to put the work in to identify talent – indivuals/groups with insight, x factor, whatever you call it and are not distracted by reference to an index – can be significantly rewarded above an index return. Warren Buffet, Peter Lynch, Peter Morgan, Robert Maple Brown etc are all our Santa Clauses. As long as index fund proponents include all funds even those that are constrained by tracking error as ‘active’, they’ll always ‘prove’ their argument. Surely guys like Malkiel are not that naiive. Go figure!

  3. We’d be forgiven to think Australia is populated by a bunch of Warren Buffets. Unfortunately they are not held up to adequate scrutiny.
    I can’t get a prominent manager to rell me whether they have beaten the index. Their prevaracation tells me the answer. At least I can figure out whether an index manager has done its job.
    That’s an issue Malkiel has not addressed.

  4. We’d be forgiven to think Australia is populated by a bunch of Warren Buffets. Unfortunately they are not held up to adequate scrutiny.
    I can’t get a prominent manager to rell me whether they have beaten the index. Their prevaracation tells me the answer. At least I can figure out whether an index manager has done its job.
    That’s an issue Malkiel has not addressed.

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