Eight years in, and Warren Buffett is holding strong. The Oracle of Omaha is up against a team of hedge funders from the Big Apple. And he’s winning.

At Berkshire Hathaway’s 2007 shareholder meeting, Buffett, the Berkshire Chairman and CEO, offered to bet any taker $1 million that over ten years and after fees, the performance of an S&P index fund would beat ten hedge funds that any opponent might choose.[1] Protégé Partners, which oversees funds-of-hedge-funds, anted up.

Buffett’s motivation? To make the case for low-cost buy-and-hold investing, a theme he has explored in his shareholder letters with a parable about the “Gotrocks.” The Gotrocks own all of corporate America. They grow wealthier as businesses produce profits and distribute dividends. Some family members try to amplify their share of corporate America’s investment returns with the aid of high-cost “helpers” and aggressive strategies. Their efforts fall short, and fees begin to grind the Gotrocks fortune into pebbles.

Buffett knows from his own experience that it’s not impossible to outrace Mr. Market, of course. He just knows that it’s challenging, especially if you’re dragging a high-fee anchor.

Protégé Partners hopes to demonstrate that “funds of funds with the ability to sort the wheat from the chaff will earn returns that amply compensate for the extra layer of fees their clients pay.”[2] They picked five carefully vetted funds-of-funds, rather than ten, to make their case.

Game on!

The battle was joined on January 1, 2008. It concludes on December 31, 2017. With two years to go, Buffett has a comfortable lead. Fortune reports that at the end of 2015, Buffett’s bet had returned a cumulative 65.67%. The average return of the Protégé picks stood at 21.87%.

A comeback is possible. Protégé favors value-oriented strategies.[3] Such strategies have underperformed since the bet began. For the eight years through December 31, 2015, the Russell 3000 Value Index, a benchmark of U.S. value stocks, returned a cumulative 49.38%. The Russell 3000 Index, a benchmark of all U.S. stocks, returned 67.13%, almost 20 percentage points more.

Maybe value will surge in the next two years. Maybe a setback for the stock market as a whole will allow Protégé to capitalize on investments in other asset classes or on strategies that benefit from falling stock prices. Maybe.

Allure of the outlier

The results thus far are generally inconsistent with popular beliefs about hedge funds and alternative investments. Some hedge funds produce exceptional returns, and the all-stars command our attention. But all-stars are atypical.

In The allure of the outlier, a recently published research paper on alternatives, my colleagues note that in the 1980s and early 1990s, when the hedge fund industry was small, academic research suggested that hedge funds had benefits for investors. Since then, however, the industry has experienced explosive growth, conceivably making it more challenging for talented managers to distinguish themselves.

The new research examines the performance of funds-of-hedge-funds from January 1, 2000, to October 31, 2013. The period includes both the era of exceptional growth and the 2007–2009 global financial crisis, upheaval that would seem to create exceptional opportunities for exceptional skill.

The funds-of-hedge-funds in this study invested in a variety of asset classes and followed a variety of strategies. My colleagues benchmarked their returns against a conventional 60% stocks/40% bonds portfolio—a reasonable standard of comparison for alternatives to low-cost convention. Most funds-of-hedge-funds (76%) underperformed.[4] Some did much better, but as the Buffett bet is teaching us, those managers are hard to identify in advance.

Everybody wins

The best thing about this wager is that there’s no loser. If Buffett wins, he’ll donate at least $1 million to Girls Inc. of Omaha. If Protégé prevails, Absolute Return for Kids, an international philanthropy, will receive an additional $1 million or more for good works. And in the meantime, those who follow the contest can learn more about the case for low-cost, broadly diversified investing and the always uncertain, though alluring, prospect of doing better with higher-cost strategies.

But my money’s on Buffett.

[1] http://archive.fortune.com/2008/06/04/news/newsmakers/buffett_bet.fortune/index.htm

[2]http://archive.fortune.com/2008/06/04/news/newsmakers/Buffett_arguments.fortune/index.htm?postversion=2009112311

[3] http://fortune.com/2016/02/16/warren-buffett-loses-ground-in-million-dollar-bet/

[4] Notes: Performance period: January 1, 2000, through October 31, 2013. Funds-of-funds dataset retrieved from Lipper TASS database; total sample size, 2,248 funds. To be included in the sample, a hedge fund had to have at least 36 months of history. All funds-of-hedge-funds were compared with a 60% stock/40% bond balanced portfolio during their existence. As plotted on the y-axis, return difference is arithmetic difference between the two geometric annual returns (fund-of-hedge-funds minus 60/40 portfolio) and the same for volatility difference (fund-of-hedge-funds’ annual volatility minus 60/40 annual volatility). The 60%/40% balanced portfolio excludes cost. Equity component is proportioned 70% U.S. stocks and 30% international stocks, as follows: U.S. equity represented by Spliced Total Equity Market Index (Dow Jones U.S. Total Stock Market Index—formerly known as Dow Jones Wilshire 5000 Index—through April 22, 2005; MSCI US Broad Market Index through June 2, 2013; and CRSP US Total Market Index through October 31, 2013). International equity represented by Spliced Total International Equity Index (Total International Composite Index through August 31, 2006; MSCI EAFE and Emerging Markets Index through December 15, 2010; MSCI ACWI ex USA IMI Index through June 2, 2013; and FTSE Global All Cap ex US Index through October 31, 2013). Fixed income represented by Barclays U.S. Aggregate Bond Index.

Source: Vanguard, based on data from Lipper TASS.