Those who believe in the virtues of passive indexing will generally pooh-pooh the idea that one can beat the market.

But the truth is, a small percentage of people do beat the market over the long term. Putting aside the statistical flukes (retail investors who get lucky), you can still observe a group of people who have managed to beat the market over a long period of time, with a very large amount of money. Besides Warren Buffett, several Ivy League endowment managers have consistently beat the market by a large margin, with billions of dollars at stake.

Obama administration officials have announced that students at a New York City high school were sickened by the same strain of swine flu that has killed people in Mexico, adding to fears in the U.S. after cases in Texas, California, and Kansas. There are now 20 confirmed cases of the deadly flu in five states. Meanwhile, the World Health Organization yesterday declared the outbreak of the virus “a public health emergency of international concern”. No, you’re not being inappropriate if you’re wondering: How will this affect the markets this week?

In times like these, it’s good to look at comparable situations in the recent past, which this article from the Daily Telegraph does:

On paper, the hedge fund industry is one ripe for a challenge from the ETF industry. Hedge funds have high manager risk, and were previously out of reach for many investors due to high minimum investment requirements and exorbitant fees. Enter the hedge fund ETF.

The First Ever Hedge Fund ETF: QAI

It's no secret that actively managed funds have fallen out of fashion. Many big names have touted the benefits of financial instruments that track an index, and ETFs such as SPY and VTI have enjoyed huge asset inflows as a result. In 2007, legendary investor Warren Buffett even announced, "A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money." (Mr. Buffett actually recommends index mutual funds over ETFs because they discourage trading, but there's no question that the trend toward indexing is driving the growth of ETFs.) And while the asset management industry isn't a zero-sum game, it's clear that the growth of ETFs is occurring at the expense of the mutual fund industry.

The love affair with ETFs is not just a passing fad. It's true that the total assets in exchange traded funds are dwarfed by those in mutual funds. But ETFs were only introduced in 1993, and worldwide ETF assets now total nearly a trillion dollars. It's not inconceivable that within a few decades, total ETF assets will exceed total mutual fund assets.

When the economy tanks, Treasury bills become a very popular investment. The downside is, when you combine increased demand for government bonds with very low inflation, these same Treasury bills pay extremely low rates of return. So low, in fact, that their real returns would be virtually wiped out (and possibly turned negative) should inflation return to its normal rate. Not a pretty picture.

Enter TIPS: Treasury Inflation-Protected Securities. TIPS are government bonds that are guaranteed to adjust along with the rate of inflation. These TIPS are, quite simply, great little guys. In return for accepting a slightly lower return than normal T-bills would give you, you gain the peace of mind that if inflation goes up to 15%, you’ll still get a positive real return (yes, inflation has been this high before, even if I’m too young to remember it, and no, I’m not talking a hundred years ago). The fact that the spread between TIPS and regular T-bills is so small makes me laugh at other investors whose memories are so infallibly short.