NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

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Cruz
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NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Cruz »

Thought this recent episode of NPR's On Point show would interest some,

https://www.wbur.org/onpoint/2018/12/12 ... john-bogle
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by livesoft »

To give some context, the episode stems from an article by John Bogle that index funds from 3 firms could control more than 50% of the shares of S&P500 companies and thus could control the companies as majority shareholders whenever voting of shares is asked for. So fund managers (or their small committees) would have voting control of these companies.
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Rick Ferri »

Don’t worry about it. We shall all be dead a long time before the potential issue of vote concentration Jack Bogle speculated about in his article actually becomes a concern.

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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

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I guess the answer to this is Vanguard 1, Vanguard 2, Vanguard 3, Fidelity 1, Fidelity 2, Fidelity 3, Blackrock 1, Blackrock 2, and Blackrock 3. The Teddy Roosevelt solution.
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by nisiprius »

nedsaid wrote: Wed Dec 12, 2018 8:21 pm I guess the answer to this is Vanguard 1, Vanguard 2, Vanguard 3, Fidelity 1, Fidelity 2, Fidelity 3, Blackrock 1, Blackrock 2, and Blackrock 3. The Teddy Roosevelt solution.
Vanguard already has both a "Vanguard Total Bond Market Index Fund" and a "Vanguard Total Bond Market II Index Fund" (which is what is used in Vanguard's funds-of-funds). I don't know the reason. If your suggestion were followed, I wonder if there would be a Vanguard 2 Total Bond Market, a Vanguard 3 Total Bond Market II...
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by nedsaid »

nisiprius wrote: Wed Dec 12, 2018 8:32 pm
nedsaid wrote: Wed Dec 12, 2018 8:21 pm I guess the answer to this is Vanguard 1, Vanguard 2, Vanguard 3, Fidelity 1, Fidelity 2, Fidelity 3, Blackrock 1, Blackrock 2, and Blackrock 3. The Teddy Roosevelt solution.
Vanguard already has both a "Vanguard Total Bond Market Index Fund" and a "Vanguard Total Bond Market II Index Fund" (which is what is used in Vanguard's funds-of-funds). I don't know the reason. If your suggestion were followed, I wonder if there would be a Vanguard 2 Total Bond Market, a Vanguard 3 Total Bond Market II...
What I mean is break up the companies. Vanguard 1 would stay Vanguard. Vanguard II would be called the Lord Nelson funds. Vanguard 3 would be named the Jack Bogle Funds.
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by abuss368 »

nedsaid wrote: Wed Dec 12, 2018 8:33 pm
nisiprius wrote: Wed Dec 12, 2018 8:32 pm
nedsaid wrote: Wed Dec 12, 2018 8:21 pm I guess the answer to this is Vanguard 1, Vanguard 2, Vanguard 3, Fidelity 1, Fidelity 2, Fidelity 3, Blackrock 1, Blackrock 2, and Blackrock 3. The Teddy Roosevelt solution.
Vanguard already has both a "Vanguard Total Bond Market Index Fund" and a "Vanguard Total Bond Market II Index Fund" (which is what is used in Vanguard's funds-of-funds). I don't know the reason. If your suggestion were followed, I wonder if there would be a Vanguard 2 Total Bond Market, a Vanguard 3 Total Bond Market II...
What I mean is break up the companies. Vanguard 1 would stay Vanguard. Vanguard II would be called the Lord Nelson funds. Vanguard 3 would be named the Jack Bogle Funds.
Now I have not heard that one before!
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

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nedsaid wrote: Wed Dec 12, 2018 8:21 pm I guess the answer to this is Vanguard 1, Vanguard 2, Vanguard 3, Fidelity 1, Fidelity 2, Fidelity 3, Blackrock 1, Blackrock 2, and Blackrock 3. The Teddy Roosevelt solution.
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by nedsaid »

abuss368 wrote: Wed Dec 12, 2018 9:42 pm
nedsaid wrote: Wed Dec 12, 2018 8:33 pm
nisiprius wrote: Wed Dec 12, 2018 8:32 pm
nedsaid wrote: Wed Dec 12, 2018 8:21 pm I guess the answer to this is Vanguard 1, Vanguard 2, Vanguard 3, Fidelity 1, Fidelity 2, Fidelity 3, Blackrock 1, Blackrock 2, and Blackrock 3. The Teddy Roosevelt solution.
Vanguard already has both a "Vanguard Total Bond Market Index Fund" and a "Vanguard Total Bond Market II Index Fund" (which is what is used in Vanguard's funds-of-funds). I don't know the reason. If your suggestion were followed, I wonder if there would be a Vanguard 2 Total Bond Market, a Vanguard 3 Total Bond Market II...
What I mean is break up the companies. Vanguard 1 would stay Vanguard. Vanguard II would be called the Lord Nelson funds. Vanguard 3 would be named the Jack Bogle Funds.
Now I have not heard that one before!
I am having some fun with this. But if public stock ownership is mostly with 3 companies, this would be a problem and break-ups would be the only solution. I think we are a long way from that.
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by aristotelian »

What about just making all shares held by mutual funds disqualified from voting?
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Rick Ferri »

aristotelian wrote: Thu Dec 13, 2018 10:52 am What about just making all shares held by mutual funds disqualified from voting?
I do not want my votes to be disqualified. If I don't like how Vanguard is voting proxies, I'll switch to another index fund provider.

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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by OnTrack »

Corporate governance is already severely broken and does not represent the interests of shareholders. Not sure it could get much worse than it is now.
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by MarkVH0518 »

Rick Ferri wrote: Thu Dec 13, 2018 12:38 pm
I do not want my votes to be disqualified. If I don't like how Vanguard is voting proxies, I'll switch to another index fund provider.
Rick

How do you find how Vanguard is voting its (my) proxies?

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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Barry Barnitz »

Rick Ferri wrote: Thu Dec 13, 2018 12:52 pm How Vanguard has voted Proxies:

https://about.vanguard.com/investment-s ... nds-voted/
In addition to the Vanguard site link, the SEC EDGAR site provides historical proxy votes. The wiki has a page that helps render the somewhat arcane SEC listings more accessible. See ---> Vanguard SEC listings.

With SEC filings, mutual fund reportage is aggregated into various groupings. The proxy filings are called N-PX filings in SEC speak. Here for example, are the N-PX filings for Vanguard Index Funds (which includes Vanguard US index funds)---> VANGUARD INDEX FUNDS CIK#: 0000036405.

As you can see, these filings provide a year by year record of proxy votes.

Here is the 2018 proxy filing for the Vanguard Total Stock Market Index Fund.

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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Barry Barnitz »

nisiprius wrote: Wed Dec 12, 2018 8:32 pm
nedsaid wrote: Wed Dec 12, 2018 8:21 pm I guess the answer to this is Vanguard 1, Vanguard 2, Vanguard 3, Fidelity 1, Fidelity 2, Fidelity 3, Blackrock 1, Blackrock 2, and Blackrock 3. The Teddy Roosevelt solution.
Vanguard already has both a "Vanguard Total Bond Market Index Fund" and a "Vanguard Total Bond Market II Index Fund" (which is what is used in Vanguard's funds-of-funds). I don't know the reason. If your suggestion were followed, I wonder if there would be a Vanguard 2 Total Bond Market, a Vanguard 3 Total Bond Market II...
Hi Nisi,

The Vanguard Total Bond Market II Index Fund was created so that the transaction expenses of fund-of-fund rebalancing would be isolated so as not to effect the Vanguard Total Bond Market Index Fund. The direct source is hard to find, but this topic thread, Vanguard Introduces Total Bond Market II Fund may be of assistance.

The following topic includes a quote from a now defunct reuters news release: Target Retirement Bond Index Fund.

The quoted section from the news release:
Vanguard Total Bond Market II Index Fund will only be available for use by Vanguard funds-of-funds and other similar investment products; shares of the new fund will not be available for direct purchase by investors.

Vanguard Total Bond Market Index Fund is the primary bond component of Vanguard`s 11 Target Retirement and four LifeStrategy funds, which regularly rebalance assets among the underlying funds to maintain their respective target asset allocations. Vanguard is introducing the new fund to insulate shareholders of the existing bond market index fund from the potential costs associated with this rebalancing activity.

"It is clear that our funds-of-funds offerings will become increasingly large shareholders of Vanguard Total Bond Market Index Fund. To mitigate the impact of future rebalancing activity on that fund, we believe it is necessary and prudent to introduce a second bond market index fund," said Vanguard Chief Investment Officer George U. Sauter.
regards,
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by MarkVH0518 »

Rick Ferri wrote: Thu Dec 13, 2018 12:52 pm How Vanguard has voted Proxies:

https://about.vanguard.com/investment-s ... nds-voted/
Thanks Rick. I agree that Vanguard is voting proxies responsibly.
For example, I was tickled to see that Vanguard withheld votes for Facebook board members Sandberg and Zuckerberg.

BlackRock (iShares) voting policy is here:
https://www.blackrock.com/investing/pro ... nformation
I like how this reads too.
Does BlackRock report its proxy votes? My googling didn't turn up anything.

After reviewing these proxy materials, personally I am much less concerned about the Bogle warning for index funds harming the market.
If the funds are voting proxies well, then because of their size it's possible that index funds might improve corporate governance.

At the margin, the market still needs active investors. But how many? Is 10% sufficient? I suspect so.

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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Cycle »

MarkVH0518 wrote: Fri Dec 14, 2018 8:46 am
Thanks Rick. I agree that Vanguard is voting proxies responsibly.
For example, I was tickled to see that Vanguard withheld votes for Facebook board members Sandberg and Zuckerberg.

Mark
Explain please, they didn't cast a vote on a measure?
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Riprap »

Why can't Vanguard simply say "enough"? No more new clients.

What is the point of growing ever larger and larger?

The expense ratios make holding index funds practically free as it is. Doesn't seem like there would be much detriment to existing shareholders.
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Rick Ferri »

Cycle wrote: Fri Dec 14, 2018 8:58 am
MarkVH0518 wrote: Fri Dec 14, 2018 8:46 am
Thanks Rick. I agree that Vanguard is voting proxies responsibly.
For example, I was tickled to see that Vanguard withheld votes for Facebook board members Sandberg and Zuckerberg.

Mark
Explain please, they didn't cast a vote on a measure?
I don't know the answer to that question.

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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by OnTrack »

Cycle wrote: Fri Dec 14, 2018 8:58 am
MarkVH0518 wrote: Fri Dec 14, 2018 8:46 am
Thanks Rick. I agree that Vanguard is voting proxies responsibly.
For example, I was tickled to see that Vanguard withheld votes for Facebook board members Sandberg and Zuckerberg.

Mark
Explain please, they didn't cast a vote on a measure?
Are you saying why did they withhold votes for board members instead of voting? I checked the 2017 Facebook proxy and "for" and "withhold" are the only options. "Against" is not an option.

See second to last page:
https://www.sec.gov/Archives/edgar/data ... EB75ED97BC

Given the following:
"Directors will be elected by a plurality of the votes of the shares of our Class A common stock and Class B common stock present in person or represented by proxy at the 2017 Annual Meeting of Stockholders and entitled to vote on the election of directors, which means that the eight nominees receiving the highest number of affirmative votes will be elected",
I'm not sure if it is possible for any of the eight directors to not be re-elected.
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Cycle »

Thanks, I was mostly just interested in the mechanics of it. So did they vote positively for the other directors and only withheld a vote for Cheryl and Mark?
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by cjg »

Riprap wrote: Fri Dec 14, 2018 9:03 am Why can't Vanguard simply say "enough"? No more new clients.

What is the point of growing ever larger and larger?

The expense ratios make holding index funds practically free as it is. Doesn't seem like there would be much detriment to existing shareholders.
I don't think that would change index funds in general holding a ton of voting power in companies. People will just buy from competing index funds if that's what they're looking for.
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by MarkVH0518 »

Cycle wrote: Sat Dec 15, 2018 7:58 am Thanks, I was mostly just interested in the mechanics of it. So did they vote positively for the other directors and only withheld a vote for Cheryl and Mark?
Correct! As noted above, withdrawal of director approval is the most negative vote allowed.
It sends a signal even if the immediate, direct impact is limited.

You can see for yourself on page 99 or search for Facebook.
https://about.vanguard.com/investment-s ... 5641175304

To restate, I think Vanguard is voting proxies wisely. Certainly more wisely and consistently than I was ever able to manage.

Mark
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Bacchus01 »

Why is concentration of votes a bad thing?
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Turbo29 »

The press is gloming on to this because it gives them something else to demonize. "Big Oil", "Big Pharma", and now, "Big Index."
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Re: NPR On Point: Stock Market Distress Signal: How Low-Cost Index Funds Are Taking Over

Post by Indianrock »

Companies (like countries) need to be managed for the long-term, not constantly holding a wet finger in the air to detect what shareholders
(Or voters) want tomorrow.
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