Article - The Hidden Dangers of the Great Index Takeover

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LLeaff
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Article - The Hidden Dangers of the Great Index Takeover

Post by LLeaff »

Article link: https://www.bloomberg.com/news/features ... d-takeover

I found this article interesting. It is a discussion of the voting power (via proxies I think...) of the major index fund companies.

I get proxy statements from Vanguard once in a while and I've never really given them any thought. I've never even ready one. They simply to into the recycle bin.
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The hidden dangers of index funds, and the growing “big three”

Post by geerhardusvos »

[Thread merged into here, see below. --admin LadyGeek]

What are your thoughts on the continued scrutiny of index funds and the major providers? Voting power, social responsibility, anti-competition are a few things mentioned.

https://www.bloomberg.com/news/features ... d-takeover

Feel free to link to any other threads or good articles that discuss this. Have a nice weekend!
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Re: The hidden dangers of index funds, and the growing “big three”

Post by Brianmcg321 »

Pure clickbait.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by geerhardusvos »

That’s what I was thinking... I am not understanding how owning the market, even in concentrated big providers like Vanguard has the impacts discussed.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by Quercus Palustris »

I won't stop using Blackrock / Vanguard funds for my investment but I was always a bit curious how it works with voting. 16% of my Megacorp's outstanding shares are held by those 3, as the 3rd, 5th and 7th largest shareholders, but they never ask questions during the quarterly shareholders meetings so I don't worry about them being "activist" (not that I think they'd be any better or worse than the prats that do get invited to ask questions).
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Re: The hidden dangers of index funds, and the growing “big three”

Post by rascott »

Brianmcg321 wrote: Fri Jan 10, 2020 3:34 pm Pure clickbait.
Couldn't disagree more. This is a real issue that is at the minimum, on the radar of regulators. There are plenty of clickbait articles out in the financial press, but this isn't one of them. Was a pretty in- depth piece with some good info.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by rascott »

geerhardusvos wrote: Fri Jan 10, 2020 3:37 pm That’s what I was thinking... I am not understanding how owning the market, even in concentrated big providers like Vanguard has the impacts discussed.

The concern is with such concentrated and passive ownership, you create a world where corporate mgmt has even more total control. I don't think indexing is big enough YET, for it to start having unintended consequences with corporate behavior (and possibly anti- competitive behavior, hurting consumers) .... but the idea of a tipping point is certainly a concern - or at least something to keep an eye on. I promise you regulators will.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by MathWizard »

Does the writer think that I would have more power to influence companies if I held individual shares?

Even if the influence of the index fund manager is less than an equivalent sized single investor, at least
I get some representation with companies. I sure could not attend those meetings myself, assuming I
could even gain entrance.

If you want to know what Vanguard is doing in regards to steward ship, look at:

https://about.vanguard.com/investment-s ... report.pdf

or similar reports from other index fund companies.

If I do not feel that Vanguard is doing enough in this regard, I am free to move my account to another company.

A companies success is based on its earnings and reputation, not on its stock price. Providing good products to customers is what matters.

The way to companies are "voted on" is not by its stock price, it is by the earnings on their sales.

It does not hurt an indexer whole will buy the product from someone else, and that company's stock will rise based on its earnings by roughly the amount that the first company lost earnings.

Buffet drinks Coke, not Pepsi, though he drank Pepsi in the past. Now maybe he likes Coke better, but drinking Pepsi
would be against his financial interest because he holds lots of Coke stock.

To an indexer, there is no financial incentive on the investment side, since he/she hold stock in both. This leaves the indexer free
to "vote" on the product by buying whichever he/she wants.

[Edited to fix URL -- mod oldcomputerguy]
Last edited by MathWizard on Fri Jan 10, 2020 4:36 pm, edited 2 times in total.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by illumination »

The idea of the "Big 3" getting involved with political issues/social justice is worrisome. I really hope they hold the line on this and keep a largely passive role.

I have no problem with specific "socially responsible" funds for people that want that, but the idea of say punishing a company or leaning on companies to "do the right thing" (which means whatever the current CEO's pet cause is) is just not what I want to see. There's WIDE disagreements on these issues, best to leave them up to policy makers and voters to hash out and not alienate investors.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by Stef »

Problem would be solved if passive funds lose voting rights.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by DB2 »

illumination wrote: Fri Jan 10, 2020 4:28 pm The idea of the "Big 3" getting involved with political issues/social justice is worrisome. I really hope they hold the line on this and keep a largely passive role.

I have no problem with specific "socially responsible" funds for people that want that, but the idea of say punishing a company or leaning on companies to "do the right thing" (which means whatever the current CEO's pet cause is) is just not what I want to see. There's WIDE disagreements on these issues, best to leave them up to policy makers and voters to hash out and not alienate investors.
Agreed.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by MathWizard »

Stef wrote: Fri Jan 10, 2020 4:31 pm Problem would be solved if passive funds lose voting rights.
I would definitely be against that. Indexers are generally taking a longer view, not a quarterly profits view.
Having a representative who wants performance tied to long-term profitability rather than the next quarter
when the CEOs stock options vest is better for me as an investor.

I do agree that the social investing portion should be limited to what makes a company profitable long-term,
and the other issues should be dealt with not through investments.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by steve roy »

Because large fund companies haven't been that aggressive about voting against the management of large companies doesn't mean they'll lay off in the future.

If Vanguard is only being pro-active toward corporations 15% of the time, and Blackrock 24% of the time, those percentages could easily change down the road. Nothing ever stays constant.
Last edited by steve roy on Fri Jan 10, 2020 4:56 pm, edited 1 time in total.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by guyinlaw »

The growing big three
I thought it was about Apple, Microsoft and Amazon.. on how they are dominating the S&P 500 index fund.
Last edited by guyinlaw on Fri Jan 10, 2020 4:48 pm, edited 1 time in total.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by Stef »

MathWizard wrote: Fri Jan 10, 2020 4:41 pm
Stef wrote: Fri Jan 10, 2020 4:31 pm Problem would be solved if passive funds lose voting rights.
I would definitely be against that. Indexers are generally taking a longer view, not a quarterly profits view.
Having a representative who wants performance tied to long-term profitability rather than the next quarter
when the CEOs stock options vest is better for me as an investor.

I do agree that the social investing portion should be limited to what makes a company profitable long-term,
and the other issues should be dealt with not through investments.
What happens when Vanguard and Blackrock own >50% of the market? Might be the case in 30 years?
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Re: The hidden dangers of index funds, and the growing “big three”

Post by beehivehave »

steve roy wrote: Fri Jan 10, 2020 4:43 pm Active managers will never cease being "alarmed" at index funds, since indexing cuts into their profits and cash flow. But they spout the same flapddodle relentlessly, since it's in their interest to do so.
I must have missed the part that said the authors were active managers.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by MathWizard »

Stef wrote: Fri Jan 10, 2020 4:47 pm
MathWizard wrote: Fri Jan 10, 2020 4:41 pm
Stef wrote: Fri Jan 10, 2020 4:31 pm Problem would be solved if passive funds lose voting rights.
I would definitely be against that. Indexers are generally taking a longer view, not a quarterly profits view.
Having a representative who wants performance tied to long-term profitability rather than the next quarter
when the CEOs stock options vest is better for me as an investor.

I do agree that the social investing portion should be limited to what makes a company profitable long-term,
and the other issues should be dealt with not through investments.
What happens when Vanguard and Blackrock own >50% of the market? Might be the case in 30 years?
Do you want your investments to have no say in how companies are run?
I don't consider my index investments to be passive, I consider them to be representative.
I don't have the time or money to be attending stockholder meetings.
Vanguard and Blockrock and Fidelity and TIAA-CREF etc. can represent me.

The only "advantage" that a total world market indexer does not have is investing in one company in a sector
and hoping the competing companies in that sector lose. Those things that make a company more successful
without harming other companies' profits is good for both indexers and and active investors.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by jeffyscott »

Even Bogle was concerned, writing that it's "only a matter of time until index mutual funds cross the 50 percent mark. If that were to happen, the Big Three might own 30 percent or more of the U.S. stock market — effective control. I do not believe that such concentration would serve the national interest."
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by LadyGeek »

I merged geerhardusvos's thread into the on-going discussion.

Please stay focused on the investing aspects. Rants about CEOS, political and social issues, etc. are off-topic.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by geospatial »

While it's not feasible for individuals to track hundreds or thousands of corporate governance issues, I wouldn't mind seeing the major passive fund administrators establish a portal or mechanism that would regularly allow shareholders to instruct them how to vote on issues (pro-rata). This presumes two things however...

1. The fund administrators have the expertise and resources to distill the number of issues down to the ones considered "significant" (which of course is subject to interpretation).

2. They could provide the same kind of pro and con guidance that we see on public ballot questions where a summary of each issue is provided by those who support a given measure and those who oppose it. I don't know the feasibility of this because typically those who support/oppose ballot questions often have significant amounts of time involving those issues and longer-term interests that are specific.

While I don't think the vast majority of shareholders would in fact bother to vote or track the issues, having the option to do so might alleviate some of the regulator concerns.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by EddyB »

illumination wrote: Fri Jan 10, 2020 4:28 pm The idea of the "Big 3" getting involved with political issues/social justice is worrisome. I really hope they hold the line on this and keep a largely passive role.

I have no problem with specific "socially responsible" funds for people that want that, but the idea of say punishing a company or leaning on companies to "do the right thing" (which means whatever the current CEO's pet cause is) is just not what I want to see. There's WIDE disagreements on these issues, best to leave them up to policy makers and voters to hash out and not alienate investors.
Except, of course, that many issues that have political or social justice components are also important to shareholder value. These discussions inevitably get shut down by moderators when they are derailed by focus on the political aspects, but there have been a large number of shareholder proposals and other topics of dialogue in recent years on subjects that are a mixed bag of social and dollars-and-sense issues. Larry Fink at BlackRock has made a point of focusing on such topics in his annual letter to CEOs (his 2019 letter particularly so). For an investor who is committed to owning the haystack, it's important to think about how asset managers use their ownership position to hold management accountable for pursuing long-term value even if it's politically displeasing to some investors. Burying your head in the sand about a topic because it feels "political" seems foolish when it's also going to shape your return.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by nydoc »

What I can see from this article that active managers and financial crooks will influence regulators to break the indexing model. With current existing crony capitalism it is certainly possible. Sadly passive fund managers like Vanguard will stay passive.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by willthrill81 »

MathWizard wrote: Fri Jan 10, 2020 4:41 pm
Stef wrote: Fri Jan 10, 2020 4:31 pm Problem would be solved if passive funds lose voting rights.
I would definitely be against that. Indexers are generally taking a longer view, not a quarterly profits view.
Having a representative who wants performance tied to long-term profitability rather than the next quarter
when the CEOs stock options vest is better for me as an investor.

I do agree that the social investing portion should be limited to what makes a company profitable long-term,
and the other issues should be dealt with not through investments.
I'm not sure that it's possible or even desirable to allow indexers to weigh in on issues related to companies' profitability and not 'social issues'. It seems to me that either indexers must be allowed to vote or not.
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Bloomberg: indexing promotes anti-competition

Post by sksbog »

[Thread merged into here, see below. --admin LadyGeek]

Here is the article from Bloomberg

The Hidden Dangers of the Great Index Fund Takeover

https://apple.news/AuX-qX7D4Q3On_q_xNutCuQ


please post ur thoughts.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by LadyGeek »

I merged sksbog's thread into the on-going discussion.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by MathWizard »

willthrill81 wrote: Fri Jan 10, 2020 9:22 pm
MathWizard wrote: Fri Jan 10, 2020 4:41 pm
Stef wrote: Fri Jan 10, 2020 4:31 pm Problem would be solved if passive funds lose voting rights.
I would definitely be against that. Indexers are generally taking a longer view, not a quarterly profits view.
Having a representative who wants performance tied to long-term profitability rather than the next quarter
when the CEOs stock options vest is better for me as an investor.

I do agree that the social investing portion should be limited to what makes a company profitable long-term,
and the other issues should be dealt with not through investments.
I'm not sure that it's possible or even desirable to allow indexers to weigh in on issues related to companies' profitability and not 'social issues'. It seems to me that either indexers must be allowed to vote or not.
I was imprecise. I should have said that total market indexes should not screen on social issues which are not related to long term profitability. I do think some social issues can be related to profitability.

However, there exist indexes which do screen for certain social issues. That these exist is why I think that a total market index should not do this as well.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by index2max »

I think it would be really cool if Vanguard offered a proxy voting service that fund shareholders could pay extra for:

Want voting rights on any of the stocks that make up the index funds you own shares of? Pay a few extra basis points per year and you can!

If you don't vote on any of the stocks, Vanguard's corporate governance team places their own vote per their usual proxy voting policies.

Should Vanguard ever offer such a service, it could definitely get them some market share from companies like Blackrock.

Not sure how you'd implement a proxy voting service for index funds to clients, but it can't be impossible to for someone to figure out a system.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by EddyB »

illumination wrote: Fri Jan 10, 2020 10:20 pm
EddyB wrote: Fri Jan 10, 2020 8:32 pm
illumination wrote: Fri Jan 10, 2020 4:28 pm The idea of the "Big 3" getting involved with political issues/social justice is worrisome. I really hope they hold the line on this and keep a largely passive role.

I have no problem with specific "socially responsible" funds for people that want that, but the idea of say punishing a company or leaning on companies to "do the right thing" (which means whatever the current CEO's pet cause is) is just not what I want to see. There's WIDE disagreements on these issues, best to leave them up to policy makers and voters to hash out and not alienate investors.
Except, of course, that many issues that have political or social justice components are also important to shareholder value. These discussions inevitably get shut down by moderators when they are derailed by focus on the political aspects, but there have been a large number of shareholder proposals and other topics of dialogue in recent years on subjects that are a mixed bag of social and dollars-and-sense issues. Larry Fink at BlackRock has made a point of focusing on such topics in his annual letter to CEOs (his 2019 letter particularly so). For an investor who is committed to owning the haystack, it's important to think about how asset managers use their ownership position to hold management accountable for pursuing long-term value even if it's politically displeasing to some investors. Burying your head in the sand about a topic because it feels "political" seems foolish when it's also going to shape your return.
The sort of virtue signaling Larry Fink is engaged in is exactly what I don't want. What's funny is he's also getting blasted by the same people he's trying to curry favor with. That's why it's a slippery slope, it will never be enough once you go down this road.

It's one reason I sold many of my BlackRock Funds in my retirement accounts (that and lower fees elsewhere) It's mostly just hot air, but I prefer the way companies like Vanguard largely steer clear of this.
I think many people who gave real consideration to things like McKinsey’s “Diversity Matters” report were left with serious doubt about their initial assumption that board diversity, as an example, was only “virtue signaling.”

That Fink gets blasted by both sides makes me at least consider whether there’s something to what he says.

I’m lucky that I’m paid to think about many of those issues (and I do conclude that some of them are based on thin evidence or more purely political motives); I do want asset managers to at least give close consideration to issues when they’re raised as potentially impacting value, rather than just dismiss them on the basis of knee-jerk reactions.
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Re: The hidden dangers of index funds, and the growing “big three”

Post by beehivehave »

pokebowl wrote: Fri Jan 10, 2020 10:41 pm
illumination wrote: Fri Jan 10, 2020 4:28 pm The idea of the "Big 3" getting involved with political issues/social justice is worrisome. I really hope they hold the line on this and keep a largely passive role.
Unfortunately this hasn't been the case for both Vanguard and Blackrock who have capitulated to social or identity polical issues over the years. Vanguard being the more active of the two.
Specifics? This seems to be a political opinion, besides being ungrammatical.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by willthrill81 »

index2max wrote: Fri Jan 10, 2020 10:41 pm I think it would be really cool if Vanguard offered a proxy voting service that fund shareholders could pay extra for:

Want voting rights on any of the stocks that make up the index funds you own shares of? Pay a few extra basis points per year and you can!

If you don't vote on any of the stocks, Vanguard's corporate governance team places their own vote per their usual proxy voting policies.

Should Vanguard ever offer such a service, it could definitely get them some market share from companies like Blackrock.

Not sure how you'd implement a proxy voting service for index funds to clients, but it can't be impossible to for someone to figure out a system.
That sounds like something a lot of investors would be interested in as well as an effective means of differentiation among brokers, at least for a while.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by JoMoney »

index2max wrote: Fri Jan 10, 2020 10:41 pm....
Not sure how you'd implement a proxy voting service for index funds to clients, but it can't be impossible to for someone to figure out a system.
Would they even want to? Most of them fought over not wanting to even disclose their voting... And whose going to make them change? A frequently quoted Harvard/Boston University study claims since 1992 44% of senators and 11% of representatives go to work on corporate boards after leaving congress. There's plenty of other headlines recently about children of politicians being voted on to corporate boards. Voting these boards in place is largely what the votes investment firms are doing. Unless the investors themselves started taking an interest in owning shares themselves and not handing over the proxy votes to mutual funds ran by big banks and firms... I'm guessing it won't change.

The OP article points to index funds as being the problem, but it's not like active mutual funds being aggregated at a few firms isn't involved with this as well.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by anakinskywalker »

I have long seen the lack of ability to vote as a minor but significant downside of buying a mutual fund as opposed to the underlying shares directly.

I think an index fund manager that creates an user-friendly and efficient way for fund shareholders to vote on issues pertaining to underlying shares, will get business from people like me.

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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by beehivehave »

index2max wrote: Fri Jan 10, 2020 10:41 pm I think it would be really cool if Vanguard offered a proxy voting service that fund shareholders could pay extra for:

Want voting rights on any of the stocks that make up the index funds you own shares of? Pay a few extra basis points per year and you can!
I find it hard to believe that anyone would willingly pay a poll tax to cast a meaningless vote.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by willthrill81 »

beehivehave wrote: Fri Jan 10, 2020 11:29 pm
index2max wrote: Fri Jan 10, 2020 10:41 pm I think it would be really cool if Vanguard offered a proxy voting service that fund shareholders could pay extra for:

Want voting rights on any of the stocks that make up the index funds you own shares of? Pay a few extra basis points per year and you can!
I find it hard to believe that anyone would willingly pay a poll tax to cast a meaningless vote.
You'd be surprised. Many will invest large portions of their savings into socially-oriented mutual funds with comparatively high ERs.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: The hidden dangers of index funds, and the growing “big three”

Post by steve roy »

beehivehave wrote: Fri Jan 10, 2020 4:57 pm
steve roy wrote: Fri Jan 10, 2020 4:43 pm Active managers will never cease being "alarmed" at index funds, since indexing cuts into their profits and cash flow. But they spout the same flapddodle relentlessly, since it's in their interest to do so.
I must have missed the part that said the authors were active managers.
And why I deleted the post after actually reading the [deleted -- mod oldcomputerguy] article four minutes later. But you were too fast for me.

(Note to self. Read the content before commenting. ALWAYS a wise idea.)
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by beehivehave »

willthrill81 wrote: Fri Jan 10, 2020 11:33 pm
beehivehave wrote: Fri Jan 10, 2020 11:29 pm
index2max wrote: Fri Jan 10, 2020 10:41 pm I think it would be really cool if Vanguard offered a proxy voting service that fund shareholders could pay extra for:

Want voting rights on any of the stocks that make up the index funds you own shares of? Pay a few extra basis points per year and you can!
I find it hard to believe that anyone would willingly pay a poll tax to cast a meaningless vote.
You'd be surprised. Many will invest large portions of their savings into socially-oriented mutual funds with comparatively high ERs.
You clearly don't understand the motivations and psychology of those who invest in such funds. They choose to limit investments to companies that do not encourage certain moral or political behavior. Why would they rather invest in those companies for the doubtful privilege of buying a meaningless vote on matters that are largely predetermined?
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Re: The hidden dangers of index funds, and the growing “big three”

Post by beehivehave »

steve roy wrote: Fri Jan 10, 2020 11:38 pm
beehivehave wrote: Fri Jan 10, 2020 4:57 pm
steve roy wrote: Fri Jan 10, 2020 4:43 pm Active managers will never cease being "alarmed" at index funds, since indexing cuts into their profits and cash flow. But they spout the same flapddodle relentlessly, since it's in their interest to do so.
I must have missed the part that said the authors were active managers.
And why I deleted the post after actually reading the damn article four minutes later. But you were too fast for me.

(Note to self. Read the content before commenting. ALWAYS a wise idea.)
I know the feeling.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by UpsetRaptor »

Large voting blocks owned by activist investors can often be more dangerous than neutral technocrats. Either way, if a company missteps and a competitor takes market share, owning an index fund means you own that competitor as well.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by willthrill81 »

beehivehave wrote: Fri Jan 10, 2020 11:43 pm
willthrill81 wrote: Fri Jan 10, 2020 11:33 pm
beehivehave wrote: Fri Jan 10, 2020 11:29 pm
index2max wrote: Fri Jan 10, 2020 10:41 pm I think it would be really cool if Vanguard offered a proxy voting service that fund shareholders could pay extra for:

Want voting rights on any of the stocks that make up the index funds you own shares of? Pay a few extra basis points per year and you can!
I find it hard to believe that anyone would willingly pay a poll tax to cast a meaningless vote.
You'd be surprised. Many will invest large portions of their savings into socially-oriented mutual funds with comparatively high ERs.
You clearly don't understand the motivations and psychology of those who invest in such funds.
I'm sure you perfectly understand them.
Last edited by willthrill81 on Sat Jan 11, 2020 12:00 am, edited 2 times in total.
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illumination
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Re: The hidden dangers of index funds, and the growing “big three”

Post by illumination »

EddyB wrote: Fri Jan 10, 2020 10:47 pm
illumination wrote: Fri Jan 10, 2020 10:20 pm
EddyB wrote: Fri Jan 10, 2020 8:32 pm
illumination wrote: Fri Jan 10, 2020 4:28 pm The idea of the "Big 3" getting involved with political issues/social justice is worrisome. I really hope they hold the line on this and keep a largely passive role.

I have no problem with specific "socially responsible" funds for people that want that, but the idea of say punishing a company or leaning on companies to "do the right thing" (which means whatever the current CEO's pet cause is) is just not what I want to see. There's WIDE disagreements on these issues, best to leave them up to policy makers and voters to hash out and not alienate investors.
Except, of course, that many issues that have political or social justice components are also important to shareholder value. These discussions inevitably get shut down by moderators when they are derailed by focus on the political aspects, but there have been a large number of shareholder proposals and other topics of dialogue in recent years on subjects that are a mixed bag of social and dollars-and-sense issues. Larry Fink at BlackRock has made a point of focusing on such topics in his annual letter to CEOs (his 2019 letter particularly so). For an investor who is committed to owning the haystack, it's important to think about how asset managers use their ownership position to hold management accountable for pursuing long-term value even if it's politically displeasing to some investors. Burying your head in the sand about a topic because it feels "political" seems foolish when it's also going to shape your return.
The sort of virtue signaling Larry Fink is engaged in is exactly what I don't want. What's funny is he's also getting blasted by the same people he's trying to curry favor with. That's why it's a slippery slope, it will never be enough once you go down this road.

It's one reason I sold many of my BlackRock Funds in my retirement accounts (that and lower fees elsewhere) It's mostly just hot air, but I prefer the way companies like Vanguard largely steer clear of this.
I think many people who gave real consideration to things like McKinsey’s “Diversity Matters” report were left with serious doubt about their initial assumption that board diversity, as an example, was only “virtue signaling.”

That Fink gets blasted by both sides makes me at least consider whether there’s something to what he says.

I’m lucky that I’m paid to think about many of those issues (and I do conclude that some of them are based on thin evidence or more purely political motives); I do want asset managers to at least give close consideration to issues when they’re raised as potentially impacting value, rather than just dismiss them on the basis of knee-jerk reactions.
I really don't want the custodian of my passive index fund tackling issues like climate change or social justice. These are issues elected officials and voters can hash out. Fink (and others in his position) are certainly free to step down and run for elected office and can outline what they would do if elected.

I really don't believe any of this is because he's deeply concerned about protecting his investor's future, that's a complete red herring. Someone on the complete opposite side of the spectrum would say the same thing. Again, it's a political person being political. It really looks like a ripe opportunity for someone to abuse their position of power to push their political agenda.

I know some people like to cheer on whenever someone shares their same political cause du jour even in a non-political arena, but I'd like them to butt out and not try and "save the world" with my ETF.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by index2max »

beehivehave wrote: Fri Jan 10, 2020 11:29 pm
index2max wrote: Fri Jan 10, 2020 10:41 pm I think it would be really cool if Vanguard offered a proxy voting service that fund shareholders could pay extra for:

Want voting rights on any of the stocks that make up the index funds you own shares of? Pay a few extra basis points per year and you can!
I find it hard to believe that anyone would willingly pay a poll tax to cast a meaningless vote.
Companies such as Vanguard and BlackRock own significant stakes in many publicly traded companies via the index funds they offer.

If Vanguard were to allow fund owners to cast votes at the companies whose stocks they own through an index fund, it would effectively mean take the corporate governance team of Vanguard and splitting it into millions of people. If enough people participated in such proxy voting, it wouldn't be insignificant.
JoMoney wrote: Fri Jan 10, 2020 11:21 pm
index2max wrote: Fri Jan 10, 2020 10:41 pm....
Not sure how you'd implement a proxy voting service for index funds to clients, but it can't be impossible to for someone to figure out a system.
Would they even want to? Most of them fought over not wanting to even disclose their voting... And whose going to make them change? A frequently quoted Harvard/Boston University study claims since 1992 44% of senators and 11% of representatives go to work on corporate boards after leaving congress. There's plenty of other headlines recently about children of politicians being voted on to corporate boards. Voting these boards in place is largely what the votes investment firms are doing. Unless the investors themselves started taking an interest in owning shares themselves and not handing over the proxy votes to mutual funds ran by big banks and firms... I'm guessing it won't change.

The OP article points to index funds as being the problem, but it's not like active mutual funds being aggregated at a few firms isn't involved with this as well.
Yeah, that's a good point. Every news article I've read about Vanguard Corporate Governance usually includes a line where the reporter mentions Vanguard's unwillingness to get into detail about why they make individual proxy votes. Still, like Tim Buckley said on his recent webcast on Jan 9, 2020, if Vanguard can offer value to its clients and make some money off of it, they're definitely going to look into it.

If I ever go to a Boglehead convention with a tour of Vanguard, I'm definitely going to ask them to offer a proxy voting service for index fund holders :D
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by OnTrack »

Here's an idea. Allow people to register their mutual funds or ETFs (or even individual stocks for that matter) with a company or organization that will handle the voting of their ownership interests. The individual would answer a questionnaire that would give guidance on how they want interests voted whether on environmental, social or governance issues. For example, they could simply say to vote per the board's recommendations. They could say that they don't want the company's products sourced using child labor. They could say they don't want board members to be former politicians or related to politicians or that they want all board members to be independent. And so on. There would probably be a fee for this but I think if the fee was reasonable some people would use such a service. There should be transparency, so that each person could review how their shares were actually voted.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by thx1138 »

Frankly I think this is much ado about nothing (or at least very little). And perhaps that’s me being overly cynical. But really, did shareholders have anything to do with preventing or uncovering Enron, Worldcom, Tyco or a host of smaller collapses? Of course not. It was reporters, short sellers and internal auditors - none of whom hold voting shares - who did the real governance work in those cases.

The article is interesting for sure but mostly the conclusion it reaches is no one agrees on what impact index fund voting could really have. In fact one of the concerns expressed is that index funds could in effect create indirect collusion between competitors to the advantage of the shareholders. Fine, bring it on then, last I checked the fiduciary duty was to shareholders. We have external agents that regulate corporate behavior to protect and benefit non-shareholders.

And the thought that shares divested across multiple active funds (the past) would somehow be voted more beneficially than shares concentrated in passive funds (the future) seems to me to be somewhere between weak and laughable.
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by Rick Ferri »

thx1138 wrote: Sat Jan 11, 2020 7:47 am Frankly I think this is much ado about nothing (or at least very little).
+1

The idea that indexing firms will somehow collude on proxy voting and their joint decisions will somehow destroy the world is utter nonsense. :oops:
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Re: Article - The Hidden Dangers of the Great Index Takeover

Post by jeffyscott »

thx1138 wrote: Sat Jan 11, 2020 7:47 am Frankly I think this is much ado about nothing (or at least very little). And perhaps that’s me being overly cynical. But really, did shareholders have anything to do with preventing or uncovering Enron, Worldcom, Tyco or a host of smaller collapses? Of course not. It was reporters, short sellers and internal auditors - none of whom hold voting shares - who did the real governance work in those cases.

...

And the thought that shares divested across multiple active funds (the past) would somehow be voted more beneficially than shares concentrated in passive funds (the future) seems to me to be somewhere between weak and laughable.
I think this these two points relate to another issue that Bogle had concerns about, what he called "Managerial Capitalism". With or without index funds, shareholders long ago turned over the real control of most large corporations to the CEOs and other managers that run them.

From some of the information coming out about Boeing, it seems like at least some employees had a better idea of what would be in the long term interests of that corporation than the ex-CEO and the other top management did. So maybe employee representation on the boards, one idea in the article, would not be such a bad idea? Of course, Germany already has that and it did not prevent the VW emissions cheating scandal.
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Re: Article - The Hidden Dangers of the Great Index Takeover

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