Rise of Index ETFs Could Result in Complacent Corporate Governance | ETF Trends

Echoing (or catching up to) the findings of VEA Chair Bob Monks in his book Citizens Disunited, this reflects increasing concerns about “drone” investors. As more money flows into index-based stock mutual funds and ETFs, there may be less actively involved shareholders willing to push for changes during shareholder meetings. Index funds now account for…

Index funds invest trillions but rarely challenge management – Reuters

Index funds now control half the U.S. stock mutual fund market, giving the biggest funds enormous power to influence decisions and demand better returns at the companies in which they invest trillions of dollars. But the leading U.S. index fund firms, BlackRock Inc, Vanguard Group and State Street Corp, rarely use that clout. Instead, they…

A Catch 22 for Asset Managers

Jasmin Sethi writes about the impact of concentrated voting power and calls for better disclosure of the exercise of ownership rights: The big three—BlackRock, State Street, and Vanguard—are victims of their own size. As they have increased their assets under management, they have also increased their voting power as typically they vote the shares for…

‘Quiet diplomacy’ the weapon of choice for passive funds | Financial Times

About a fifth of the freely traded shares of the US equity market are now owned by index-tracking funds and passive institutional mandates, according to S&P Dow Jones Indices. This underlines the vital role played by the three largest managers in this space — BlackRock, Vanguard and State Street — in policing corporate standards.Larry Fink,…

Indexed Investments and “The Problem of Twelve”

John Coates has a thoughtful paper on the legal and economic challenges of “the problem of twelve,” the prospect of a majority of shares in public companies being managed by just twelve entities, in effect twelve people. [T]he rise of indexing presents a sharp, general, political challenge to corporate law. The prospect of twelve people…

Why we’re all impact investors now | Chicago Booth Review

For nearly 50 years, many have been guided by the idea, laid out most famously by Milton Friedman, that the most appropriate way to create social change is to give profits to investors, and taxes to the government, and use that money to make an impact. For just as long, other investors have argued in…

Index funds must be activists to serve investors | Financial Times

We first made this point in the late 1980’s. If you can’t sell, you must engage. Good to see index funds catching up. Efforts by large index fund managers to engage with public companies have recently come under attack from some business leaders. They complain that we are misusing our rights as shareholders to enforce…

Passive Investors = Active Owners

Good to have substantiation and support for something we’ve been saying since the early 1980’s. Our key insight is that although index funds are locked into their investments, the shareholders who invest in these funds are not. Like all mutual fund shareholders, investors in index funds can exit at any time by selling their shares…