Are Enhanced Index Funds Enhanced?

Edwin J. Elton (NYU), Martin J. Gruber (NYU), and Andre B. de Souza (St. John’s University) have a new study about “enhanced” index funds. Of course the whole idea of index funds is that they involve no enhancements at all; they just track an index like the S&P 500. But “enhancements” have become increasingly popular…

New blood at Wall Street’s old guard rattles Corporate America

This year marks a sea change as top funds throw more of their weight behind investor challenges to companies on environmental, social and governance (ESG) issues and put companies on notice by often choosing to publicize how and why they voted, a Reuters review of voting results and fund firms’ new disclosures shows. A record…

A Glimpse of a Future With True Shareholder Democracy – The New York Times

[L]ack of proxy voting capability leaves vast numbers of investors out of the equation, and gives corporations inordinate power. Consider that roughly half of all American households, comprising tens of millions of people, have a stake in the stock market. But most own equities indirectly through funds — mainly index funds. That leaves fund managers…

New Study on Proxy Voting by Index Funds — Our Supplemental Comment to the SEC

Another supplement to our earlier comments: We incorporate by reference and make a part of this record a study by joseph Farizo, (Black)Rock the Vote: Index Funds and Opposition to Management (March 2020) with its conclusions, conclusively and decisively refuting the unsupported allegations of “robs-voting” and supports our description of the conflicts of interest fund…

The Power of Voting: Active Ownership for Index Strategies

Index firm Solactive writes: September 2019 marked a major milestone in US financial history as the assets managed under passive strategies (the selection of stocks based on a mechanical, rules-based approach) surpassed those under active strategies. The rise of ESG and its latest evolution, active ownership, is another megatrend within the investment world. Are these…

The Hidden Dangers of the Great Index Fund Takeover – Bloomberg

We have repeatedly warned about the problem of index funds, including VEA Chair Robert A.G. Monks’ book Citizens Disunited, with extensive data on “drone” companies (with stock ownership tracking the index) and VEA Vice Chair Nell Minow was one of the judges who selected Index Funds and the Future of Corporate Governance: Theory, Evidence and…

Want a Bigger Say on Corporate Behavior? Move Your Money – The New York Times

From our former colleague Jackie Cook — index fund voting patterns may be an unhappy surprise to their investors. [W]hile index funds offered by different companies were often nearly indistinguishable in fees and performance, the voting behavior of the funds was very different. Vanguard and BlackRock, the two biggest fund managers, tended to side with…

New Paper: Asset Management, Index Funds, and Theories of Corporate Control

Matthew J. Mallow’s new paper on index funds: This paper seeks to ground the debate around asset managers, index funds and corporate control firmly in the practical context of the operation and regulation of asset managers. Acting on be- half of clients, asset managers are incentivized to monitor companies for long-term performance. As minority shareholders,…

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…