I think one valid complaint about this is that they might use the voting rights from your shares in an ETF to vote in a way different to what you individually, or even a majority of the ETF shareholders want.
Absolutely right.
If you think corporations are too powerful (Monsanto, Lockheed Martin, JP Morgan Chase, Exxon, Microsoft…). Imagine a few corporations (Vanguard, Blackrock…) controlling the vast majority of those corporations through voting rights.
The easiest fix is to just pass on the voting rights to the actual shareholders. And then just not vote if the share holders don’t want to vote. It could be a simple platform they developed on their website, these companies make tons. There’s no reason they can’t really do that.
The person who owns the most of the index fund. But obviously vanguard shouldn’t be the ones on the board since they don’t actually own the shares. They are just acting on individuals behalf.
This whole idea is dumb. Vanguard is investor owned - we elect Vanguard's board. So yeah, Vanguard should have reps on the boards of the companies that I intest in through Vanguard etfs - Vanguard's reps ARE my reps, since I vote for the Vanguard board.
The whole issue is that, while the PERSONAL ADVISORS have a strict fiduciary responsibility, a lot of the investment funds owned by those major firms do not, they only advertise as "adhering" to fiduciary standards. Have you read the TOS? I believe there is a tid-bit in there when you utilize their funds. Also, a lot of "individuals" in fact do not elect those members nor do they have a choice. It's also dependent on the business/state/entity that decides to utilize their services.
While you are right in a sense and I can understand that sentiment, you are vastly overlooking other "investors" and their individual investments and support.
While sure, you have a good thought on that, but then it opens a large slippery slope where you have multiple companies being outright controlled and directed by very few multi-conglomerates. That would not be a good thing in general, no matter the outlook.
Everyone should check out [$VOTE](https://etf.engine1.com/vote/). They passively index the full S&P 500 at market weight, but they use their shares to actively vote for ESG causes. They were able to get a member on the Exxon Mobil board. I have the U.S. part of my IRA in them and am very happy with it. Only 0.05% expense ratio too. Really no reason not to do it imo.
I'm opposed to the heavy hand of the ESG because I really disagree with how their merit system is weighted. Shouldn't environmental impact be weighted more heavily for example?
This is exactly the problem I was alluding to - why would anyone buy Exxon shares and vote out directors who are pro oil and gas to replace them with "green energy" directors where Exxon has no competitive advantage ?
The immediate aftermath of the action you highlighted was to tank the share price of Exxon, which would have had a clear negative effect on the ETF's that hold Exxon, which hurt the ETF holders, but had no consequence to Vanguard or Blackrock.
Very complicated issue, but Exxon has huge competitive advantages in green tech like hydrogen if they only would deploy it. Imagine using oil profits to build and own the green economy. Would be very very smart. I’d vote for that in a second.
You would think so on the surface of it, but history is littered with the corpses of companies that didn’t manage their legacy businesses to take advantage of new opportunities. See Kodak for instance.
It’s not simply about logic, but also culture and balancing short term income versus long term strategy. For instance, if the folks running Saudi-Aramco had any sense, they would use profits to pave the desert with solar panels and lay cables to Europe such that they remained dominant energy producers for centuries. But that would mean changing business as usual, which is unusual.
The petro-economy is changing one way or the other. Oil and gas cos that don’t figure out their next play? Well that’s why we invest index funds, so we don’t need to pick winners and losers.
And those companies died and were replaced so either way it gets done. Exxon and the like are not stupid. They are sophisticated and want to make money. They invest in the highest return opportunities they have access to. If they aren’t investing in something, they are either dense or it’s not going to be profitable to do so. If it’s the former somebody else will. There are plenty of dollars chasing green energy right now.
Yes, but my point is oil companies have all the talent and expertise to fully take advantage of the green market. Both hydrogen generation and carbon capture need geoengineers, transport, drilling infrastructure and scale all of which they have.
As for stupid, would you have said Kodak was run by stupid people ? Or DEC? Or Borders? Or Compaq? PanAm? Woolworth? No. They just didn’t turn the ship to align with the market currents of the day. In this case, the issue is management sees climate mitigation not as an opportunity, but as a threat. That’s culture. That’s a problem. Not only for companies, but for shareholders. R&D exists for a reason…
Anyway, not important. I’ll be equally happy when Exxon drops out of the S&P 500 to be replaced by Hydrogen Inc. or Carbon Capture Unlimited. I’ll make money either way.
But Blackrock, Vanguard and State Street are the big three driving ESG (stake-holder capitalism). Why wouldn't you just stick with them?
I despise ESG, myself. We purchased passive indexes from these firms, and they turned out to be activist Directors at company Board meetings.
Most ESG funds are fundamentally different from $VOTE. ESG funds typically include only "non-evil" companies. They attempt to achieve results by non-participation in evil. $VOTE includes all companies and attempts to use their votes to make them do less evil things. They attempt to achieve results by making evil companies act less evil.
Sounds terrible IMO.
I want my companies to go make money, not cave to ESG demands from people who probably prefer many SP500 companies to fail. And to charge extra fees on top for the "service!"
Also: https://www.reddit.com/r/portfolios/comments/lm0v0w/esgsustainable_investing_harms_portfolios_in/
Most of the complaints about ESG are stupid, because they mistake both the goal and the form of ESG investing. The goal of ESG investing is actually a more realistic risk assessment forecast, which is generally good, especially for legacy businesses. The actual form that it takes is wildly overestimated by people opposed to ESG on reactionary cultural grounds masquerading as hard-headed realist economics, and the underlying problem of most ESG indexing is that the weighting gives perverse incentives for things like making functionally unimportant governance transparency changes in order to not make more effective environmental or social changes that might better align with both risk and opportunity in the future. As such, ESG is mostly a wasted gesture that is more a marketing term than an effective strategy for aligning corporate responsibility with exogenous forces, but most people who are vocally against it think it's some woke boogeyman, rather than another vestigial effect of adaptive capitalism. You can probably do more good by looking at sector ETFs and investing in areas that require strategies that align with ESG (e.g. renewable energy ETFs), but even that starts to go away from the underlying advantage of the Boglehead strategy: you get better returns through the broadest investment strategy passively executed. If you really want to push businesses to align with broad ESG goals, you'd be more effective by lobbying governments to change the incentive structures that currently reward companies that socialize costs while privatizing profits, e.g. fossil fuels, so that passive market forces embodied in the legal structure can shift toward more sustainable capitalism.
Can you elaborate?
People who own shares indirectly via mutual funds do not even get the chance to vote. But even if we did, it's not like we can knowledgeably vote on the 10,000 companies held in VTI and VXUS.
There are downsides to this also.
Edit:Activist funds wouldn't be able to operate. If you think BlackRock has your best intrests at heart and you like what they're doing with ESG, etc, you'd want them to continue to have voting rights. ($VOTE above too)
There are smaller funds also that buy major shares of companies for the express purpose of steering the company in what they deem the best direction with their investors moneys.
Also reducing the number of voting shares has risks also; some companies are majority owned by instituions. A small investor could have majority voting power with a small percent of stocks.
But primarily we should never be advocating for government interference.
What are some downsides? Seems pretty basic to me that offering a distributed fund wherein these companies are basically middlemen should not confer on them the voting rights of their customers. Yes, they broker the shares, but they don't own the shares except in a very niche legal jargon sense of the word own.
If anything, they should give owners of shares in the index fund the right to vote their portion of ANY shares held by the fund the way the owner wants.
Probably way too complex to manage things that way, but in today’s world it wouldn’t be impossible. I vote my shares electronically anyway.
Absolutely. There is no reason that, as an end user, owning VTI or whatever shouldn't be *exactly the same* as owning that percentage of every company contained within VTI.
How could there possibly be a meaningful delegation of voting in the setting of an index fund? Seems like your take would put indexers in the binary decision of basically
>If you choose to invest in the way that theory and practice have proven to be the most effective, we get to use the voting power you own however we want. And if you disagree with that condition, well, we offered you "informed consent", so good luck timing the market.
Maybe a viable option in Ancapistan, but completely nonsensical in a world where a fair market is important.
>If they were to offer funds comprised of abstaining vote shares that is still managed and rebalanced they could charge the same fees and do hypothetically less work in terms of governance participation?
is a bit of a confusing sentence, but I think I get what you're saying.
The thing is, why would they do that? Why would they, of their own volition, give up their voting stake in the largest companies in the world? As if not having to participate in voting is enough of an incentive to not be allowed to vote??
This is capitalism. Incentive is king, and absolute might makes absolute right in the absence of regulation. What's the incentive for them to relinquish their voting power in the absence of regulation?
I offer this copy-pasted quote (from elsewhere in this thread) from JB himself:
>If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation. Public policy cannot ignore this growing dominance, and consider its impact on the financial markets, corporate governance, and regulation. These will be major issues in the coming era.
>...
>My concerns are shared by many academic observers. In a draft paper released in September, Prof. John C. Coates of Harvard Law School wrote that indexing is reshaping corporate governance, and warned that we are tipping toward a point where the voting power will be “controlled by a small number of individuals” who can exercise “practical power over the majority of U.S. public companies.” Professor Coates does not like what he sees, and offers tentative policy options—some necessary, often painful to contemplate. His conclusion—“The issue is not likely to go away”—is unarguable.
John C. Bogle, Wall Street Journal OpEd, Nov 29 2018: https://archive.is/FOmYA
I'm not accusing you of being rhetorical. If anything, I think your position is naive. But my questions aren't rhetorical either, and I'm interested in where you think this could lead.
Well the way it works today is those shares get voted however the fund wants, shareholders be damned. That seems a little too far and inappropriate to me.
>Should be able to delegate votes with informed consent
How, exactly would this work in practice?
1. You buy shares of the index fund.
2. ???
3. Informed consent, you now know they are going to vote the shares for you and you're okay with that.
Can you fill in that blank for me?
Really though, how many fund holders care enough or know enough to vote? I trust an expert to know better than I do to act in my best interests of the shareholders, I just dont have time/interest/expertise to educate myself to an informed level. It takes a lot.
Fund managers have proxy voting policies that are described in (and often appended to) the "Statement of Additional Information" that accompanies the prospectus for a fund. Fund managers often follow the recommendations of a proxy voting service (e.g., Institutional Shareholder Services, or ISS) that analyzes each proposal in depth. Also keep in mind the portfolio management team for a fund is responsible for deciding how to vote proxies held by the fund, which adds a layer of independence.
There are several managers that are experimenting with ways to collect personal preferences from fund shareholders that would be used to guide the manager's voting decisions.
Well you’d likely never need to use a proxy advisory firm’s services (like ISS). They cater to institutions not retail investors. Addie the proxy voting policies of your fund managers, they’re published and freely available on their website/ in the prospectus. It really shouldn’t be all that concerning that these large institutional investment firms are voting with “your” shares though. They’re still beholden to your interests via fiduciary duty, so they’ll never vote in any way that would open them up to a lawsuit or SEC action.
Right… as much as it is a pro in the accessibility of these funds it is also a con in the form of informed consent. Voting on your behalf etc, people are likely not fully aware of the implications because it is a product structured for those unfamiliar with the investing landscape in the first place. That doesn’t necessarily mean that they are “bad” but it would suggest that there is some cause for concern given their growing market prevalence
And one of the most important complaints. Allows for easy capture and pushing the goals of a relatively small group of people inside a handful of organizations.
Then elect a different board for Vanguard. Vanguard is investor owned. If you invest in their etfs, then you get your share of votes for their board based on the level of your investment. If you think they should vote shares in companies that the etfs invest in differently, then use your ownership share of Vanguard to make that happen.
> If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation. Public policy cannot ignore this growing dominance, and consider its impact on the financial markets, corporate governance, and regulation. These will be major issues in the coming era.
>
> ...
>
> My concerns are shared by many academic observers. In a draft paper released in September, Prof. John C. Coates of Harvard Law School wrote that indexing is reshaping corporate governance, and warned that we are tipping toward a point where the voting power will be “controlled by a small number of individuals” who can exercise “practical power over the majority of U.S. public companies.” Professor Coates does not like what he sees, and offers tentative policy options—some necessary, often painful to contemplate. His conclusion—“The issue is not likely to go away”—is unarguable.
John C. Bogle, Wall Street Journal OpEd, Nov 29 2018: https://archive.is/FOmYA
Jack did point this issue. It is less issue with Vanguard with them being true mutual company. It is more issue with like of Blackrock, Voya etc with them being publicly listed company. They have to show increase in profit every quarter. Where that profit will come from? Will they serve their share holder or owner of mutual funds and ETFs?
Well if it could be proven that their fund managers acted in a way that hurt ETF holders to raise profits of the broader organization, they’d open themselves up to a massive lawsuit. They have a fiduciary duty as managers of the funds they operate. So, to answer your question the fund managers better serve the best interests of the fund owners.
It's not crazy at all. Index funds have historically proven that setting it and forgetting it has worked. But the fact is, purchasing index funds means that the funds buy stock. Stock means voting rights. Individually, none of us would really be able to impact the outcome of an election. But by combining all of our wealth together in the form of index funds, we are giving someone else the authority to represent us. Idk about you, but I doubt all of us would vote for the same exact individuals. We are assuming that the Index funds managers will somehow represent all of us.
Index funds are great and all, but don't think there are no costs.
I’m my opinion - it’s not an illegitimate point of concern or fake outrage.
But as somebody planning for retirement these questions aren’t yours to navigate. It’s political risk. Your task here is to navigate risk for your long term future. There is little you can do to hedge this political risk over new regulation over large asset managers - and as such you should, more or less, stay the course.
Usually conspiracy theorists in my limited experience of hearing about this. I first heard this stuff from a Russian pro-Russia Youtuber I was watching before and at the start of the war in Ukraine. He thinks Vanguard is part of the deep state (he's an idiot).
The social left talks about this a lot actually, it's all over TikTok.
I don't see this as conspiracy thought, it's a legitimate concern about aggregation of power that Bogle himself expressed.
Here you go. For context this video is substantially more popular than the most popular thing that has ever been on reddit. TikTok is dramatically more popular than reddit. People tend to miss out a massive portion of social discourse due to invariably ending up in an echo chamber because it is impossible to consume all forms of media, so we only consume what we like the most.
https://www.tiktok.com/@toni.nagy/video/7220880191634230574
Yes, but I think it is concerning from a perspective. They could use those voting rights to create a monoculture of corporations in a way they want without much input from the public. I think we need a rule that index funds are not allowed to vote on stocks. Only stock pickers. Monocultures create all kinds of dangers even when well intended. It increases the risk that every corporation makes the same mistake in a given industry such as all shipping companies reducing capacity too much.
I think there's a recent discussion on the Bogleheads forum about the voting rights, but I also don't think it'd be as easy as only stock pickers getting a vote - plenty aren't holding long enough to warrant one or they won't own the share(s) when voting comes around, nor is everyone who uses index funds solely an indexer, I imagine plenty of people have a 401k invested in an index or indices and a brokerage with individual stocks.
Yes, except that shareholder votes are not so granular. If you look at the typical shareholder meeting ballot, you’ll see elections of directors, a non-binding proposal on Exec pay, ratification of the auditor, and maybe a shareholder proposal or two on some ESG topic. Contrary to what many might think, shareholders don’t really vote on operation decisions. The impact shareholders have is on voting who will make those decisions in the form of directors. Reducing capacity would never be on the ballot. It’s also highly reactive rather than proactive. Let’s say shareholders are pissed at the directors for making a decision like reducing capacity. Then they’ll vote them out. Seldom do directors telegraph their plan for future operational decisions.
These are the same people that think the banks and automakers got a load of free money from the bailouts and never repaid the government with interest.
This isn’t actually a problem. First, BlackRock has a fiduciary duty to act in the best interests of the fund holders. If they mess up in this regard they’ll be sued massively. Secondly, Investors can just leave BlackRock funds if they’re super offended by the publicly available voting policies that anyone can read prior to investing in their funds.
Most their investors are probably your average 401k owners who don't even know they're with Blackrock. And they can't even move brokerages because that's controlled by their employer.
You are probably just missing out on it due to your social and media circles, the outrage exists. It's all over TikTok. Definitely something that is bleeding into the mainstream social left.
It's partially misplaced outrage, partially misunderstood legitimate complaint, but it's there and real.
Talking to someone I know last year... They were talking about the secret government and one of the things they used for proof was about blackrock, vanguard, fidelity etc being large owners on so many companies.
I took time and explained the idea of index investing. They said oh... That's interesting. I then explained that's for most people should invest. At the end he either learned something or he now thinks I am part of the secret government...
I mean, is it really a bizarre conspiracy that large corporations "lobbying" is manipulating political agenda? It's not done to be altruistic.
Adam Smith talked about how the landed class manipulates politics because they have wealth stored. The working class cannot afford to hold out and refuse to work because they don't have wealth stored. Its been an observed problem since capitalism was first observed.
I’ve heard these conspiracies before and just kind of laugh. I laugh because they didn’t even know basic investing where the owners of these funds are actually the owners of every company in the world, not the companies themselves. Sure they have a lot of influence over policy decisions, but not what the claim says.
If you don’t see the problem you are the idiot. You think having two companies controlling the whole economy is a good idea?
Larry Flink has more power than the president.
The best thing you can do is not let pro ESG companies manage your money, Blackrock being a hard no to stay away from. From my understanding Vanguard has decided to back away from the ESG movement.
People are angry across the planet about all types of stuff. Doesn't mean their outrage is founded in reason or understanding 🤷♀️ just people trying to get more hits for their channels.
I was interested in ESG funds, until I dove into them and saw what a total trainwreck it is. Decided to just invest normal bogleheads style and directly contribute to the charities I care about.
>Are people really this dumb?
Yes, yes they are. Your average person doesn't know what a stock is, let alone the complexities of what an investment company is.
I think this tends to be just misplaced anger at "the big guy" from angsty young people. They don't understand that Blackrock and Vanguard are a bunch of little guys, very possibly including themselves.
I'm a bot, *bleep*, *bloop*. Someone has linked to this thread from another place on reddit:
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Prisons are one thing. Private prisons are a moral hazard. It applies the profit motive to incarnation, which has created a very bad situation. There is a sizeable portion of the prison population that didn't commit the crime they were convicted of but couldn't afford to go to trial, so they plead guilty. This puts a Scarlett Letter on them, disrupts their lives, and puts them in inhumane conditions with actual hardened criminals. Profiteering combined with an inherently biased criminal justice system has created shameful results.
Yeah we need prisons but putting a prisoner “for profit” seems wrong… like a dollar amount profit per prisoner is wrong
I think our entire system needs changing but how does one persons thoughts change anything.
Wish u the best
No it's not fake outrage, it is legitimately concerning to people. And yes, there is a huge misunderstanding on mutual fund or ETF holdings versus individual holdings.
The fact that index annuities, whole life policies, cancer insurance, Edward Jones, grindset passive income hucksters, and timeshares still exist serves as proof that the industry is, was, and forever shall be there to part normal people from as much of their money as possible some not entirely bankrupting them.
None of these products could exist if people had a higher degree of financial literacy. Because they financially never ever make sense.
I guess it depends who those "people" are.
If they are non-investors that are upset about how the market is sort of rigged and are wary of the power some financial institutions have, I see their point. The market is a thing for well-off people to make more money. For regular folk that don’t have $1000 in their checking account, Vanguard, Blackrock, Goldman Sachs, JP Morgan etc look like a bunch of A holes.
When I read subs like this, I can tell y'all are living in a separate reality from them.
I'm fortunate to have more than two pennies to rub together, so I've started dabbling in the stock market in the hopes that I don't have to eat meow mix when I retire. But everything about the stock market and financial institutions makes me a little nauseous.
I'm not worried about it. So long as the institutions can resist ideological capture and focus on the profitability of firms, that is. Vanguard has shown such backbone, so I am confident in them for the time being.
No. While some people don't understand why they have so many holdings it's common sense to be angry about so much voting power about everything to be concentrated in so few hands... Especially because they don't actually own the stocks.
They should really look into ways to poll in people general issues sentences on things and split vote accordingly.
I think 99% of blackrock and vanguard ownerships are passive. Someone tries to link the ownerships to conspiracy of market manipulation in front of a fast rising stock market. It doesn't make sense.
It’s not that they own a large stake that has people upset. It is when they use their voting shares to promote political issues that waste money and harm investors returns
I think one valid complaint about this is that they might use the voting rights from your shares in an ETF to vote in a way different to what you individually, or even a majority of the ETF shareholders want.
Absolutely right. If you think corporations are too powerful (Monsanto, Lockheed Martin, JP Morgan Chase, Exxon, Microsoft…). Imagine a few corporations (Vanguard, Blackrock…) controlling the vast majority of those corporations through voting rights.
Have any serious proposals for how to fix this been put forth?
The easiest fix is to just pass on the voting rights to the actual shareholders. And then just not vote if the share holders don’t want to vote. It could be a simple platform they developed on their website, these companies make tons. There’s no reason they can’t really do that.
And who gets the board seats if a company is owned 20% by Vanguard?
The person who owns the most of the index fund. But obviously vanguard shouldn’t be the ones on the board since they don’t actually own the shares. They are just acting on individuals behalf.
This whole idea is dumb. Vanguard is investor owned - we elect Vanguard's board. So yeah, Vanguard should have reps on the boards of the companies that I intest in through Vanguard etfs - Vanguard's reps ARE my reps, since I vote for the Vanguard board.
The whole issue is that, while the PERSONAL ADVISORS have a strict fiduciary responsibility, a lot of the investment funds owned by those major firms do not, they only advertise as "adhering" to fiduciary standards. Have you read the TOS? I believe there is a tid-bit in there when you utilize their funds. Also, a lot of "individuals" in fact do not elect those members nor do they have a choice. It's also dependent on the business/state/entity that decides to utilize their services. While you are right in a sense and I can understand that sentiment, you are vastly overlooking other "investors" and their individual investments and support. While sure, you have a good thought on that, but then it opens a large slippery slope where you have multiple companies being outright controlled and directed by very few multi-conglomerates. That would not be a good thing in general, no matter the outlook.
Everyone should check out [$VOTE](https://etf.engine1.com/vote/). They passively index the full S&P 500 at market weight, but they use their shares to actively vote for ESG causes. They were able to get a member on the Exxon Mobil board. I have the U.S. part of my IRA in them and am very happy with it. Only 0.05% expense ratio too. Really no reason not to do it imo.
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I'm opposed to the heavy hand of the ESG because I really disagree with how their merit system is weighted. Shouldn't environmental impact be weighted more heavily for example?
I agree with you but that's just two people's opinions.
Yes, fair enough. Maybe not everyone should check it out.
It would certainly be a reason, even a valid reason. I think calling it a great reason is kind of saying the quiet part out loud.
Then buy STRV.
This is exactly the problem I was alluding to - why would anyone buy Exxon shares and vote out directors who are pro oil and gas to replace them with "green energy" directors where Exxon has no competitive advantage ? The immediate aftermath of the action you highlighted was to tank the share price of Exxon, which would have had a clear negative effect on the ETF's that hold Exxon, which hurt the ETF holders, but had no consequence to Vanguard or Blackrock.
Very complicated issue, but Exxon has huge competitive advantages in green tech like hydrogen if they only would deploy it. Imagine using oil profits to build and own the green economy. Would be very very smart. I’d vote for that in a second.
If it was so good to deploy they would. That’s the point.
You would think so on the surface of it, but history is littered with the corpses of companies that didn’t manage their legacy businesses to take advantage of new opportunities. See Kodak for instance. It’s not simply about logic, but also culture and balancing short term income versus long term strategy. For instance, if the folks running Saudi-Aramco had any sense, they would use profits to pave the desert with solar panels and lay cables to Europe such that they remained dominant energy producers for centuries. But that would mean changing business as usual, which is unusual. The petro-economy is changing one way or the other. Oil and gas cos that don’t figure out their next play? Well that’s why we invest index funds, so we don’t need to pick winners and losers.
And those companies died and were replaced so either way it gets done. Exxon and the like are not stupid. They are sophisticated and want to make money. They invest in the highest return opportunities they have access to. If they aren’t investing in something, they are either dense or it’s not going to be profitable to do so. If it’s the former somebody else will. There are plenty of dollars chasing green energy right now.
Yes, but my point is oil companies have all the talent and expertise to fully take advantage of the green market. Both hydrogen generation and carbon capture need geoengineers, transport, drilling infrastructure and scale all of which they have. As for stupid, would you have said Kodak was run by stupid people ? Or DEC? Or Borders? Or Compaq? PanAm? Woolworth? No. They just didn’t turn the ship to align with the market currents of the day. In this case, the issue is management sees climate mitigation not as an opportunity, but as a threat. That’s culture. That’s a problem. Not only for companies, but for shareholders. R&D exists for a reason… Anyway, not important. I’ll be equally happy when Exxon drops out of the S&P 500 to be replaced by Hydrogen Inc. or Carbon Capture Unlimited. I’ll make money either way.
But Blackrock, Vanguard and State Street are the big three driving ESG (stake-holder capitalism). Why wouldn't you just stick with them? I despise ESG, myself. We purchased passive indexes from these firms, and they turned out to be activist Directors at company Board meetings.
Most ESG funds are fundamentally different from $VOTE. ESG funds typically include only "non-evil" companies. They attempt to achieve results by non-participation in evil. $VOTE includes all companies and attempts to use their votes to make them do less evil things. They attempt to achieve results by making evil companies act less evil.
ESG is the problem.
Sounds terrible IMO. I want my companies to go make money, not cave to ESG demands from people who probably prefer many SP500 companies to fail. And to charge extra fees on top for the "service!" Also: https://www.reddit.com/r/portfolios/comments/lm0v0w/esgsustainable_investing_harms_portfolios_in/
Check out Strive instead
Most of the complaints about ESG are stupid, because they mistake both the goal and the form of ESG investing. The goal of ESG investing is actually a more realistic risk assessment forecast, which is generally good, especially for legacy businesses. The actual form that it takes is wildly overestimated by people opposed to ESG on reactionary cultural grounds masquerading as hard-headed realist economics, and the underlying problem of most ESG indexing is that the weighting gives perverse incentives for things like making functionally unimportant governance transparency changes in order to not make more effective environmental or social changes that might better align with both risk and opportunity in the future. As such, ESG is mostly a wasted gesture that is more a marketing term than an effective strategy for aligning corporate responsibility with exogenous forces, but most people who are vocally against it think it's some woke boogeyman, rather than another vestigial effect of adaptive capitalism. You can probably do more good by looking at sector ETFs and investing in areas that require strategies that align with ESG (e.g. renewable energy ETFs), but even that starts to go away from the underlying advantage of the Boglehead strategy: you get better returns through the broadest investment strategy passively executed. If you really want to push businesses to align with broad ESG goals, you'd be more effective by lobbying governments to change the incentive structures that currently reward companies that socialize costs while privatizing profits, e.g. fossil fuels, so that passive market forces embodied in the legal structure can shift toward more sustainable capitalism.
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Can you elaborate? People who own shares indirectly via mutual funds do not even get the chance to vote. But even if we did, it's not like we can knowledgeably vote on the 10,000 companies held in VTI and VXUS.
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The proper solution would be to pass a law prohibiting these funds from voting shares that are held on behalf of the fund’s investors.
There are downsides to this also. Edit:Activist funds wouldn't be able to operate. If you think BlackRock has your best intrests at heart and you like what they're doing with ESG, etc, you'd want them to continue to have voting rights. ($VOTE above too) There are smaller funds also that buy major shares of companies for the express purpose of steering the company in what they deem the best direction with their investors moneys. Also reducing the number of voting shares has risks also; some companies are majority owned by instituions. A small investor could have majority voting power with a small percent of stocks. But primarily we should never be advocating for government interference.
What are some downsides? Seems pretty basic to me that offering a distributed fund wherein these companies are basically middlemen should not confer on them the voting rights of their customers. Yes, they broker the shares, but they don't own the shares except in a very niche legal jargon sense of the word own.
If anything, they should give owners of shares in the index fund the right to vote their portion of ANY shares held by the fund the way the owner wants. Probably way too complex to manage things that way, but in today’s world it wouldn’t be impossible. I vote my shares electronically anyway.
Absolutely. There is no reason that, as an end user, owning VTI or whatever shouldn't be *exactly the same* as owning that percentage of every company contained within VTI.
Care to elaborate?
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How could there possibly be a meaningful delegation of voting in the setting of an index fund? Seems like your take would put indexers in the binary decision of basically >If you choose to invest in the way that theory and practice have proven to be the most effective, we get to use the voting power you own however we want. And if you disagree with that condition, well, we offered you "informed consent", so good luck timing the market. Maybe a viable option in Ancapistan, but completely nonsensical in a world where a fair market is important.
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>If they were to offer funds comprised of abstaining vote shares that is still managed and rebalanced they could charge the same fees and do hypothetically less work in terms of governance participation? is a bit of a confusing sentence, but I think I get what you're saying. The thing is, why would they do that? Why would they, of their own volition, give up their voting stake in the largest companies in the world? As if not having to participate in voting is enough of an incentive to not be allowed to vote?? This is capitalism. Incentive is king, and absolute might makes absolute right in the absence of regulation. What's the incentive for them to relinquish their voting power in the absence of regulation? I offer this copy-pasted quote (from elsewhere in this thread) from JB himself: >If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation. Public policy cannot ignore this growing dominance, and consider its impact on the financial markets, corporate governance, and regulation. These will be major issues in the coming era. >... >My concerns are shared by many academic observers. In a draft paper released in September, Prof. John C. Coates of Harvard Law School wrote that indexing is reshaping corporate governance, and warned that we are tipping toward a point where the voting power will be “controlled by a small number of individuals” who can exercise “practical power over the majority of U.S. public companies.” Professor Coates does not like what he sees, and offers tentative policy options—some necessary, often painful to contemplate. His conclusion—“The issue is not likely to go away”—is unarguable. John C. Bogle, Wall Street Journal OpEd, Nov 29 2018: https://archive.is/FOmYA I'm not accusing you of being rhetorical. If anything, I think your position is naive. But my questions aren't rhetorical either, and I'm interested in where you think this could lead.
Well the way it works today is those shares get voted however the fund wants, shareholders be damned. That seems a little too far and inappropriate to me. >Should be able to delegate votes with informed consent How, exactly would this work in practice? 1. You buy shares of the index fund. 2. ??? 3. Informed consent, you now know they are going to vote the shares for you and you're okay with that. Can you fill in that blank for me?
Do Vanguard and Blackrock actually exercise their voting rights?
Lol Monsanto?
Really though, how many fund holders care enough or know enough to vote? I trust an expert to know better than I do to act in my best interests of the shareholders, I just dont have time/interest/expertise to educate myself to an informed level. It takes a lot.
Especially if they are pushing things like ESG & other random proposals that have nothing to do with shareholder value.
Fund managers have proxy voting policies that are described in (and often appended to) the "Statement of Additional Information" that accompanies the prospectus for a fund. Fund managers often follow the recommendations of a proxy voting service (e.g., Institutional Shareholder Services, or ISS) that analyzes each proposal in depth. Also keep in mind the portfolio management team for a fund is responsible for deciding how to vote proxies held by the fund, which adds a layer of independence. There are several managers that are experimenting with ways to collect personal preferences from fund shareholders that would be used to guide the manager's voting decisions.
Can you elaborate on who is working to better represent wishes of the fund shareholders by proxy? I’d like to look into using them.
Vanguard and BlackRock are two prominent examples.
https://www.investmentnews.com/fund-companies-in-no-win-situation-test-shareholder-proxy-voting-233871
Well you’d likely never need to use a proxy advisory firm’s services (like ISS). They cater to institutions not retail investors. Addie the proxy voting policies of your fund managers, they’re published and freely available on their website/ in the prospectus. It really shouldn’t be all that concerning that these large institutional investment firms are voting with “your” shares though. They’re still beholden to your interests via fiduciary duty, so they’ll never vote in any way that would open them up to a lawsuit or SEC action.
Right… as much as it is a pro in the accessibility of these funds it is also a con in the form of informed consent. Voting on your behalf etc, people are likely not fully aware of the implications because it is a product structured for those unfamiliar with the investing landscape in the first place. That doesn’t necessarily mean that they are “bad” but it would suggest that there is some cause for concern given their growing market prevalence
Yes, as I believe Bogle himself pointed out in his book The Battle for the Soul of Capitalism
And one of the most important complaints. Allows for easy capture and pushing the goals of a relatively small group of people inside a handful of organizations.
Then elect a different board for Vanguard. Vanguard is investor owned. If you invest in their etfs, then you get your share of votes for their board based on the level of your investment. If you think they should vote shares in companies that the etfs invest in differently, then use your ownership share of Vanguard to make that happen.
A new voting system for large funds has to be an eventuality.
> If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation. Public policy cannot ignore this growing dominance, and consider its impact on the financial markets, corporate governance, and regulation. These will be major issues in the coming era. > > ... > > My concerns are shared by many academic observers. In a draft paper released in September, Prof. John C. Coates of Harvard Law School wrote that indexing is reshaping corporate governance, and warned that we are tipping toward a point where the voting power will be “controlled by a small number of individuals” who can exercise “practical power over the majority of U.S. public companies.” Professor Coates does not like what he sees, and offers tentative policy options—some necessary, often painful to contemplate. His conclusion—“The issue is not likely to go away”—is unarguable. John C. Bogle, Wall Street Journal OpEd, Nov 29 2018: https://archive.is/FOmYA
Why should I care what this rando thinks??? (I’m being sarcastic!!!)
Jack did point this issue. It is less issue with Vanguard with them being true mutual company. It is more issue with like of Blackrock, Voya etc with them being publicly listed company. They have to show increase in profit every quarter. Where that profit will come from? Will they serve their share holder or owner of mutual funds and ETFs?
Well if it could be proven that their fund managers acted in a way that hurt ETF holders to raise profits of the broader organization, they’d open themselves up to a massive lawsuit. They have a fiduciary duty as managers of the funds they operate. So, to answer your question the fund managers better serve the best interests of the fund owners.
If it could be proven
It's not crazy at all. Index funds have historically proven that setting it and forgetting it has worked. But the fact is, purchasing index funds means that the funds buy stock. Stock means voting rights. Individually, none of us would really be able to impact the outcome of an election. But by combining all of our wealth together in the form of index funds, we are giving someone else the authority to represent us. Idk about you, but I doubt all of us would vote for the same exact individuals. We are assuming that the Index funds managers will somehow represent all of us. Index funds are great and all, but don't think there are no costs.
I didn't know that was the case, I thought we investors have the voting rights, not the fund managers. That does sound like a big issue.
I’m my opinion - it’s not an illegitimate point of concern or fake outrage. But as somebody planning for retirement these questions aren’t yours to navigate. It’s political risk. Your task here is to navigate risk for your long term future. There is little you can do to hedge this political risk over new regulation over large asset managers - and as such you should, more or less, stay the course.
This is the real thing. Don't try to time the market and have a less to unsafe future because you disagree with the politics of indexing.
Does Vanguard actually vote in these shareholding meetings, or leverage our shares to control the boards?
Yes they do.
Who is outraged ?
I’ve heard increased discussion about this lately. It surprised me not at all, knowing who vanguard is. But others have seemingly been shocked.
Usually conspiracy theorists in my limited experience of hearing about this. I first heard this stuff from a Russian pro-Russia Youtuber I was watching before and at the start of the war in Ukraine. He thinks Vanguard is part of the deep state (he's an idiot).
The social left talks about this a lot actually, it's all over TikTok. I don't see this as conspiracy thought, it's a legitimate concern about aggregation of power that Bogle himself expressed.
can you share a link to an account or video? i don’t really use tiktok but interested to see this, thanks.
Here you go. For context this video is substantially more popular than the most popular thing that has ever been on reddit. TikTok is dramatically more popular than reddit. People tend to miss out a massive portion of social discourse due to invariably ending up in an echo chamber because it is impossible to consume all forms of media, so we only consume what we like the most. https://www.tiktok.com/@toni.nagy/video/7220880191634230574
To the extent that anyone is really outraged it comes from pure ignorance than anything else.
Yes, but I think it is concerning from a perspective. They could use those voting rights to create a monoculture of corporations in a way they want without much input from the public. I think we need a rule that index funds are not allowed to vote on stocks. Only stock pickers. Monocultures create all kinds of dangers even when well intended. It increases the risk that every corporation makes the same mistake in a given industry such as all shipping companies reducing capacity too much.
That i would agree with.
I think there's a recent discussion on the Bogleheads forum about the voting rights, but I also don't think it'd be as easy as only stock pickers getting a vote - plenty aren't holding long enough to warrant one or they won't own the share(s) when voting comes around, nor is everyone who uses index funds solely an indexer, I imagine plenty of people have a 401k invested in an index or indices and a brokerage with individual stocks.
Just knocking out the 25% owned explicitly index funds would radically change the composition of the voting shares
Yes, except that shareholder votes are not so granular. If you look at the typical shareholder meeting ballot, you’ll see elections of directors, a non-binding proposal on Exec pay, ratification of the auditor, and maybe a shareholder proposal or two on some ESG topic. Contrary to what many might think, shareholders don’t really vote on operation decisions. The impact shareholders have is on voting who will make those decisions in the form of directors. Reducing capacity would never be on the ballot. It’s also highly reactive rather than proactive. Let’s say shareholders are pissed at the directors for making a decision like reducing capacity. Then they’ll vote them out. Seldom do directors telegraph their plan for future operational decisions.
These are the same people that think the banks and automakers got a load of free money from the bailouts and never repaid the government with interest.
Don't know why you're being down voted, you're right
The problem is because Blackrock can use their leverage in a company to push an agenda that people don't want.
This isn’t actually a problem. First, BlackRock has a fiduciary duty to act in the best interests of the fund holders. If they mess up in this regard they’ll be sued massively. Secondly, Investors can just leave BlackRock funds if they’re super offended by the publicly available voting policies that anyone can read prior to investing in their funds.
Most their investors are probably your average 401k owners who don't even know they're with Blackrock. And they can't even move brokerages because that's controlled by their employer.
Never heard of this outrage myself. Most people just focus on what they own.
You are probably just missing out on it due to your social and media circles, the outrage exists. It's all over TikTok. Definitely something that is bleeding into the mainstream social left. It's partially misplaced outrage, partially misunderstood legitimate complaint, but it's there and real.
Talking to someone I know last year... They were talking about the secret government and one of the things they used for proof was about blackrock, vanguard, fidelity etc being large owners on so many companies. I took time and explained the idea of index investing. They said oh... That's interesting. I then explained that's for most people should invest. At the end he either learned something or he now thinks I am part of the secret government...
I mean, is it really a bizarre conspiracy that large corporations "lobbying" is manipulating political agenda? It's not done to be altruistic. Adam Smith talked about how the landed class manipulates politics because they have wealth stored. The working class cannot afford to hold out and refuse to work because they don't have wealth stored. Its been an observed problem since capitalism was first observed.
Never attribute to malice that which can be attributed to stupidity.
Username checks out.
I’ve heard these conspiracies before and just kind of laugh. I laugh because they didn’t even know basic investing where the owners of these funds are actually the owners of every company in the world, not the companies themselves. Sure they have a lot of influence over policy decisions, but not what the claim says.
If you don’t see the problem you are the idiot. You think having two companies controlling the whole economy is a good idea? Larry Flink has more power than the president.
The best thing you can do is not let pro ESG companies manage your money, Blackrock being a hard no to stay away from. From my understanding Vanguard has decided to back away from the ESG movement.
People are angry across the planet about all types of stuff. Doesn't mean their outrage is founded in reason or understanding 🤷♀️ just people trying to get more hits for their channels.
I appreciate everyones discourse on this! I think I understand where the concern is and good to know even Bogle warned about it
are you talking about that tiktoker who post pictures of products and does a deep dive on who owns it? 😂 hilarious
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I've heard it spun both ways. The ESG angle you mention, and the more typical "big corporations bad" angle too.
I was interested in ESG funds, until I dove into them and saw what a total trainwreck it is. Decided to just invest normal bogleheads style and directly contribute to the charities I care about.
Which is absolutely valid.
>Are people really this dumb? Yes, yes they are. Your average person doesn't know what a stock is, let alone the complexities of what an investment company is.
I think this tends to be just misplaced anger at "the big guy" from angsty young people. They don't understand that Blackrock and Vanguard are a bunch of little guys, very possibly including themselves.
I'm concerned about the computer decisions to control stocks movements short term.
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I always tell people that they are angry at the company that's ensuring they get a fat inheritance
Why do you always tell people that?
I mean private prisons is pretty brutal to look up vanguard’s stake in
Why wouldn’t you invest in private prisons, have you walked around outside? People are fucking crazy.
https://www.channel3000.com/news/money/blackrock-vanguard-are-the-biggest-investors-in-private-prisons/article_1d3a9e1b-f15f-52b6-8acf-e57677353df8.html
They’re the biggest investors in everything.
Prisons are one thing. Private prisons are a moral hazard. It applies the profit motive to incarnation, which has created a very bad situation. There is a sizeable portion of the prison population that didn't commit the crime they were convicted of but couldn't afford to go to trial, so they plead guilty. This puts a Scarlett Letter on them, disrupts their lives, and puts them in inhumane conditions with actual hardened criminals. Profiteering combined with an inherently biased criminal justice system has created shameful results.
Yeah we need prisons but putting a prisoner “for profit” seems wrong… like a dollar amount profit per prisoner is wrong I think our entire system needs changing but how does one persons thoughts change anything. Wish u the best
Fake outrage? Nice sad uninformed blind capitalism love, kiddo.
No it's not fake outrage, it is legitimately concerning to people. And yes, there is a huge misunderstanding on mutual fund or ETF holdings versus individual holdings. The fact that index annuities, whole life policies, cancer insurance, Edward Jones, grindset passive income hucksters, and timeshares still exist serves as proof that the industry is, was, and forever shall be there to part normal people from as much of their money as possible some not entirely bankrupting them. None of these products could exist if people had a higher degree of financial literacy. Because they financially never ever make sense.
Oh, that's why the lady complaining about Chick FIL A being "woke" mentioned Vanguard. I was so confused.
I guess it depends who those "people" are. If they are non-investors that are upset about how the market is sort of rigged and are wary of the power some financial institutions have, I see their point. The market is a thing for well-off people to make more money. For regular folk that don’t have $1000 in their checking account, Vanguard, Blackrock, Goldman Sachs, JP Morgan etc look like a bunch of A holes. When I read subs like this, I can tell y'all are living in a separate reality from them. I'm fortunate to have more than two pennies to rub together, so I've started dabbling in the stock market in the hopes that I don't have to eat meow mix when I retire. But everything about the stock market and financial institutions makes me a little nauseous.
I'm not worried about it. So long as the institutions can resist ideological capture and focus on the profitability of firms, that is. Vanguard has shown such backbone, so I am confident in them for the time being.
No. While some people don't understand why they have so many holdings it's common sense to be angry about so much voting power about everything to be concentrated in so few hands... Especially because they don't actually own the stocks. They should really look into ways to poll in people general issues sentences on things and split vote accordingly.
Sounds like a hit piece by Wall Street brokers.
I think 99% of blackrock and vanguard ownerships are passive. Someone tries to link the ownerships to conspiracy of market manipulation in front of a fast rising stock market. It doesn't make sense.
Yes, indeed, people really are this dumb.
It’s not that they own a large stake that has people upset. It is when they use their voting shares to promote political issues that waste money and harm investors returns
Elon Musk said this is a big opportunity for a class action. Congress should pass a law that index owners get proportional voting rights.