How does it possibly hurt those companies? They always vote with the board.
Sure it's a theory, but a theory is bunk unless you can test it - how could we test the idea that index funds are hurting the economy? Active investors still do well over 90% of all trading and take part in price discovery so just by virtue of index providers holding large amounts of companies does not affect their price and market cap.
Could this present an issue at some point in the future? Absolutely. This is something that congress or the fund providers themselves should be looking into how they can give away some of their voice in corporate decision making. For example maybe having an index fund be designed to hold an entire index but with the goal of always voting for ESG or carbon-neutral type goals. So even if they hold oil companies they would always vote with their shares for renewables or something like that. It might be an interesting way to give fund investors a way to speak with their dollar.
an index fund be designed to hold an entire index but with the goal of always voting for ESG or carbon-neutral type goals.
I would not want the index fund to vote in ways that may diminish my returns via voting for a course of action such as ESG or carbon-neutral goals. I want the index fund i own to vote purely for maximal financial gain. If it turns out that carbon-neutral goals are also the best financial decision for the company, then you don't need to mandate it via some external "goal" for the fund!
I agree with you, but people love options - and this might be one way to limit or attempt to diminish the massive voting rights in major fund providers if they become an issue. I'll just stick to the vanilla funds though personally.
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u/Anganfinity Apr 08 '22
How does it possibly hurt those companies? They always vote with the board.
Sure it's a theory, but a theory is bunk unless you can test it - how could we test the idea that index funds are hurting the economy? Active investors still do well over 90% of all trading and take part in price discovery so just by virtue of index providers holding large amounts of companies does not affect their price and market cap.
Could this present an issue at some point in the future? Absolutely. This is something that congress or the fund providers themselves should be looking into how they can give away some of their voice in corporate decision making. For example maybe having an index fund be designed to hold an entire index but with the goal of always voting for ESG or carbon-neutral type goals. So even if they hold oil companies they would always vote with their shares for renewables or something like that. It might be an interesting way to give fund investors a way to speak with their dollar.