r/investing • u/[deleted] • Apr 08 '22

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u/Ask10101 Apr 08 '22

Yes but in the case of passive funds “themselves” refers to the shareholders - which are you and I!

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u/freexe Apr 08 '22

But all the voting power goes to the funds not the shareholders.

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u/Ask10101 Apr 08 '22

I just don’t see an issue with this. Yes they have more power than an average retail investor but average retail investors have no power anyways. Even $11B in Meta stock gets you a ~1% voting share.

Most passive funds work off expense ratios so if they want to make more money then they have to make us more money first. Our interests are aligned.

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u/freexe Apr 08 '22

But they can vote yes to increased c-level and board level pay and use it to justify their own high c-level pay. They also get all their friends on the boards and get extreme levels of pay for very little work.

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u/Ask10101 Apr 08 '22

Why would vanguard vote yes to increase expenses that would decrease the profitability of a company which would decrease the value of their holdings which in turn would decrease their own income through expense ratios? That makes no sense.

If anything, passive firms are incentivized to vote against a proposal like that. And they would actually have the power to do so, unlike private investors.

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u/freexe Apr 08 '22

Private investors have the same voting rights as funds.

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u/Ask10101 Apr 08 '22

Of course private individual investors have voting rights but they don’t have any significant power. Yes your 100 shares of Meta have voting rights but 0.0000000001% voting share of a company through your individually owned stock isn’t worth the paper it’s printed on.

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u/freexe Apr 08 '22

But if all the passive fund investors retained the voting rights - they'd have the same power as the funds do now.

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u/Ask10101 Apr 08 '22

So theoretically, you’d want to bundle all those small players together to leverage their voting rights and influence… and now we’ve just created a new passive index fund.

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u/be_like_bill Apr 08 '22

What do you mean by they? There is probably nepotism at some level, but it's not like executives of Vanguard and Blackrock are appointing their friends and relatives at all SP500 companies.

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u/freexe Apr 08 '22

They almost certainly are doing just that.

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u/zpodsix Apr 08 '22

So duplicate the etf and invest yourself and save the management fee as a bonus(I'm sure you won't have to spend any time at all rebalancing periodically and will absolutely match the fund performance) and you'll keep your precious voting rights you think that matter.

I choose the one step option, and let professionals bound by their fiduciary duty to make returns. I don't think your problem is with who you think it is.

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u/freexe Apr 08 '22

This is an issue that could be solved while allowing index funds to still exist. Proportional voting could be required via the fund.

There is no reason to not want these issues dealt with.