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When you say Vanguard has the next largest, does that mean they are holding it for their clients or own it themselves? If I invest in a Vanguard ETF which conta

When you say Vanguard has the next largest, does that mean they are holding it for their clients or own it themselves? If I invest in a Vanguard ETF which contains AMZN does Vanguard maintain voting rights? Can it leverage its holdings on behalf of its customers to take over a company if it becomes the largest shareholder?

jacques_chester 8y ago
Shares grant a lot of rights, but the basic concept of an ETF is to hold shares proportional to an index and leave it at that. They will generally not be activist holders. This reduces the cost of holding. Nobody needs to be hired to do research, to lobby, to plan etc. You basically have people babysitting a computer program, which is relatively cheap.
- pgodzin 8y ago
  I understand they generally will not be activist holders, but can they be? If I buy a Vanguard ETF they hold the rights to all the stocks in the ETF, not me?
  - jacques_chester 8y ago
    Buying into an ETF is buying into a company that owns shares. The ETF owns the shares in other companies, you own shares in the ETF. You do not own the shares that the ETF owns. Similarly, if you buy shares in Apple, you do not directly own its cash, facilities, intangible assets etc. Apple owns these. But you own voting rights and the ability to participate in dividends or buybacks. In both cases the company -- the company's management, really -- has a wide degree of freedom in what it does. Apple can buy companies or sell iPhones without consulting shareholders. ETFs can buy and sell shares similarly. Similar-looking but quite distinct is the trustee/beneficiary relationship from trusts law. In that case the trustee legally holds property "for the benefit of" the beneficial owner. Again, as a beneficiary, you would not own the shares held by a trust on your behalf, but the trust would need to buy and sell them according to its view of your best interests. Since both corporations and trusts have wide-ranging legal, financial and taxation implications, the details vary widely depending on where you are. Each jurisdiction has comparable but distinct caselaw and of course legislatures have tinkered quite feverishly with it too. I am, of course, not a lawyer. I didn't even finish law school.
  - tonfa 8y ago
    Yes, and they do vote. https://www.bloomberg.com/view/articles/2018-01-30/iss-tells-investors-how-they-want-to-vote https://www.bloomberg.com/view/articles/2018-01-30/iss-tells... has some useful pointers.

jacques_chester 8y ago

Shares grant a lot of rights, but the basic concept of an ETF is to hold shares proportional to an index and leave it at that. They will generally not be activist holders. This reduces the cost of holding. Nobody needs to be hired to do research, to lobby, to plan etc. You basically have people babysitting a computer program, which is relatively cheap.

pgodzin 8y ago
I understand they generally will not be activist holders, but can they be? If I buy a Vanguard ETF they hold the rights to all the stocks in the ETF, not me?
- jacques_chester 8y ago
  Buying into an ETF is buying into a company that owns shares. The ETF owns the shares in other companies, you own shares in the ETF. You do not own the shares that the ETF owns. Similarly, if you buy shares in Apple, you do not directly own its cash, facilities, intangible assets etc. Apple owns these. But you own voting rights and the ability to participate in dividends or buybacks. In both cases the company -- the company's management, really -- has a wide degree of freedom in what it does. Apple can buy companies or sell iPhones without consulting shareholders. ETFs can buy and sell shares similarly. Similar-looking but quite distinct is the trustee/beneficiary relationship from trusts law. In that case the trustee legally holds property "for the benefit of" the beneficial owner. Again, as a beneficiary, you would not own the shares held by a trust on your behalf, but the trust would need to buy and sell them according to its view of your best interests. Since both corporations and trusts have wide-ranging legal, financial and taxation implications, the details vary widely depending on where you are. Each jurisdiction has comparable but distinct caselaw and of course legislatures have tinkered quite feverishly with it too. I am, of course, not a lawyer. I didn't even finish law school.
- tonfa 8y ago
  Yes, and they do vote. https://www.bloomberg.com/view/articles/2018-01-30/iss-tells-investors-how-they-want-to-vote https://www.bloomberg.com/view/articles/2018-01-30/iss-tells... has some useful pointers.