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This is an extremely interesting turn of events that leads to a few questions. Do the index funds participate in all of the elections for all of the companies

This is an extremely interesting turn of events that leads to a few questions. Do the index funds participate in all of the elections for all of the companies they hold? If yes how do the funds vote? For the interests of the individuals companies or do they push cross company agendas? If no then does this mean that index funds are concentrating voting power in the hands of non fund holders?

evgen 7y ago
Yes, index funds vote. They tend to push for shareholder-friendly issues (independence of corp board, blocking poison pills, etc) and less on 'political' issues. Some research [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2475150 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2475150] has shown that you can see a significant difference between companies in the index and not in the index on these issues. Most index funds are not as active as other investors, but they tend to maintain voting shares rather than get discounted non-voting shares because the latter always end up getting screwed by the voting shares...
- Scoundreller 7y ago
  > Most index funds are not as active as other investors, but they tend to maintain voting shares rather than get discounted non-voting shares because the latter always end up getting screwed by the voting shares... How? In my (Canadian) experience with dual-class shares, they’re usually the same slices of the pie and the same dividend payouts. The usual problem is when the voting shares are impossible to actually buy, so you’re at the whims of the founding family’s ego. But then you don’t even have the choice of buying the voting. And sometimes when you could, the founders own 51%+ anyway, so you’re just buying a vote you can’t use and paying that premium to the founding family again.
  - evgen 7y ago
    Voting shares can vote on whether or not the company issues more shares, pays out accumulated profit as dividend, takes on a debt load that may look good in the short-term but will have a crippling impact on the long-term, etc. An index fund cannot just decide to dump a company's shares because management has decided to drive the company off a cliff for the sake of a quick payoff, so paying a bit extra for voting rights tends to be in their interest.
  - walshemj 7y ago
    Not all stock indexes allow such unbalanced types of share classes.
OscarCunningham 7y ago
Vanguard explicitly states that it will vote in the way that maximises the benefit to the fund as a whole. Personally I would prefer if they didn't vote at all. This would have two advantages: * There would be no question that they were harming the world by encouraging anticompetitive behavior. * They would save money since they wouldn't have to pay people to decide how to vote. The second of these points should be obvious to an index fund. They don't waste money trying to beat the market in terms of picking stocks, so why waste money trying to vote better than the average active investor?
- benj111 7y ago
  But not voting is like not investing. If you can't beat the index you don't just not invest, just like if you can't vote better than average you don't just not vote. All you do is give others an outsized influence. Should index funds not vote on whether index funds should receive dividends or not? If you're a Turkey, you don't abstain from the Christmas vote.
  - mlthoughts2018 7y ago
    If you know your own vote is worse than average, then by tacitly increasing the value of other voters’ votes by not voting, you are thereby increasing the influence of better quality votes than your own vote (by your own premise). Another way to go would be to just copy the average vote, which again by the premise would have to improve the quality of your vote. If you know you are not informed, then not voting _really is_ one of the best things you can do, in a utilitarian sense.
    - benj111 7y ago
      I'll accept that if there's a vote that doesn't affect you, and you aren't qualified in the particular area, then you may not be adding much by voting, I don't think you can extrapolate that out to not voting at all, which is what my original parent was suggesting. I'll go further and accept the mere possibility of you being able to vote prevents the very worst outcomes. I'm doubtful you would knowingly have a worse than average opinion though, Dunning Kruger (and the reverse) I would guess, would dominate, so if you think you're worse than average, that would make you better than average, and make you duty bound to vote to cancel out the guy who thinks he knows better. Question. If I created an index and tracker that tracked low carbon companies, and that tracker voted against things that would increase the carbon intensity of it's businesses, would that tracker still be passive? I would say yes, it is still tracking an index, and its following simple rules to further the aims of that tracker, and by extension, it's investors

evgen 7y ago

Yes, index funds vote. They tend to push for shareholder-friendly issues (independence of corp board, blocking poison pills, etc) and less on 'political' issues. Some research [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2475150 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2475150] has shown that you can see a significant difference between companies in the index and not in the index on these issues. Most index funds are not as active as other investors, but they tend to maintain voting shares rather than get discounted non-voting shares because the latter always end up getting screwed by the voting shares...

Scoundreller 7y ago
> Most index funds are not as active as other investors, but they tend to maintain voting shares rather than get discounted non-voting shares because the latter always end up getting screwed by the voting shares... How? In my (Canadian) experience with dual-class shares, they’re usually the same slices of the pie and the same dividend payouts. The usual problem is when the voting shares are impossible to actually buy, so you’re at the whims of the founding family’s ego. But then you don’t even have the choice of buying the voting. And sometimes when you could, the founders own 51%+ anyway, so you’re just buying a vote you can’t use and paying that premium to the founding family again.
- evgen 7y ago
  Voting shares can vote on whether or not the company issues more shares, pays out accumulated profit as dividend, takes on a debt load that may look good in the short-term but will have a crippling impact on the long-term, etc. An index fund cannot just decide to dump a company's shares because management has decided to drive the company off a cliff for the sake of a quick payoff, so paying a bit extra for voting rights tends to be in their interest.
- walshemj 7y ago
  Not all stock indexes allow such unbalanced types of share classes.

OscarCunningham 7y ago

Vanguard explicitly states that it will vote in the way that maximises the benefit to the fund as a whole. Personally I would prefer if they didn't vote at all. This would have two advantages: * There would be no question that they were harming the world by encouraging anticompetitive behavior. * They would save money since they wouldn't have to pay people to decide how to vote. The second of these points should be obvious to an index fund. They don't waste money trying to beat the market in terms of picking stocks, so why waste money trying to vote better than the average active investor?

benj111 7y ago
But not voting is like not investing. If you can't beat the index you don't just not invest, just like if you can't vote better than average you don't just not vote. All you do is give others an outsized influence. Should index funds not vote on whether index funds should receive dividends or not? If you're a Turkey, you don't abstain from the Christmas vote.
- mlthoughts2018 7y ago
  If you know your own vote is worse than average, then by tacitly increasing the value of other voters’ votes by not voting, you are thereby increasing the influence of better quality votes than your own vote (by your own premise). Another way to go would be to just copy the average vote, which again by the premise would have to improve the quality of your vote. If you know you are not informed, then not voting _really is_ one of the best things you can do, in a utilitarian sense.
  - benj111 7y ago
    I'll accept that if there's a vote that doesn't affect you, and you aren't qualified in the particular area, then you may not be adding much by voting, I don't think you can extrapolate that out to not voting at all, which is what my original parent was suggesting. I'll go further and accept the mere possibility of you being able to vote prevents the very worst outcomes. I'm doubtful you would knowingly have a worse than average opinion though, Dunning Kruger (and the reverse) I would guess, would dominate, so if you think you're worse than average, that would make you better than average, and make you duty bound to vote to cancel out the guy who thinks he knows better. Question. If I created an index and tracker that tracked low carbon companies, and that tracker voted against things that would increase the carbon intensity of it's businesses, would that tracker still be passive? I would say yes, it is still tracking an index, and its following simple rules to further the aims of that tracker, and by extension, it's investors