Key insights
- The post raises concerns about the voting power concentrated in the hands of passive ETF fund managers. It questions the lack of transparency regarding their voting strategies and the potential risks of a few funds wielding significant influence over major companies. While not directly impacting short-term market movements, this could lead to long-term shifts in corporate governance and potentially affect company performance, creating a slight negative sentiment towards passive investing.
Hi all,
The passive ETFs are being marketed as a convenience tool where you’re “just investing in companies in an index”. The “passive” bit implies that the role of the fund manager is just to purchase those stocks, package them into their shares and then sell those packages to you. They just helpfully do it for you for a small fee, so that you wouldn’t need to buy 500 or more stocks individually.
However, by investing into an ETF, you increase the share owned by the fund in the companies included in the fund, which gives the fund manager more voting rights within those companies - and they sure do use those rights quite actively for a “passive” fund. But this aspect is quite rarely discussed - most of the information presented by the fund managers focuses on the fund composition and performance, not on the voting rights, and the fact that every penny you invest with them gives them more power, and how they use this power is conveniently omitted…
So what do you think about it? Do you research voting strategies of passive fund managers and consider them when making investment decisions? Do you think there should be more focus and transparency about it for investors buying the fund shares? Do you see any risks with a handful of funds getting significant influence in the largest companies across all industries by presenting themselves as “default” investment choices?
Thank you!