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0 pointsjustin667y ago0 comments

> If the index funds allow their investors to vote on everything, to some extent they stop being an index fund that passively tracks the market.

That doesn't really follow. Tracking the index and voting are two separate concerns.

That's part of the point of Bogle's objections (I think - I can't read the article, I can only read about it), that they're involved in management already, even though that's not part of their mission. Simply voting based on a proxy vote of the fund's shareholders is arguably more "passive" for the fund management than what they're doing now, if you're concerned about passiveness.

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et2o7y ago

I have to disagree.

> Tracking the index and voting are two separate concerns

I do not believe this is really true. The entire point of exercising shareholder rights by voting is to improve the performance of the company. A shareholder's decisions might be right (improved stock value) or wrong (reduced stock value), but you can't argue that it's passive involvement in the company. Changes in a company's stock price will necessarily cause changes in the index that the index fund tracks.

Now, let's consider the point of an index fund with a passive investment strategy: the goal is to remove the need to make decisions in how a company operates and leave that to the better-informed investors and marketplace as a whole. Index funds in the ideal world simply want to ride along with what decisions the marketplace is making in the companies that the index tracks.

This is an important tension that really cannot be resolved if index funds are to be considered passive and also vote.

In practice, the votes made my index funds tend to be (thus far) ones that are on less controversial issues like best practices for management, etc. You don't see Vanguard pushing for mergers or spinoffs like Carl Icahn would try to do. However, in principle all shareholder votes exist on some continuum of activist investing.

justin66OP7y ago

I don't see you disagreeing that the hypothetical voting shares via proxy is essentially more "passive" than the decision making they're doing now. I believe what you're saying is that they simply shouldn't vote at all.

I guess that's basically the most "passive" option, but it would have some weird results. I believe - and I'm well informed but not an expert when it comes to this - we'd find that at a lot of companies, if you take away the large institutional investors, the portion that remains includes a large number of activist shareholders of various stripes. Those activists would necessarily be strengthened in some ways by the majority of shareholders sitting out every vote.

There's an utterly pretentious Rush lyric that comes to mind, about choosing not to decide still being a choice, or something.

edit: I see that Bogle kind of hit the same point: Limit the voting power of corporate shares held by index managers. But such a step would, in substance, transfer voting rights from corporate stock owners, who care about the long-term, to corporate stock renters, who do not... an absurd outcome.

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