Hidden Dangers of the Great Index Fund Takeover
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Hidden Dangers of the Great Index Fund Takeover
1–10 of 96 posts
Re: Hidden Dangers of the Great Index Fund Takeover
#2While this seems (incredibly) scary it makes me think that this could be a huge opportunity for entrepreneurs (and some are currently undertaking it).
The fintech entrepreneur can carefully paint the picture of the dangers of the big 3 while advocating for smaller index funds for a smaller set of investors.
This smaller set of investors can have stocks based on their individual goals and interests. You just duplicate this over a lot more funds. The returns won’t be as high initially but if the entrepreneur can convince customers that this must be done it should help spurn new markets towards sustainability or carbon reduction etc.
Edit: plz tell me if I totally misunderstood the article.
Re: Hidden Dangers of the Great Index Fund Takeover
#3While this seems (incredibly) scary it makes me think that this could be a huge opportunity for entrepreneurs (and some are currently undertaking it). The fintech entrepreneur can carefully paint the picture of the dangers of the big 3 while advocating for smaller index funds for a smaller set of investors. This smaller set of investors can have stocks based on their individual goals and interests. You just duplicate…
You just described M1 Finance (custom funds users can construct). Google Warren Buffett’s Long Bet about passive vs active fund management (he won the passive argument). Even sophisticated active investors are having a tremendously difficult time achieving passive returns net fees. If you’re not a sophisticated investor, I’d implore you to be cognizant of the challenges you’ll face attempting active investment strategies, especially if you’re investing retirement funds.
Passive index investing might not be perfect, but it seems to be the least worst option when evaluating fund costs and risk adjusted returns, and we’re aways off from significant second order effects.
Re: Hidden Dangers of the Great Index Fund Takeover
#4Isn't it possible for the index funds to simply not wield the power they have, and abstain from every vote? I was surprised that funds that are not actively managed are still actively engaging with public companies.
Re: Hidden Dangers of the Great Index Fund Takeover
#5While this seems (incredibly) scary it makes me think that this could be a huge opportunity for entrepreneurs (and some are currently undertaking it). The fintech entrepreneur can carefully paint the picture of the dangers of the big 3 while advocating for smaller index funds for a smaller set of investors. This smaller set of investors can have stocks based on their individual goals and interests. You just duplicate…
I think the opportunity lies in the other direction. Say that fund managers for index funds aren’t generally accountable for performance (assuming they actually comply with the index. Differentiate the funds on their voting strategy. I don’t really give a crap about my investments if they’re well diversified across large US companies. But I would 100% prefer a fund that promised to vote for climate and civil rights issues.
Re: Hidden Dangers of the Great Index Fund Takeover
#6> Index funds “are great for investors,” says Elhauge, “but part of the reason they’re great for investors is exactly because of the anti-competitive effects.” Elhauge says the trusts of the late 19th century that gave rise to today’s antitrust laws also involved a form of common shareholding.
> She might want Coca-Cola to take big risks to crush Pepsi, and invest capital in new products and markets to do so. An investor who holds both, on the other hand, would prefer that Coke and Pepsi avoid price wars.
So the way we can solve this problem is to outlaw shares ownership of competing companies? Seems like a fair solution.
Re: Hidden Dangers of the Great Index Fund Takeover
#7Isn't it possible for the index funds to simply not wield the power they have, and abstain from every vote? I was surprised that funds that are not actively managed are still actively engaging with public companies.
I don't know how votes are counted, but will that make it impossible to make positive changes?
Or if they are not part of the total count, allow a minority of shareholders to vote against the fund's interests?
Re: Hidden Dangers of the Great Index Fund Takeover
#8> Index funds “are great for investors,” says Elhauge, “but part of the reason they’re great for investors is exactly because of the anti-competitive effects.” Elhauge says the trusts of the late 19th century that gave rise to today’s antitrust laws also involved a form of common shareholding. > She might want Coca-Cola to take big risks to crush Pepsi, and invest capital in new products and markets to do so. An inve…
> So the way we can solve this problem is to outlaw shares ownership of competing companies? Seems like a fair solution.
This just isn't practical. What if I'm invested in Big Bank and Big Tech Co. but then Big Tech Co. creates a wallet app and credit card -- do I have to sell my ownership in one of these companies?
As an investor I definitely want to own companies that compete because I don't know which one is going to prevail. Owning just one of the companies doesn't really fix the problem either -- if I own only Pepsi does that mean I would want them to get into a price war with Coke?
Re: Hidden Dangers of the Great Index Fund Takeover
#9Isn't it possible for the index funds to simply not wield the power they have, and abstain from every vote? I was surprised that funds that are not actively managed are still actively engaging with public companies.
I don't know how votes are counted, but will that make it impossible to make positive changes? Or if they are not part of the total count, allow a minority of shareholders to vote against the fund's interests?
> [W]ill that make it impossible to make positive changes?
Yes, but that's consistent with the passive philosophy at the heart of index investing. I was surprised that index funds had an active interest in anything beyond reducing fees to customers.
Re: Hidden Dangers of the Great Index Fund Takeover
#10The extremely simple and correct solution here is to not let index funds themselves vote. Only allow the votes to be cast directly by the index share holders. Problem solved, I don't know why people keep hand wringing about this and not suggesting the supremely obvious solution here.