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Hidden Dangers of the Great Index Fund Takeover

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Re: Hidden Dangers of the Great Index Fund Takeover

#91

Post by jcrben »

kccqzy wrote: post #78
pochamago wrote: post #60

I think at some point we'll hit a saturation point on passively managed funds. What they're really doing is edging out the non profitable actively managed funds, and forcing managers to prove they can beat the market if they want investment. I also think we'll see more brokerages starting their own indices, which will lessen the power of any individual fund

Well think of it this way. Since index funds replicate the market exactly, then the non-index funds also on average replicate the market. It's just some funds beat the market while others underperform.

No. In theory we could have just two active (non-index) managers, and their average returns certainly would not replicate the market.

Re: Hidden Dangers of the Great Index Fund Takeover

#92

Post by mrep »

cycomanic wrote: post #88
darawk wrote: post #10

The 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.

> The 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. This is somewhat addressed in the article. One of the criticisms is that index founds don't do enough, resulting in more power to the…

Sounds like a self correcting problem easily solved by a little profit motive. As index funds gain ownership, the cost for an active investor to buy enough stock to vote whoever they want into control of companies decreases as the number of active voters decreases. Once that gets low enough and the CEO is deemed running a company badly enough, some active investor will buy enough stock to vote in better management and if successful, will rake in a healthy profit for doing so as it'll result in excess returns.

Re: Hidden Dangers of the Great Index Fund Takeover

#93

Post by wbl »

wutbrodo wrote: post #83
wbl wrote: post #72

Earlier quoted context omitted.

It already exists. It's called an index fund.

That's obviously not what the parent comment is talking about, since they're holding it in contrast to index funds. They're talking about directly holding the securities involved. Roboadvisors do actually offer this if you have enough money. The only advantage AFAIK is being able to tax loss harvest the greater volatility from individual securities.

Fractional shares are synthetic, so you can't vote them. At that point the way to do it is to have an index fund with bylaws that it votes shares as the members want.

Re: Hidden Dangers of the Great Index Fund Takeover

#94

Post by [deleted] »

mrep wrote: post #92
cycomanic wrote: post #88

Earlier quoted context omitted.

> The 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. This is somewhat addressed in the article. One of the criticisms is that index founds don't do enough, resulting in more power to the…

Sounds like a self correcting problem easily solved by a little profit motive. As index funds gain ownership, the cost for an active investor to buy enough stock to vote whoever they want into control of companies decreases as the number of active voters decreases. Once that gets low enough and the CEO is deemed running a company badly enough, some active investor will buy enough stock to vote in better management an…

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