[decimalst-s]

Is there anything legally preventing these funds from having some kind of system where you have fractional voting rights proportional to your number of shares in the mutual fund vs. the weight of the company in the index it represent? e.g. You have 100 shares of a mutual fund that has 1% of its holdings in some company- thus you have 1 vote for that company's shareholder ballot, or whatever the fractional representation based on market cap would come out to. I'm not sure if a single holder of funds can cast "partial votes" in each direction though. Either way, it seems like a problem that could be fixed through technology.

[et2o]

They could even just hold their own internal vote immediately before the actual vote and net out the results. Then vote this result in the actual vote. I don't think there is a rule that if you vote, you must vote with every share.

Also gets rid of any issues of fractional voting; they can track fractional votes in the internal vote, and then just round the result in the actual vote.

The biggest problem is that generally index funds try to take a pretty passive approach to management decisions (although they do vote in some circumstances). 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.

[justin66]

> 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.

[et2o]

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.

[justin66]

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.

[kcorbitt]

Nothing stopping that, and they do that to some degree (I get emails from Vanguard once a quarter or so asking me to submit my proxy votes). But realistically, through my Vanguard funds I own very small pieces of thousands of companies around the world. It is in no way worth my time to try to make an informed decision on the shareholder votes for all of those.

[lifeformed]

The article says that this solution has unintended consequences too, since you are now transferring voting rights from the share owner, who cares about the long term performance of the company, to share renters, who generally just care about the short term, which is counterproductive.

Although I'm not sure I get that - I don't quite see how the renter's would be especially more short sighted - it's not like the fund is obligated to hold the stocks any longer than anyone else.

[chimeracoder]

> you are now transferring voting rights from the share owner, who cares about the long term performance of the company, to share renters, who generally just care about the short term, which is counterproductive.

This logic is backwards; index fund holders are more likely to hold their shares for a longer period of time, compared to day traders. The whole point of index fund investing is to avoid short holds.

[cimmanom]

Also, what percentage of index fund investors hold those shares only in the short term? I thought much of the point of index fund investing is that it's great for a relatively low-effort, reasonably-diversified buy-and-hold strategy on the part of anyone from individual investors planning for retirement to institutional investors managing pensions?

[randyrand]

A share owner can sell at any time. As can a renter. Not sure I see a difference.

[lancekey]

Actually, I interviewed with these guys[0] trying to accomplish exactly what you suggest.

Apparently still in beta, so the site doesn't tell you much, but worth keeping an eye on.

[0] https://say.com/