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Index Funds' Biggest Failure to be Addressed?

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  • Index Funds' Biggest Failure to be Addressed?

    I've stated before that I think the biggest failure of index funds is the concentration of voting power and relinquishment of individual investor voting power. It violates the basic idea of company ownership - that you, as an individual, should have a say in things (however minute). Though I won't hold my breath regarding its passage, I do hope this bill has legs. It's a bit hard to argue against giving individuals the right to vote in accordance with their ownership rights. This is why the transparency in medicine pricing enacted by the last administration hasn't gone away - if anything it's gotten more robust with increased fines. People should at least be told what things are going to cost in advance if they are footing some (or all) of the bill.

    https://www.pionline.com/washington/...ting-influence

  • #2
    The biggest failure is ER and lack of dividends that they steal a good portion of.

    Those have been reduced dramatically compared to dinosaur mutual funds, but it's sill a substantial problem in the age of computer auto-buys.

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    • #3
      Do you want to go to 5000 shareholder meetings a year? Probably not. This is hardly a problem with index funds. It certainly exists with regular mutual funds and frankly, it's simply an issue with a diversified portfolio. I'm not even going to go to 5 shareholder meetings a year and I certainly would not be willing to hold just 5 securities.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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      • #4
        Originally posted by Max Power View Post
        The biggest failure is ER and lack of dividends that they steal a good portion of.

        Those have been reduced dramatically compared to dinosaur mutual funds, but it's sill a substantial problem in the age of computer auto-buys.
        Huh?

        Index mutual funds and ETFs have the lowest expense ratios.

        I have no idea how you think index funds are stealing dividends. By the tax code, IRS regulations and SEC regulations. They must distribute 100% of the dividends of the securities they hold.

        The dividends that companies distribute have been trending down for decades. Also, specific mutual funds' investment strategy might have favored dividends as one of their metrics.

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        • #5
          In my view, I have no interest in corporate governance. I am a very small minority investor. I have been a "silent partner" as well. Even if invited, a small minority owner in my view has two options: receive updates or sell.
          The most effective influence is with the BoD. Write a letter or contact. If I can't win at the BoD level, it is a waste of time.

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          • #6
            Originally posted by Max Power View Post
            The biggest failure is ER and lack of dividends that they steal a good portion of.

            Those have been reduced dramatically compared to dinosaur mutual funds, but it's sill a substantial problem in the age of computer auto-buys.
            How do they steal dividends? Genuinely curious as I’ve never heard that.

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            • #7
              Originally posted by abds View Post

              How do they steal dividends? Genuinely curious as I’ve never heard that.
              Maybe like this
               

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              • #8
                Originally posted by spiritrider View Post
                ...I have no idea how you think index funds are stealing dividends. By the tax code, IRS regulations and SEC regulations. They must distribute 100% of the dividends of the securities they hold...
                Hmm.

                So why does IVV pay dividend 1.53% last year... VOO paid 1.59%... SPY did 1.54%. Their share growth was also different, but total return % is what matters: SPY 28.75%, IVV 28.66%, VOO 28.60% (S&P aka SPX actual was 26.61% TR).

                You see, they have to return dividends, but not necessarily in cash, huh? There is room for funny biz in funds and always has been. Will say it is drastically improved vs mutual fund corruption, but 0.15% of a very gargantuan number (difference in returns of SPY and VOO) is still a very mammoth number. Add that to the ER, let the fund bot "managers" auto-copy the SPX, and still you have a pretty great G700 to take to your yacht full of booze and celebs.

                And don't get me wrong, I love me some index funds (I pick mostly SPY for options on it, some VOO).
                The 401k "proprietary" index funds are the true thieves snipping 1-5% or more in plain sight when you look at their fund TR vs appropriate indexes (plus they tack in many other fees on accounts). It's totally crazy, but the investors have no other choices (for 401/403). Again, much worse 10 or 20yrs ago, but it all still has room for improvement. I would hope comp science and ETF competition continues to do that.

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                • #9
                  Originally posted by Max Power View Post
                  Hmm.

                  So why does IVV pay dividend 1.53% last year... VOO paid 1.59%... SPY did 1.54%. Their share growth was also different, but total return % is what matters: SPY 28.75%, IVV 28.66%, VOO 28.60% (S&P aka SPX actual was 26.61% TR).
                  My superficial guess would be that they're slightly different with slightly different returns because the funds are all slightly different. They're almost identical which is why the dividend yield and return are very similar, but also not completely the same.

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                  • #10
                    Originally posted by Max Power View Post
                    The biggest failure is ER and lack of dividends that they steal a good portion of.

                    Those have been reduced dramatically compared to dinosaur mutual funds, but it's sill a substantial problem in the age of computer auto-buys.
                    I suspect this is one of those times when some one knows jussst enough to sound smart about a topic that may be perceived as 'basic' but really doesn't end up understanding what is an enormously complex topic. I think you are going down the road of conspiracy rather than being 'on to something'.

                    As a small example - I don't know this to be an actual fact for SPY vs. VOO, but I know that it's a thing (because I have dealt with in my professional life) in the ETF space - when the underlying company pays out a dividend to the fund, is that money held in cash or is it reinvested into the fund to be later paid out quarterly? That can easy be worth a few basis points in either direction depending on market performance. This is just one simple example of a potential cause of the discrepancy in dividend pay out. Neither is outright 'good' or 'bad' - it just is.

                    If you have evidence of 'skimming from the top' in this situation, I would love to see/read it. Also, there is a market to differentiate in these sorts of things that should stand out between Vanguard/BlackRock/SSgA - so which are you proposing is best? Otherwise, not to be too confrontational, but I just don't think you are up to date on how sophisticated something like fund structure and operations is.

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                    • #11
                      Having funds with a variety of approaches to how they treat dividends from underlying holdings allows better tax planning for the investors. I certainly don't want to be receiving pass-through dividends at this stage of my finances.

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                      • #12
                        I am a big fan of direct indexing, if you can do it. Then TLH the loosers and donate the winners and replace both. The big "IF" is can it be done time- and cost-efficiently?

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                        • #13
                          Originally posted by The White Coat Investor View Post
                          Do you want to go to 5000 shareholder meetings a year? Probably not. This is hardly a problem with index funds. It certainly exists with regular mutual funds and frankly, it's simply an issue with a diversified portfolio. I'm not even going to go to 5 shareholder meetings a year and I certainly would not be willing to hold just 5 securities.
                          Vanguard doesn’t attend 5000 shareholder meetings either. It’s pretty clear that Vanguard has some agendas that they want to push, and I don’t see the harm in allowing investors to vote independently against those agendas.

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                          • #14
                            This would increase costs for investors. Notifying everyone who owned shares of every vote for every company the fund holds-thousands in the case of broad funds like VTI- tracking the response and using them to calculate how to vote on each issue would cost money. A simple alternative: if you want to vote your shares, do not buy a mutual fund.

                            It is fine with me that Vanguard decides how to vote. If Vanguard "has some agendas that they want to push", whatever they may be, that is fine with me.

                            What would not be fine with me is being forced to pay for the cost of letting each fund investor direct how to vote on each question.

                            If you care that much and are willing to research every question then own the stocks directly.

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                            • #15
                              If the past few years are any indication I'm not interested in having JohnQPublic vote on anything financial. I guess that means I'm content to taking the chance there will be some professional insider skewing.

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