In addition to the other main criticism about passive “communist” funds, which boils down to the growing realization that they tend to blindly buy – or sell – stocks with little concern for fundamentals, and often bid up companies whose fundamentals do not justify it by merely tracking fund flow – and also tend to indiscriminately liquidate en masse when market corrections occur – the SEC has flagged a new danger resulting from passive investment.
Speaking in New York on Thursday, SEC Commissioner Robert Jackson Jr. said that passive mutual funds often leave investors in the dark on corporate-governance issues, threatening their ability to gain information on proxy voting decisions.
“Investors do not get nearly enough usable information about how their money is being voted, and because of that, they cannot adequately hold those fund managers accountable for how they vote in those elections. It’s time for that to change.”
Jackson said the SEC should “more closely examine whether funds should have to disclose information about proxy voting in a different manner” to allow informed decisions by retail investors. The commissioner was speaking at a Federal Trade Commission conference on competition and consumer protection at New York University.
Of course, since an overhaul of passive investing means gutting the way ETFs trading is transacted and disclosed, expect substantial pushback from the man many consider the real king of Wall Street, Larry Fink, whose Blackrock has in the past decade become the company at the crux of the ETF trade with its trillions in ETF offerings. Which is another way of saying nothing will change.
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