The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by brian91480 »

I concluded a long time ago:

If I only invested in nations and companies who thought and acted in ethical manners... I would have all my money hidden under a mattress. (a mattress that was probably created in a factory that used child slave labor).

So I keep this thinking away from investing. It's the only solution that isn't full of hypocrisy. (THIS bad behavior is bad, but not so bad, so I will invest.... THAT behavior is also bad, so I won't invest!)

I'll just stick to the S&P 500. 👍
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by BogleFan510 »

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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by steve r »

BogleFan510 wrote: Thu Jun 24, 2021 4:15 pm sustainable business practices are not economically disadvantaged against asset distructive strategies, that is a myth.
Color me skeptical on the claim that it is a myth. If environmental friendly strategies were more lucrative, CEOs would not need encouragement. (Good consultants could show them this :wink: )

OTOH, it is not uncommon for major share holders to push companies into short-sighted actions. Moreover, these short sighted actions are likely worse (from my buy and hold perspective).
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by tomsense76 »

nedsaid wrote: Thu Jun 24, 2021 2:04 pm On the ESG front Calvert, iShares, Vanguard, Praxis have good index products. Also there are good Large Value Index products you can buy from Praxis and Calvert. So you can do ESG and index and you can do ESG and do Value. I have noticed, as I said above, that ESG tends to be growthier and have larger market caps but it doesn't mean you can't do Value or invest in smaller companies. For some reason, High Tech seems to draw higher ESG scores than other industries so you will see a bit of bias towards tech.

In older times, ESG or Socially Responsible Investing used to be a drag on returns. In fact I joked quite often about the "sin" premium and there actually was a Vice Fund that invested in an opposite manner. The Vice Fund actually did well by the way. But today, I am not so sure about this, it seems that ESG might have a bit of a premium but it my opinion this can be explained by factors and by market sectors. Also if you are following ethical principles, your firm will experience less trouble with regulatory violations, environmental accidents, or even criminal liability. From the standpoint of behavior, there might be a premium here as over the long term better, more ethical behavior should translate into better long term value of the enterprise.
Thanks! TIL. Didn't know there were Value & ESG indexes. Guessing it is only a matter of time before small cap value ESG indexes are made (or would that get too concentrated?)

Yeah I suspect you are right. The fundamental driver of returns is not based on ESG, but based on studied factors. Though it is a good point that these shouldn't be treated as the same thing (even if there is some level of correlation).

This is a good point though I wonder if these get captured in some other factor as well (maybe profitability? it sounds somewhat similar at least conceptually). On the flipside a company that has otherwise been ethical, but has temporarily fallen from grace temporarily (maybe due to a one off mistake) seems like the exact sort of stock one would want to bet on.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by nisiprius »

The thing is that even if you accept the idea that ESG represents enlightened self-interest and a more sustainable and more profitable business, it is such a long-term thing that it has to be more of an article of faith than anything you can demonstrate. And it isn't just a single business doing something that benefits that single business, its a huge number of businesses doing something that benefits all businesses.

So it's fairly hard for the invisible hand to do its work.

There are so many confounding variables. For example, in the 1990s the screens used by what were then called SRI funds tended to result in overweighting high tech. So the result was that they did well during the tech boom. But the tech companies were not doing well because they were less polluting, or treating their workers better, they were doing well for unrelated reasons--which collapsed in 2001.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by MJS »

VOTE will be, apparently, the first Board-Pusher ETF. The chance that it will be the last seems remote. Who will found the Wise Shareholder Board ETF to protect and defend shareholder interests?
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by nedsaid »

nisiprius wrote: Thu Jun 24, 2021 3:48 pm
nedsaid wrote: Thu Jun 24, 2021 2:04 pm...In fact I joked quite often about the "sin" premium and there actually was a Vice Fund that invested in an opposite manner. The Vice Fund actually did well by the way...
As noted in my posting above, yes it did--but it has been overtaken by the Vanguard FTSE Social Index fund. And while ESG detractors loved to talk about VICEX, I don't think I remember anyone saying they had put any serious money into it. It currently has only $108 million in assets, and a two-star Morningstar rating.

In short, while I expressed some skepticism about the size of VOTE, which will be starting with only $100 million... it will in fact be about the same size as VICEX.
As I said before, I am not sure the "sin premium" exists anymore. As I have researched ESG investments, I saw a lot of things that I liked. Calvert in particular had some excellent performance.
I am not an ESG investor myself but I am certainly not opposed to it.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by Tingting1013 »

MAKsdad wrote: Thu Jun 24, 2021 3:15 pm
Tingting1013 wrote: Thu Jun 24, 2021 3:03 pm
MAKsdad wrote: Thu Jun 24, 2021 2:56 pm If someone wanted to make a TON of money, they should start a private equity fund and buy up all of the "bad" stuff that companies are going to have to sell because of ESG/activist investors. Buy up all the coal plants and mining/drilling facilities that are being divested at 75 cents on the dollar and just run them for the next 25 years and walk away with bags and bags of money.
And yet we don’t see this happening, we don’t see funds cropping up only investing in the sin stocks, at least not outside of a few novelty ETFs, and even those are way overshadowed by the ESG funds.

So what does that tell you?
Of course we see it, it's just not publicly traded companies. Someone is buying up all those divested assets and making a killing. It's not like stuff is being shut down when Exxon or others divest it. It's just privately held companies who don't have to answer to activists.

I'm not talking about investing in sin stock companies, I'm talking about buying up the cash producing assets those companies are selling off because they aren't ESG friendly.
Ah, of course, that’s why coal is at record lows of electricity generation and the last coal ETF shut down last year, because it’s super profitable to produce and sell and burn. Makes perfect sense…
Last edited by Tingting1013 on Thu Jun 24, 2021 9:24 pm, edited 1 time in total.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by Tingting1013 »

langlands wrote: Thu Jun 24, 2021 3:32 pm
Tingting1013 wrote: Thu Jun 24, 2021 3:12 pm
langlands wrote: Thu Jun 24, 2021 2:49 pm You are being a bit vague about what you mean though. When you say the "markets reveal the truth for me," what truth are you referring to? Is the true value of the company approximated by an estimate of discounted cash flow of future earnings? Or some more ethereal truth (taking into account moral values)? If it's the latter, you should think through the implications (also, do you really take a Bogleheads "know nothing" attitude towards moral values?!). Again, that is equivalent to fully politicizing the capital markets. I tend to agree with Soros that there's a certain amount of reflexivity in the market and that once "moral worth" becomes a major aspect of company valuation, it will be very difficult to remove. We already have a political system, and culture itself is becoming highly politicized. Now thinking about our long-term interests, is it really wise to make our economic system political?
It’s pretty clear that you are the one trying to make this exchange political, not me.

I just want to make money, and if the markets say that the way to make money is through green stocks, so be it.
I feel like we just went around in a circle. I thought your first post in response to me acknowledged my point that ESG investors aren't just out to make money, but to do good in the world by looking out for our long-term interests. If now you just want to say that you like ESG because it will outperform the market, I mean fine, but I contend you are in the minority of ESG investors (if you are one).
My long term interest is to make money. It’s not the only thing I value, but it is what matters as far as my money is concerned. I would expect that’s true as well for the institutional money that moves the markets.

And I never made the claim that I want to outperform the market.

I am making some very simple claims:
1. I don’t know what corporate policies are good or bad for long term market returns.
2. But I do believe that the market as a whole will eventually land on the policies that are most likely drive to the market up.
3. If those policies are ESG-focused, great. If not, great as well.
4. Whatever those policies are, are the policies that will most likely drive up long term returns, given all known information at the time. Of course the market could be mistaken about that. It often is in the short term. But not in the long term.

Is any of this controversial? This is Bogleheads, right?

So if you want to believe that what we are seeing is an result of some extra-capitalist phenomenon not driven by the long term profit motive, ok that’s your prerogative. I’m going to instead trust that human nature hasn’t changed in the last two decades or so that ESG showed up.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by langlands »

Tingting1013 wrote: Thu Jun 24, 2021 9:24 pm
langlands wrote: Thu Jun 24, 2021 3:32 pm I feel like we just went around in a circle. I thought your first post in response to me acknowledged my point that ESG investors aren't just out to make money, but to do good in the world by looking out for our long-term interests. If now you just want to say that you like ESG because it will outperform the market, I mean fine, but I contend you are in the minority of ESG investors (if you are one).
My long term interest is to make money. It’s not the only thing I value, but it is what matters as far as my money is concerned. I would expect that’s true as well for the institutional money that moves the markets.

And I never made the claim that I want to outperform the market.

I am making some very simple claims:
1. I don’t know what corporate policies are good or bad for long term market returns.
2. But I do believe that the market as a whole will eventually land on the policies that are most likely drive to the market up.
3. If those policies are ESG-focused, great. If not, great as well.
4. Whatever those policies are, are the policies that will most likely drive up long term returns, given all known information at the time. Of course the market could be mistaken about that. It often is in the short term. But not in the long term.

Is any of this controversial? This is Bogleheads, right?

So if you want to believe that what we are seeing is an result of some extra-capitalist phenomenon not driven by the long term profit motive, ok that’s your prerogative. I’m going to instead trust that human nature hasn’t changed in the last two decades or so that ESG showed up.
This comes down to whether or not one thinks the invisible hand is strong enough to always align investors/companies with the profit motive. I think the evidence is abundant at this point that it is not. For example, consider the following perspective from an ESG-focused firm:

https://www.nasdaq.com/articles/investi ... 2020-08-14

If you think this is not "extra-capitalist," I think we'll have to agree to disagree. Climate change is probably one of the less controversial areas of ESG. ESG investing takes strong stances on social issues, i.e. it is very much political.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by OnTrack »

MJS wrote: Thu Jun 24, 2021 7:08 pm VOTE will be, apparently, the first Board-Pusher ETF. The chance that it will be the last seems remote. Who will found the Wise Shareholder Board ETF to protect and defend shareholder interests?
Are not those who invest in VOTE shareholders? They are shareholders (at least indirectly) who want their shares voted to align with their interests. Nothing is stopping someone from creating an ETF that would vote shares in other ways. I actually think there is a big problem with corporate governance that should be corrected so that individual shareholder preferences could be better represented. Creating various ETFs to vote based on various differing interests is not the best solution although it may be the best solution currently available.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by OnTrack »

Tingting1013 wrote: Thu Jun 24, 2021 9:11 pm
MAKsdad wrote: Thu Jun 24, 2021 3:15 pm
Tingting1013 wrote: Thu Jun 24, 2021 3:03 pm
MAKsdad wrote: Thu Jun 24, 2021 2:56 pm If someone wanted to make a TON of money, they should start a private equity fund and buy up all of the "bad" stuff that companies are going to have to sell because of ESG/activist investors. Buy up all the coal plants and mining/drilling facilities that are being divested at 75 cents on the dollar and just run them for the next 25 years and walk away with bags and bags of money.
And yet we don’t see this happening, we don’t see funds cropping up only investing in the sin stocks, at least not outside of a few novelty ETFs, and even those are way overshadowed by the ESG funds.

So what does that tell you?
Of course we see it, it's just not publicly traded companies. Someone is buying up all those divested assets and making a killing. It's not like stuff is being shut down when Exxon or others divest it. It's just privately held companies who don't have to answer to activists.

I'm not talking about investing in sin stock companies, I'm talking about buying up the cash producing assets those companies are selling off because they aren't ESG friendly.
Ah, of course, that’s why coal is at record lows of electricity generation and the last coal ETF shut down last year, because it’s super profitable to produce and sell and burn. Makes perfect sense…
https://www.marketscreener.com/quote/st ... -33023268/
"Major oil companies ... are selling billions of dollars of assets to bolster their finances and reduce carbon emissions. ...
But, these projects -- and their emissions -- aren't going away. Instead, they are being managed by smaller players that often face less environmental scrutiny. Buyers are also betting their fossil-fuel projects have plenty of room to run. ..."
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by rossington »

ESG investing requires an "emotional bias", that is one is investing this way because it makes them feel good because "they are doing their part". But according to Bogleheads principle emotional bias should be avoided in practical investing.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by Valuethinker »

Tingting1013 wrote: Thu Jun 24, 2021 3:03 pm
MAKsdad wrote: Thu Jun 24, 2021 2:56 pm If someone wanted to make a TON of money, they should start a private equity fund and buy up all of the "bad" stuff that companies are going to have to sell because of ESG/activist investors. Buy up all the coal plants and mining/drilling facilities that are being divested at 75 cents on the dollar and just run them for the next 25 years and walk away with bags and bags of money.
And yet we don’t see this happening, we don’t see funds cropping up only investing in the sin stocks, at least not outside of a few novelty ETFs, and even those are way overshadowed by the ESG funds.

So what does that tell you?
Has happened. Ticker VICE. High expense ratio. No doubt there are ETFs which cover world tobacco, for example? Gaming stocks? Alcoholic beverages.

Usually the low ESG companies also have low PE - the stock market doesn't trust management (poor G) or some other factor (Canadian oil sands cos, etc).

So the Value funds tend to pick them up - the big mining companies etc. If you look at the UK index the biggest constituents include Oil & gas, mining, tobacco.

Glencore is demerging its coal mines to try to raise the PE of the stock.

Main problem with high ESG companies is tilt towards large cap growth stocks is enhanced/ increased. So you get an overweighting in Amazon, Apple etc. That's been great the last few years, but most of those stocks are at high PE multiples. You risk overpaying.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by Tingting1013 »

langlands wrote: Thu Jun 24, 2021 10:23 pm
Tingting1013 wrote: Thu Jun 24, 2021 9:24 pm
langlands wrote: Thu Jun 24, 2021 3:32 pm I feel like we just went around in a circle. I thought your first post in response to me acknowledged my point that ESG investors aren't just out to make money, but to do good in the world by looking out for our long-term interests. If now you just want to say that you like ESG because it will outperform the market, I mean fine, but I contend you are in the minority of ESG investors (if you are one).
My long term interest is to make money. It’s not the only thing I value, but it is what matters as far as my money is concerned. I would expect that’s true as well for the institutional money that moves the markets.

And I never made the claim that I want to outperform the market.

I am making some very simple claims:
1. I don’t know what corporate policies are good or bad for long term market returns.
2. But I do believe that the market as a whole will eventually land on the policies that are most likely drive to the market up.
3. If those policies are ESG-focused, great. If not, great as well.
4. Whatever those policies are, are the policies that will most likely drive up long term returns, given all known information at the time. Of course the market could be mistaken about that. It often is in the short term. But not in the long term.

Is any of this controversial? This is Bogleheads, right?

So if you want to believe that what we are seeing is an result of some extra-capitalist phenomenon not driven by the long term profit motive, ok that’s your prerogative. I’m going to instead trust that human nature hasn’t changed in the last two decades or so that ESG showed up.
This comes down to whether or not one thinks the invisible hand is strong enough to always align investors/companies with the profit motive. I think the evidence is abundant at this point that it is not. For example, consider the following perspective from an ESG-focused firm:

https://www.nasdaq.com/articles/investi ... 2020-08-14

If you think this is not "extra-capitalist," I think we'll have to agree to disagree. Climate change is probably one of the less controversial areas of ESG. ESG investing takes strong stances on social issues, i.e. it is very much political.
Of course that is political. But who’s to say that companies embracing racial justice is not better for long term returns than ignoring racial justice? You seem to know that for a fact. I don’t.

If that’s where the money flows that’s where the money flows.

What you are really saying is that the invisible hand of the profit motive generally works, just not when it lands on positions you personally find controversial/disagree with. Is that really a tenable position?
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by LadyGeek »

Please stay on-topic, which is the investing aspects.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by stan1 »

Seems like everyone who is eschewing international investing because the US has stronger investment governance should be very supportive of a US based investment that asserts investors rights and advocates for strong governance? Or is it really about how personal beliefs influence or direct investing after all?
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by JackoC »

Tingting1013 wrote: Fri Jun 25, 2021 8:33 am
langlands wrote: Thu Jun 24, 2021 10:23 pm
Tingting1013 wrote: Thu Jun 24, 2021 9:24 pm
langlands wrote: Thu Jun 24, 2021 3:32 pm I feel like we just went around in a circle. I thought your first post in response to me acknowledged my point that ESG investors aren't just out to make money, but to do good in the world by looking out for our long-term interests. If now you just want to say that you like ESG because it will outperform the market, I mean fine, but I contend you are in the minority of ESG investors (if you are one).
My long term interest is to make money. It’s not the only thing I value, but it is what matters as far as my money is concerned. I would expect that’s true as well for the institutional money that moves the markets.

And I never made the claim that I want to outperform the market.


So if you want to believe that what we are seeing is an result of some extra-capitalist phenomenon not driven by the long term profit motive, ok that’s your prerogative. I’m going to instead trust that human nature hasn’t changed in the last two decades or so that ESG showed up.
This comes down to whether or not one thinks the invisible hand is strong enough to always align investors/companies with the profit motive. I think the evidence is abundant at this point that it is not. For example, consider the following perspective from an ESG-focused firm:

https://www.nasdaq.com/articles/investi ... 2020-08-14

If you think this is not "extra-capitalist," I think we'll have to agree to disagree. Climate change is probably one of the less controversial areas of ESG. ESG investing takes strong stances on social issues, i.e. it is very much political.
Of course that is political. But who’s to say that companies embracing racial justice is not better for long term returns than ignoring racial justice? You seem to know that for a fact. I don’t.

If that’s where the money flows that’s where the money flows.

What you are really saying is that the invisible hand of the profit motive generally works, just not when it lands on positions you personally find controversial/disagree with. Is that really a tenable position?
It's extremely difficult, practically impossible, for typical investors to decide whether corporate policies at each of the necessarily many companies (for diversification) in which they invest are best for long term shareholder value. Any given corporate management itself does not certainly know what policies will lead to maximum shareholder value (and therefore criticisms of the basic system by pointing to cases of corporate failure are knocking over a strawman, nobody rational says the 'invisible hand' *always* produces value, just that it succeeds more often than efforts focused on something other than profit). So I sort of agree with your first paragraph. But, the key point IMO is whether the *intention* is strictly to maximize long term profit.

Let's set aside corporate PR for a moment and assume managers say what they mean. If so I'd want to avoid companies which say they are operating to maximize 'stakeholder' value. I'd want to invest in companies that seek to maximize *shareholder* value, because I'm a shareholder. I can always give away some or all of that value to charity if I choose, and the government will take from me whatever portion of the value the body politic decides is appropriate (which we needn't debate further, it's a given I can't personally control). In this artificial world where managers say what they mean, there's no need for them to trumpet their pursuit of 'racial justice', 'environmental sustainability' etc. If those pursuits result in maximum shareholder value, it would already be incorporated by saying 'we maximize shareholder value'. If those things are set up as separate goals, that can only imply that sometimes 'racial justice' or 'environmental sustainability' would *not* result in maximum shareholder value but nonetheless be pursued. I'd want to avoid companies doing that.

However in the real world managers often claim to pursue 'stakeholder' value when they are really still basically laser focusing on shareholder value. Why? because mega corp top management teams are generally big shareholders themselves. There may be some attraction, of personal vanity, to being seen as 'helpers of society', but the bottom line still tends to pull them in the direction of maximizing shareholder (their own personal) monetary value. Nor is it always a matter of mixed motives. For a company that faces the consumer, shareholder value might be maximized by *saying* something else is being maximized. The idea of companies having a mission to generally benefit society, not just make profit within the law, is very widely held if disproportionately by consumers with little or no 'skin in the game', and/or too naive to understand that if that were really true their 401k's would grow more slowly. However, telling these people what they want to hear could actually maximize shareholder value by boosting the image>sales>profits of the company. So it's kind of a hall of mirrors.

As to the new fund, if I became convinced that a material portion of cap weight of US companies was actually focusing on goals other than shareholder value, to a significant degree, and they were all bundled up in a neat ETF, I might consider shorting that ETF against the rest of the market. But again it's very difficult IMO to assess how material any deviation from intention to maximize shareholder value really is.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by Tingting1013 »

JackoC wrote: Fri Jun 25, 2021 10:31 am But, the key point IMO is whether the *intention* is strictly to maximize long term profit.
Disagree. Regardless of stated intention, money will flow to where it finds the highest risk adjusted return. Always. To claim otherwise is to claim that human nature has fundamentally changed.

Stakeholder value, shareholder value, extraterrestrial value, it’s all just talk. Ignore the talk. Look at the corporate actions and the investor money flows.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by JackoC »

Tingting1013 wrote: Fri Jun 25, 2021 10:54 am
JackoC wrote: Fri Jun 25, 2021 10:31 am But, the key point IMO is whether the *intention* is strictly to maximize long term profit.
Disagree. Regardless of stated intention, money will flow to where it finds the highest risk adjusted return. Always. To claim otherwise is to claim that human nature has fundamentally changed.

Stakeholder value, shareholder value, extraterrestrial value, it’s all just talk. Ignore the talk. Look at the corporate actions and the investor money flows.
I don't think we're entirely disagreeing. You assume the real intention will always be shareholder value, and the rest is just talk. This would also be my default assumption as I think I explained. We disagree to the extent you think it *can't* be more than talk according to 'human nature'. Human nature also includes a declining marginal utility of wealth, and a desire to be lauded not trashed. US CEO's are usually big (by normal investor standards if not a big %) shareholders in their companies thus have a direct financial motive to maximize shareholder value, whatever they say. Agreed. However, they are also generally already very wealthy people with reduced marginal utility of more wealth, and by human nature they prefer to be lionized as seekers of social justice, saving the planet, etc. than being trashed by the segment of society generally dominant in the media and social media who are very much in favor of 'justice' and 'saving' and range between indifference and intensely hostility to capitalism and the profit motive. It doesn't take a fundamental change in human nature for that balance to shift more toward CEO's acting as philanthropists using mainly other people's money, it just takes a big enough shift in the social environment. We're living in a time of a rapidly shifting social environment. A change toward (for real) 'stakeholder capitalism' enough to materially reduce stock returns is possible IMO, though evidence hasn't emerged yet.

I believe this is among the reasons (not the only one, and the degree not provable) European stocks have shrunk so much as % of world cap, the (actually somewhat for real) 'stakeholder capitalism' model there v increasingly 'rapacious capitalism' model of US companies in recent times up to now, when US companies have also IMO not coincidentally outperformed so much in shareholder return. It's not the only reason, but I believe it's a factor. I again don't agree this *can't* happen.

But we also agree this isn't actionable wrt US companies now. You seem to think it could never be, I don't necessarily agree with that.
Last edited by JackoC on Fri Jun 25, 2021 12:47 pm, edited 1 time in total.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by langlands »

JackoC wrote: Fri Jun 25, 2021 11:35 am
Tingting1013 wrote: Fri Jun 25, 2021 10:54 am
JackoC wrote: Fri Jun 25, 2021 10:31 am But, the key point IMO is whether the *intention* is strictly to maximize long term profit.
Disagree. Regardless of stated intention, money will flow to where it finds the highest risk adjusted return. Always. To claim otherwise is to claim that human nature has fundamentally changed.

Stakeholder value, shareholder value, extraterrestrial value, it’s all just talk. Ignore the talk. Look at the corporate actions and the investor money flows.
I don't think we're entirely disagreeing. You're assuming the real intention will always be shareholder value, and the rest is just talk. This would also be my default assumption, till I see clear evidence otherwise. But like I said there is something of a mixed motive for big corp management teams, to be lionized, or at least not chewed up as much, but media/social media if they claim to be pursuing goals popular in the part of society overrepresented in the media and much of social media. That competes with their desire for personal profit (as shareholders themselves) but the diminishing utility of greater wealth, and extreme wealth of many US CEO's already, makes it *possible* IMO that some 'stakeholder value' talk is not purely BS. I will take a wait and see attitude. I see no reason to slice and dice among companies based on this as of now, within the US index. But I think for example 'stakeholder value' pursuit is *among* (not the only) the reasons European stocks have shrunk as % of world market cap so much. I don't think the reputation of US companies for 'rapaciousness' and the outperformance of US stocks is a complete coincidence (again, not the only reason so it's never provable). Although it's not just managements doing that, it's public policies in Europe too, which could also become public policies in the US at some point. Something to be watched IMO, not acted on now, but not written off as impossible it could have any effect on returns.
Great posts JackoC as you've elegantly created a bridge between my viewpoint and Tingting's. I agree that the pretense of stakeholder value (companies having a "global mission" or donating to various charities) can be a boon for shareholder value and sometimes stakeholder value and shareholder value are aligned so that it's a win win for everyone. But as you said, the mere mention of stakeholder value as separate from shareholder value implies that they're not always aligned.

I actually agree with Tingting that companies themselves are mostly concerned solely with shareholder value and any talk of stakeholder value is just lip service. However, the active investors who talk about stakeholder value and wish to effect change are in my opinion very serious and will gladly sacrifice shareholder value in pursuit of their aims if ever they come in conflict. I don't feel a need to take a "wait and see attitude" regarding this. Just my opinion though.

Ironically though, I believe these active investors though possibly sacrificing the shareholder value of other investors, are themselves primarily acting out of their own profit motive. Hall of mirrors is a great way of describing it. Engine No. 1 reaps a healthy fee on its new ETF. Blackrock's ESG ETF's reap a healthy expense ratio over its vanilla passive indices.

Although you seem tentative about the US/Europe comparison, I am quite convinced of it, which is why I tilt US (for now).
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by JackoC »

langlands wrote: Fri Jun 25, 2021 11:54 am
JackoC wrote: Fri Jun 25, 2021 11:35 am
Tingting1013 wrote: Fri Jun 25, 2021 10:54 am
JackoC wrote: Fri Jun 25, 2021 10:31 am But, the key point IMO is whether the *intention* is strictly to maximize long term profit.
Disagree. Regardless of stated intention, money will flow to where it finds the highest risk adjusted return. Always. To claim otherwise is to claim that human nature has fundamentally changed.

Stakeholder value, shareholder value, extraterrestrial value, it’s all just talk. Ignore the talk. Look at the corporate actions and the investor money flows.
I don't think we're entirely disagreeing. You're assuming the real intention will always be shareholder value, and the rest is just talk. This would also be my default assumption, till I see clear evidence otherwise. But like I said there is something of a mixed motive for big corp management teams, to be lionized, or at least not chewed up as much, but media/social media if they claim to be pursuing goals popular in the part of society overrepresented in the media and much of social media. That competes with their desire for personal profit (as shareholders themselves) but the diminishing utility of greater wealth, and extreme wealth of many US CEO's already, makes it *possible* IMO that some 'stakeholder value' talk is not purely BS. I will take a wait and see attitude. I see no reason to slice and dice among companies based on this as of now, within the US index. But I think for example 'stakeholder value' pursuit is *among* (not the only) the reasons European stocks have shrunk as % of world market cap so much. I don't think the reputation of US companies for 'rapaciousness' and the outperformance of US stocks is a complete coincidence (again, not the only reason so it's never provable). Although it's not just managements doing that, it's public policies in Europe too, which could also become public policies in the US at some point. Something to be watched IMO, not acted on now, but not written off as impossible it could have any effect on returns.
Great posts JackoC as you've elegantly created a bridge between my viewpoint and Tingting's. I agree that the pretense of stakeholder value (companies having a "global mission" or donating to various charities) can be a boon for shareholder value and sometimes stakeholder value and shareholder value are aligned so that it's a win win for everyone. But as you said, the mere mention of stakeholder value as separate from shareholder value implies that they're not always aligned.

I actually agree with Tingting that companies themselves are mostly concerned solely with shareholder value and any talk of stakeholder value is just lip service. However, the active investors who talk about stakeholder value and wish to effect change are in my opinion very serious and will gladly sacrifice shareholder value in pursuit of their aims if ever they come in conflict. I don't feel a need to take a "wait and see attitude" regarding this. Just my opinion though.

Ironically though, I believe these active investors though possibly sacrificing the shareholder value of other investors, are themselves primarily acting out of their own profit motive. Hall of mirrors is a great way of describing it. Engine No. 1 reaps a healthy fee on its new ETF. Blackrock's ESG ETF's reap a healthy expense ratio over its vanilla passive indices.

Although you seem tentative about the US/Europe comparison, I am quite convinced of it, which is why I tilt US (for now).
Thanks and those are great additional points (sorry there's two versions of my previous post, I thought the first one was lost, similar thoughts in second try I think). As you say there are full time activists evaluating these things in each company, and some of them are not focused on shareholder value. Also as you say, they can feather their own nests other ways, so the fact that they are shareholders doesn't insure they only prioritize shareholders, like it doesn't with CEO's, they have a lot of money already and care about their public images, people do. 'Invest in the index and forget it' is still IMO the least worst way to approach investing for the great majority of people. But it should not make us think everything is simple. Social environment can have persistent effects contrary to very simplistic takes on the market. Another example would be whether one thinks it's pure nostalgia when, as is common, ordinary people point to when US companies were more 'patriotic' in the past. I don't think that's completely untrue, but there's some zero sum element to a public stock company favoring its country of domicile or its shareholders when push comes to shove. In my personal experience with senior management at a large Japanese company, I believe patriotism/nationalism outweighed shareholder interest in some decisions, to the detriment of shareholders.

There are as you say 'win-wins' where shareholder and 'stakeholder' interests are aligned, and cases where they aren't aligned. If you prioritize 'stakeholder interest' in the misaligned cases, shareholders must get less on average than if you always prioritized shareholder interest. It's axiomatic, similar to the axiom where all investors get the gross market return minus expenses, investors with lower expenses on average must get higher net returns on average. And like that debate, there's sometimes flimflamming trying to get out of the net of a non debatable axiom. :happy

The viable question IMO is whether 'stakeholder capitalism' is essentially entirely [expletive removed by admin LadyGeek] or has some real, material element. Those who feel it's almost entirely [expletive removed by admin LadyGeek] could turn out right as to US corporations. But my antennae are raised about it now in the US.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by oofoo2000 »

This very much reminds me of Alcoa's prioritization of safety and how that lead to increased efficiency:
https://davidburkus.com/2020/04/how-pau ... -at-alcoa/
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by calwatch »

I would consider investing in it. It's always been unclear on the Vanguard or Fidelity ESG index funds if the fund management actually votes in an ESG manner, even if that may not match with the more fiduciarily-driven concerns of the non-ESG sister funds which hold the stock. And if you go with Calvert or Pax active funds, they will most definitely vote their consciences but shareholders pay for the privilege of them researching.

Currently IBKR has, through the Interactive Advisors service, a broad market equity "fund" which allows you to vote whole shares, auto rebalanced, that essentially acts as a Separately Managed Account. Since you hold all shares in your account, you can vote any whole shares yourself. https://interactiveadvisors.com/smartbe ... -portfolio

I don't necessarily want to NOT hold "sin" stocks out of proportion to the market, but I want the fund managers to consider things other than immediate fiduciary responsibility on shareholder proposals and board votes. ESG funds will exclude offensive stocks. Now, granted, VOTE's influence with, say, Altria is going to be minimal, even if they vote for all shareholder proposals and oppose all board nominees. For the few shares I hold directly, I almost always vote for all shareholder proposals, reject all management proposals, and oppose all board nominees. My rationale is that I want to drive down the winning percentages to encourage better competition in the future. I follow the same strategic practice to vote against safe seat incumbents unless the challenger is truly offensive, in order to encourage other, possibly more credible candidates to emerge and compete. Some people may, when Avis and Hertz offer similar prices and service, support Avis to ensure Hertz doesn't take all the business.

Competition is good and I might consider reallocating my FITLX allocation to VOTE, and maybe even my broad market allocation in tax deferred accounts. The question, as always, will be how well it tracks the market, which ends up being a catch 22 because smaller funds have more transaction costs since they can't distribute it over larger assets. I am impressed market makers are keeping a one cent spread, which is often a problem with new and thinly traded ETFs.

If you search for "vote funds" by the way, you have a ETF company offering a completely different set of values: https://www.2ndvotefunds.com/ I won't say anything about their politics, but that 0.75% expense ratio is a ripoff, but may be fair given the very limited assets they have.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by MAKsdad »

calwatch wrote: Mon Jun 28, 2021 2:08 pm For the few shares I hold directly, I almost always vote for all shareholder proposals, reject all management proposals, and oppose all board nominees. My rationale is that I want to drive down the winning percentages to encourage better competition in the future.
This makes no sense to me for individual companies. If you like what management is doing and the company is performing, why would you vote against them? If you don't like what management is doing, why would you continue to hold the shares?
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by nisiprius »

Anyway the fund seems to be out now and we can at least see whether it does a workmanlike job of tracking its index, and whether its index does a workmanlike job of aping the S&P 500.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by Tamarind »

Interesting. This is a fund I would consider if they continue to grow and succeed with pressure campaigns. As with folks above I'm interested in ESG but have found it unwise to pay more for risk concentration via exclusion. But more active voting might be worth it a couple points as a service.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by mervinj7 »

brian91480 wrote: Thu Jun 24, 2021 4:08 pm I concluded a long time ago:

If I only invested in nations and companies who thought and acted in ethical manners... I would have all my money hidden under a mattress. (a mattress that was probably created in a factory that used child slave labor).

So I keep this thinking away from investing. It's the only solution that isn't full of hypocrisy. (THIS bad behavior is bad, but not so bad, so I will invest.... THAT behavior is also bad, so I won't invest!)

I'll just stick to the S&P 500. 👍
I think the point of this fund is that you can keep investing in the same companies but try to change their behavior through shareholder votes. That way, you get around the dilemma of choosing which ones to invest in. I think that helps keep their ER low.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by calwatch »

MAKsdad wrote: Tue Jun 29, 2021 8:15 am
calwatch wrote: Mon Jun 28, 2021 2:08 pm For the few shares I hold directly, I almost always vote for all shareholder proposals, reject all management proposals, and oppose all board nominees. My rationale is that I want to drive down the winning percentages to encourage better competition in the future.
This makes no sense to me for individual companies. If you like what management is doing and the company is performing, why would you vote against them? If you don't like what management is doing, why would you continue to hold the shares?
I hold so few shares that my vote really doesn't matter in terms of making a decision, I just like to see the votes against management a little higher. Same as voting against safe seat incumbents. It's less about the challenger than encouraging the incumbents to recognize that they might be less safe next time.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by MAKsdad »

calwatch wrote: Tue Jun 29, 2021 9:36 am
MAKsdad wrote: Tue Jun 29, 2021 8:15 am
calwatch wrote: Mon Jun 28, 2021 2:08 pm For the few shares I hold directly, I almost always vote for all shareholder proposals, reject all management proposals, and oppose all board nominees. My rationale is that I want to drive down the winning percentages to encourage better competition in the future.
This makes no sense to me for individual companies. If you like what management is doing and the company is performing, why would you vote against them? If you don't like what management is doing, why would you continue to hold the shares?
I hold so few shares that my vote really doesn't matter in terms of making a decision, I just like to see the votes against management a little higher. Same as voting against safe seat incumbents. It's less about the challenger than encouraging the incumbents to recognize that they might be less safe next time.
I guess my point is that I want incumbents feeling safe if they're doing things that I agree with. If a company is well-run, I would hate for them to make bad decisions because they are worried about vote totals.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by JackoC »

oofoo2000 wrote: Mon Jun 28, 2021 12:11 pm This very much reminds me of Alcoa's prioritization of safety and how that lead to increased efficiency:
https://davidburkus.com/2020/04/how-pau ... -at-alcoa/
Again it's axiomatic that if shareholder interest and 'stakeholder' interest ever diverge and you prioritize the latter, the shareholders get less than if you always prioritized their interest.

If the claim is that the two things never diverge, then it's just a matter of semantics which thing you say you prioritize. But if they are always the same, what's the need for a new term? The natural inference (in an honest world) is that the two things, shareholder and 'stakeholder' interest can differ, so back to the first sentence.

Although as I said above, it's far from an honest world. In many or most cases 'we prioritize stakeholder interest' is empty rhetoric. And as long as that's so, it's no big deal. I'm comfortable with a little fibbing by managers, telling the media and naive parts of the public what they want to hear, as long as my (and their) interest as shareholder is the actual top priority when push comes to shove. If there's an actual material shift toward making 'stakeholder' interest the top priority, I would want to avoid investing in those companies, if practical.

On safety in heavy industry being in *shareholder* interest, I would take this as given in rich countries. In case of a very cheap workforce in a poor country there might be a conflict between ethics and profit wrt safety, but in rich countries the high costs of worker injuries tend to align shareholder and worker interest wrt safety. A US industrial company with a safety problem at domestic operations can be assumed IMO to be poorly serving shareholders. In other matters shareholder and worker, community, national etc. interests are simply not necessarily the same. It's IMO, not seeking to be harsh, childish to think they are always the same, even in the 'long run'.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by milktoast »

roth evangelist wrote: Tue Jun 22, 2021 6:00 pm A hedge fund, Engine No. 1, is launching an ETF that will track the S&P 500. Unlike most index funds, it's planning to exercise shareholder power to move companies in a more ESG direction, like it did recently with Exxon. The expense ratio will be 0.05%.
I'm looking into this fund more. And that headline about tracking the SP500 from Reuters seems inaccurate.

From the prospectus. "The Engine No. 1 Transform 500 ETF seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Morningstar US Large Cap Select TR USD (“the Index”), a market cap-weighted index that tracks the 500 largest companies in the US."

Which leads to a question. Does anyone know of a fund/ETF that forms the completion fund for this index?

I know that the correlation with SP500 will be very high, so the SP500 completion index would work just fine. But if I decide to purchase this fund, I would prefer to buy something tracking the correct completion index.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by calwatch »

milktoast wrote: Tue Jun 29, 2021 2:20 pm
roth evangelist wrote: Tue Jun 22, 2021 6:00 pm A hedge fund, Engine No. 1, is launching an ETF that will track the S&P 500. Unlike most index funds, it's planning to exercise shareholder power to move companies in a more ESG direction, like it did recently with Exxon. The expense ratio will be 0.05%.
I'm looking into this fund more. And that headline about tracking the SP500 from Reuters seems inaccurate.

From the prospectus. "The Engine No. 1 Transform 500 ETF seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Morningstar US Large Cap Select TR USD (“the Index”), a market cap-weighted index that tracks the 500 largest companies in the US."

Which leads to a question. Does anyone know of a fund/ETF that forms the completion fund for this index?

I know that the correlation with SP500 will be very high, so the SP500 completion index would work just fine. But if I decide to purchase this fund, I would prefer to buy something tracking the correct completion index.
Apparently iShares ETFs use Morningstar as a base. So perhaps a combination of IMCB and ISCB. Unfortunately, the ILCB is defined as a "large-mid broad market" fund with 800 holdings as opposed to Large Cap Select's 500. The index itself is novel and dates to March of this year.
https://www.etfstrategy.com/morningstar ... box-48495/

Here's the construction of the Morningstar Large Cap Select 500: https://assets.contentstack.io/v3/asset ... lebook.pdf
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by milktoast »

calwatch wrote: Tue Jun 29, 2021 3:21 pm The index itself is novel and dates to March of this year.
https://www.etfstrategy.com/morningstar ... box-48495/

Here's the construction of the Morningstar Large Cap Select 500: https://assets.contentstack.io/v3/asset ... lebook.pdf
Interesting. Thanks. Looks like this new Large Cap Select 500 index is a bit of a one-off and there isn't an obvious completion index maintained by Morningstar. Definitely another wrinkle to consider here.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by milktoast »

I did some exploration of https://indexes.morningstar.com/our-ind ... sset-types using Equity, USD, TR, beta=false, ESG=false, North America, Equity Market Cap filter.

Think I understand this index now.

US Large Cap has 200 holdings and represents 70% of US market cap
US Mid Cap has 503 holdings and represents next 20%
US Small Cap has 732 holdings and represents final 10%.

US Large Mid has 703 holdings and is simply US Large + US Mid
US Small Mid has 1233 and is US Mid + US Small
US Extended has 2437 holdings and is US Large + US Mid + US Small + stuff

And finally the US Large Cap Select has 506 holdings. And overlaps US large cap plus 40% of the holdings in US Mid cap.

So... there isn't really a completion index. And my guess is that it approximates in the neighborhood of 80% - 85% of US market cap.

Unlike SP500 it seems to only filter based on liquidity and market cap, so it would have included Tesla last year and a few other holdings that SP500 excludes https://stockmarketmba.com/largeststock ... esp500.php

Which means for a completion index, there isn't really anything available. US Small Cap would have a donut hole in the 80% - 90% range. And an SP500 completion index would overweight the SP500 exclusions.

Well none of this really matters. Probably tracks total market better than SP500 does due to lack of filter. And we already know those track tightly.

The real risk is in the "Activism Risk" portion of the prospectus https://etf.engine1.com/wp-content/uplo ... pectus.pdf. From my reading, that's where it is most likely to get tracking error or altered expense ratios.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by calwatch »

Thought it was interesting that Merrill Edge refused to let me purchase VOTE. I bought one share in my Fidelity account and will see how it compares to my VOO.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by calwatch »

With the first month essentially in the books, according to ETF.com VOTE had a performance of 3.08% compared to VOO's 2.92%. Both hold exactly 508 stocks (the S&P 500 has some multi-class shares) but the weighting differs slightly:

VOTE:
Apple Inc.5.89%
Microsoft Corporation5.58%
Amazon.com, Inc.4.04%
Facebook, Inc. Class A2.31%
Alphabet Inc. Class A2.11%
Alphabet Inc. Class C2.01%
Berkshire Hathaway Inc. Class B1.36%
Tesla Inc1.29%
NVIDIA Corporation1.26%
JPMorgan Chase & Co.1.19%
Total Top 10 Weighting27.04%

VOO:
Apple Inc.5.89%
Microsoft Corporation5.59%
Amazon.com, Inc.4.04%
Facebook, Inc. Class A2.28%
Alphabet Inc. Class A2.01%
Alphabet Inc. Class C1.96%
Berkshire Hathaway Inc. Class B1.44%
Tesla Inc1.44%
NVIDIA Corporation1.37%
JPMorgan Chase & Co.1.29%
Total Top 10 Weighting27.31%

As noted above, the VOTE ETF tends to take a broader look at the top 500 or so companies. So stocks that are big enough by market cap to be in the S&P 500 but aren't included by the S&P committee, like Square, Zoom, Uber, Blackstone, Snap, and Twilio, are in VOTE. To complete the exercise, here are the stocks that are in VXF (the S&P 500 completion ETF) and also in VOTE, excluding Moderna which was promoted in July to the S&P 500:

Code: Select all

Ticker	Description	Market Value Weight
SQ	SQUARE INC - A	0.26%
BX	BLACKSTONE GROUP INC/THE	0.20%
SNAP	SNAP INC - A	0.18%
UBER	UBER TECHNOLOGIES INC	0.17%
DOCU	DOCUSIGN INC	0.15%
ROKU	ROKU INC	0.13%
MRVL	MARVELL TECHNOLOGY INC	0.13%
LULU	LULULEMON ATHLETICA INC	0.12%
VEEV	VEEVA SYSTEMS INC-CLASS A	0.12%
MTCH	MATCH GROUP INC	0.11%
KKR	KKR & CO INC	0.10%
PINS	PINTEREST INC- CLASS A	0.10%
EPAM	EPAM SYSTEMS INC	0.09%
TTD	TRADE DESK INC/THE -CLASS A	0.09%
CSGP	COSTAR GROUP INC	0.09%
OKTA	OKTA INC	0.08%
LBRDK	LIBERTY BROADBAND-C	0.07%
SPLK	SPLUNK INC	0.06%
BURL	BURLINGTON STORES INC	0.06%
HUBS	HUBSPOT INC	0.06%
TRU	TRANSUNION	0.06%
INVH	INVITATION HOMES INC	0.06%
CVNA	CARVANA CO	0.06%
SUI	SUN COMMUNITIES INC	0.06%
DELL	DELL TECHNOLOGIES -C	0.06%
NET	CLOUDFLARE INC - CLASS A	0.06%
DDOG	DATADOG INC - CLASS A	0.06%
SSNC	SS&C TECHNOLOGIES HOLDINGS	0.05%
ALLY	ALLY FINANCIAL INC	0.05%
ZEN	ZENDESK INC	0.05%
W	WAYFAIR INC- CLASS A	0.05%
TDOC	TELADOC HEALTH INC	0.05%
ALNY	ALNYLAM PHARMACEUTICALS INC	0.05%
MPWR	MONOLITHIC POWER SYSTEMS INC	0.05%
LNG	CHENIERE ENERGY INC	0.05%
EXAS	EXACT SCIENCES CORP	0.05%
MDB	MONGODB INC	0.05%
ZS	ZSCALER INC	0.05%
KDP	KEURIG DR PEPPER INC	0.05%
AVTR	AVANTOR INC	0.05%
SGEN	SEAGEN INC	0.05%
PLUG	PLUG POWER INC	0.04%
GDDY	GODADDY INC - CLASS A	0.04%
Z	ZILLOW GROUP INC - C	0.04%
NVCR	NOVOCURE LTD	0.04%
COUP	COUPA SOFTWARE INC	0.04%
CGNX	COGNEX CORP	0.04%
FICO	FAIR ISAAC CORP	0.04%
CCK	CROWN HOLDINGS INC	0.04%
BMRN	BIOMARIN PHARMACEUTICAL INC	0.04%
MKL	MARKEL CORP	0.04%
ON	ON SEMICONDUCTOR CORP	0.04%
ENTG	ENTEGRIS INC	0.04%
ACGL	ARCH CAPITAL GROUP LTD	0.04%
VICI	VICI PROPERTIES INC	0.04%
ELAN	ELANCO ANIMAL HEALTH INC	0.04%
LYFT	LYFT INC-A	0.04%
DKNG	DRAFTKINGS INC - CL A	0.04%
SNOW	SNOWFLAKE INC-CLASS A	0.04%
VMW	VMWARE INC-CLASS A	0.03%
SEDG	SOLAREDGE TECHNOLOGIES INC	0.03%
PCG	P G & E CORP	0.03%
BRO	BROWN & BROWN INC	0.03%
BKI	BLACK KNIGHT INC	0.03%
CDAY	CERIDIAN HCM HOLDING INC	0.03%
PLTR	PALANTIR TECHNOLOGIES INC-A	0.03%
MASI	MASIMO CORP	0.03%
GH	GUARDANT HEALTH INC	0.02%
LBRDA	LIBERTY BROADBAND-A	0.01%
This sums up to 4.48% market weight of VOTE, which would be duplicated in VXF. Interestingly, two popular meme stocks that should be in VOTE on market capitalization alone, GME and AMC, are not in it. So there is some non-transparent filter going on Morningstar's end.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by Oddball »

Here is a link to an episode of the podcast "The Daily" which talks about Engine #1 and Exxon, interesting listen.

https://www.nytimes.com/2021/07/25/podc ... g-oil.html
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by Angst »

roth evangelist wrote: Tue Jun 22, 2021 6:00 pm A hedge fund, Engine No. 1, is launching an ETF that will track the S&P 500. Unlike most index funds, it's planning to exercise shareholder power to move companies in a more ESG direction, like it did recently with Exxon.
I'd be interested to see the Leftovers, i.e. the ex-ESG group that this leaves behind.

[EDIT] Apologies for my misinterpretation. Note to self: "Read OP carefully before posting response."
Last edited by Angst on Sat Jul 31, 2021 5:25 pm, edited 1 time in total.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by White Coat Investor »

MAKsdad wrote: Thu Jun 24, 2021 2:56 pm If someone wanted to make a TON of money, they should start a private equity fund and buy up all of the "bad" stuff that companies are going to have to sell because of ESG/activist investors. Buy up all the coal plants and mining/drilling facilities that are being divested at 75 cents on the dollar and just run them for the next 25 years and walk away with bags and bags of money.
We could charge 1.49% for it too and make a killing!

https://www.morningstar.com/funds/xnas/vicex/quote
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
milktoast
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by milktoast »

Angst wrote: Fri Jul 30, 2021 2:33 pm
roth evangelist wrote: Tue Jun 22, 2021 6:00 pm A hedge fund, Engine No. 1, is launching an ETF that will track the S&P 500. Unlike most index funds, it's planning to exercise shareholder power to move companies in a more ESG direction, like it did recently with Exxon.
I'd be interested to see the Leftovers, i.e. the ex-ESG group that this leaves behind.
But that's actually the difference between engine1's efforts and prior ESG funds. They aren't investing in good ESG companies, they are investing in the bad ones (in the case of exxon) or all of them (in the case of their index ETF).

Instead of claiming that they will move companies by their desire to be held by ESG investors, engine1 is saying they will take an activist shareholder approach and vote their holdings.

Will it work? Unclear

Will it be a good investment? Also unclear. But the second one is a little easier to answer. Their ETF is simply holding the 500 largest US equities by market cap (not exactly the same as the SP500). And their expense ratio is 0.05%. They also have extra risk of tracking error due to restrictions when engaging in activism for a particular holding.
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PicassoSparks
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by PicassoSparks »

It is so strange to me to read a thread of people debating ESG screens when the thread is about a fund that is absolutely not performing an ESG screen.

This is about corporate governance. This is a fund that offers an index fund return BUT promises to use the voting part of your share of the index to pursue activist shareholder aims. It’s a fascinating solution to the concern that has been raised about massive groups of passive shareholders (we own 20-45% of US equities depending on which researcher you believe) failing to participate in corporate governance.

The fund offers as a differentiator not market distorting quality screens but instead to vote according to the customers’ values.in effect, all us passive investors have been leaving power on the table, and this fund promises a certain class of investor that it’ll exercise power on their behalf.

This suggests a future where many competing index funds stop competing in fees because they’ve been driven to close to zero and instead compete on stewardship of your shares. It’s a clever result and could result in a very different marketplace than we see now. Or it could amount to nothing.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by calwatch »

PicassoSparks wrote: Fri Jul 30, 2021 8:37 pm This suggests a future where many competing index funds stop competing in fees because they’ve been driven to close to zero and instead compete on stewardship of your shares. It’s a clever result and could result in a very different marketplace than we see now. Or it could amount to nothing.
What would really drive adoption would be if NGOs and traditionally socially conscious firms used this in their 401k's and 457's, in lieu of the standard S&P 500 firms. And for those who want their shares to abstain on everything, an ETF is created for that too.

Incidentally, there is the "anti-woke" ETF, ACVF, that explicitly boycotts companies they don't like, but appear to be a mechanism for grifting as their expense ratio is 0.75%: https://acvetfs.com/fund/etf-fund/
Second Vote Funds also has funds targeting specific political positions, but again with a wholly uncompetitive 0.75% expense ratio: https://www.2ndvotefunds.com/
And there are two ETFs that specifically invest based on how many Democratic or Republican campaign contributions they've given, again with a high expense ratio and risk of unbalanced performance: https://www.axios.com/etf-maga-demz-pol ... 9c241.html
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by VaR »

Not sure whether to post this here or in a new thread, but in a related development Fidelity International (not Fidelity Investments) has said that it will vote against company boards that fail to meet its expectations for tackling climate change.

https://www.bloomberg.com/news/articles ... -next-year

https://www.institutionalassetmanager.c ... ing-policy

I've also heard that Blackrock is incorporating climate risk into their capital market assumptions. This is different from making socially responsible investments, but rather both making individual investment choices being aware of the impact of climate change on business opportunities and markets. I'd guess that this also includes being activist to ensure that companies make climate-aware business decisions - not for social good but rather because it is good from a long-term business perspective.

A trillion here, a trillion there, pretty soon you're talking some real money.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by calwatch »

VaR wrote: Sat Jul 31, 2021 8:46 pm Not sure whether to post this here or in a new thread, but in a related development Fidelity International (not Fidelity Investments) has said that it will vote against company boards that fail to meet its expectations for tackling climate change.

https://www.bloomberg.com/news/articles ... -next-year

https://www.institutionalassetmanager.c ... ing-policy

I've also heard that Blackrock is incorporating climate risk into their capital market assumptions. This is different from making socially responsible investments, but rather both making individual investment choices being aware of the impact of climate change on business opportunities and markets. I'd guess that this also includes being activist to ensure that companies make climate-aware business decisions - not for social good but rather because it is good from a long-term business perspective.

A trillion here, a trillion there, pretty soon you're talking some real money.
This is something that all index fund companies are doing, for good or bad. The last time this was discussed the thread got shut down, but for informational purposes only you can read what Vanguard is doing here: https://about.vanguard.com/investment-s ... ommentary/

On the subject matter, Vanguard states, in relation to voting its ETFs and mutual funds, Vanguard states:
"Vanguard expects portfolio companies and their boards to be climate-competent, to implement appropriate risk oversight and mitigation practices, and to effectively disclose to the market how their boards oversee climate-related risk management. Vanguard also believes that poor governance of lobbying activities, coupled with misalignment of activities with a company’s stated climate strategy, could turn into financial, legal, and reputational risks that could affect long-term value for Vanguard funds. Therefore, we evaluate climate risk-related proposals, or those seeking to align lobbying activities with company-wide climate strategy, on a case-by-case basis."

You can read that they voted with activist shareholders on some proposals and with management on others. It is a nuanced approach based on its fiduciary responsibility.
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unclescrooge
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by unclescrooge »

UpperNwGuy wrote: Tue Jun 22, 2021 6:48 pm This is good news,
For whom?

The planet? Probably.

Investors? Not so much.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by pepys »

langlands wrote: Thu Jun 24, 2021 1:31 pm Therefore, I don't think it's quite accurate to say "the fund not only would be a disservice to the fund investors but to all funds and investors who have an interest in the companies involved." It would only be a disservice to the investors who support shareholder capitalism. (And with an ETF like VOTE, presumably most would be supporters of stakeholder capitalism.) There are now a substantial number of investors who are effectively supporting stakeholder capitalism. Any owner of passive index funds like Vanguard or Blackrock does because these asset managers have made it clear they will vote your shares in support of it.
I don't think it's necessarily a disservice to those who support shareholder capitalism. Shareholder capitalism has traditionally included the caveat that it has to "[conform] to the basic rules of the society, both those embodied in law and those embodied in ethical custom" (Friedman). A company engaging in fraud might be more profitable, but it still has a duty to not engage in fraud. To the extent that this fund limits negative externalities, which seems to me to be "cheating" in the game, it might actually be more aligned with shareholder capitalism.

I support this version of shareholder capitalism and am interested in this fund. I don't like companies donating on my behalf (especially since their interests seem to be more aligned with looking good than effective altruism), but I also don't like companies profiting by damaging other people/property who do not consent (like pollution) without offsetting, even when there are loopholes in our market system that make it legal. I'll have to look more into the managers before I decide to shift over some money, but this looks promising.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by senex »

Interesting discussion.
steve r wrote: Thu Jun 24, 2021 5:29 pm OTOH, it is not uncommon for major share holders to push companies into short-sighted actions. Moreover, these short sighted actions are likely worse (from my buy and hold perspective).
This comment makes me think about "that guy" who is always derailing work meetings with his interruptions and tangents. Occasionally he makes a good point, but he is net destructive of workplace productivity.

If your comment is true (which I expect it is), such a fund will harm all investors, note just VOTE holders, by derailing corporate management. The faddish pop-culture nature of these sorts of issues suggests to me that they are probably not long term maximizing.

One data point from Berkshire's meeting this year: Berkshire has perhaps an order of magnitude more long-term orientation than your average company, and they were strongly against the activist proposals.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by flyfishers83 »

This is interesting, but the range of issues that are in play seems broad. If you invest, but then decide you don't like the direction taken as to some companies/issues, are you going to sell? That seems complicated, tiring to keep up with and a new form of timing--maybe social issue timing??
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs

Post by JackoC »

senex wrote: Tue Aug 03, 2021 8:27 am Interesting discussion.
steve r wrote: Thu Jun 24, 2021 5:29 pm OTOH, it is not uncommon for major share holders to push companies into short-sighted actions. Moreover, these short sighted actions are likely worse (from my buy and hold perspective).
This comment makes me think about "that guy" who is always derailing work meetings with his interruptions and tangents. Occasionally he makes a good point, but he is net destructive of workplace productivity.

If your comment is true (which I expect it is), such a fund will harm all investors, note just VOTE holders, by derailing corporate management. The faddish pop-culture nature of these sorts of issues suggests to me that they are probably not long term maximizing.

One data point from Berkshire's meeting this year: Berkshire has perhaps an order of magnitude more long-term orientation than your average company, and they were strongly against the activist proposals.
Again I see three basic questions:
1. Are the proposals actually in the long term interest of shareholders?
If yes, it's firstly puzzling why we need new terminology like 'stakeholder capitalism'. If no, I oppose the proposals as a shareholder. That shouldn't be puzzling: taxes and charity are how I contribute (involuntarily and voluntarily respectively) to interests other than my own direct ones. Regulations can and should close major 'loopholes' if that's what they really are (we can't get into any specifics, of course). I don't need the companies I invest in to be run as some fuzzy hybrid profit making/philanthropic/'arm of the nation' organizations. So if the climate policy put before the board benefits me *as shareholder* I favor it. If it doesn't, I oppose it.

2. Assuming the first answer is yes, why exactly do we believe activists of a particular political slant have a better idea what maximizes long term shareholder benefit than existing management does? Related question, why do individual investors here think they know this better than management? It seems to cut against the general(ly correct IMO) insights of Bogle-ism about not thinking you can beat the market with DIY decision making about individual companies, would seem the more so for the particular policies of individual companies. I embrace indexing but I also know in some detail what the right long term shareholder maximization strategy is for Exxon...how do those two fit together?

3. Who is really telling the truth? Some activists claim their proposals are actually for the long term maximization of shareholder interest. I doubt their veracity, and think the ones invoking 'stakeholder' interest are the more honest (translated: your interest as shareholder, even in the distant, shining, 'long term' will be subordinated to other agendas). On the bright side, I also tend to doubt the veracity of US managers saying they've embraced a 'new idea of long term shareholder value' or 'stakeholder capitalism'. I think in general they intend to keep operating as before, in the way which has accompanied (I can't prove it's the cause) US shareholder returns handily beating those of other national markets in general in recent times. But I worry in case they are *not* entirely dissembling about it. The poor results for investors in European stocks in recent times are at least partly related to 'stakeholder capitalism' being more for a real thing there IMO. 'Stakeholder capitalism' has harmed shareholders in real cases I believe.
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