The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
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The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
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%. This seems like a more Boglehead-friendly way to invest sustainably. Rather than ESG funds that just concentrate tech even more, you own the all the stocks in an index but through an activist fund that will move companies closer to your values. Of course, this doesn't solve the issue that different people have different ESG values.
"For the past decade, the dominant approach among climate-concerned investors has been to exit: If you’re worried about climate change, activists have exhorted, you should divest from fossil-fuel stocks. But last month, Engine No. 1 voiced its problems with Exxon—and found rapid success. VOTE now lets average investors try voice too."
Read here: https://www.theatlantic.com/newsletters ... -1/619264/
"For the past decade, the dominant approach among climate-concerned investors has been to exit: If you’re worried about climate change, activists have exhorted, you should divest from fossil-fuel stocks. But last month, Engine No. 1 voiced its problems with Exxon—and found rapid success. VOTE now lets average investors try voice too."
Read here: https://www.theatlantic.com/newsletters ... -1/619264/
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
They secured a great name as well. VOTE
SEC prospectus:
https://www.sec.gov/Archives/edgar/data ... 10_497.htm
SEC prospectus:
https://www.sec.gov/Archives/edgar/data ... 10_497.htm
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Fascinating. I was especially interested to read that they only owned about two basis points worth of Exxon Mobil when they managed to win those board seats.
Presumably, they're not going to run similar campaigns for each component company of the S&P500. I wonder where they'll concentrate.
I'll stick with VTSAX, but I welcome this entrant to the field. ESG-conscious folks will get to have their cake and eat it too -- benefit from the performance of Darth Vader Tobacco Guns Inc. while agitating for it to become softer and cuddlier!
Presumably, they're not going to run similar campaigns for each component company of the S&P500. I wonder where they'll concentrate.
I'll stick with VTSAX, but I welcome this entrant to the field. ESG-conscious folks will get to have their cake and eat it too -- benefit from the performance of Darth Vader Tobacco Guns Inc. while agitating for it to become softer and cuddlier!
merely an interested amateur
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Fascinating. I've long thought that the flaw of ESG investing is that, precisely because it excludes many companies, it concentrates risk. The method of owning all the companies, but instead voting on resolutions based on ESG principles, is elegant and attractive.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
On top of concentrating risk, it always seemed a flawed to me insofar as no global company is purely responsible or not, so going 'all in' or 'all out' on companies based on whatever metrics just seemed, well, short of a good solution I guess. Is everything that company X does good and Y bad? Rarely.Rainmaker41 wrote: ↑Tue Jun 22, 2021 6:27 pm Fascinating. I've long thought that the flaw of ESG investing is that, precisely because it excludes many companies, it concentrates risk. The method of owning all the companies, but instead voting on resolutions based on ESG principles, is elegant and attractive.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
I wonder how the future ESG optimized companies of the S&P 500 will compete with chinese companies...
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
I am skeptical that it will attract enough assets to matter. Much will depend on whether they can convince 401(k) providers to include them. But who knows? Symbolism matters, and "no army on earth is as powerful as an idea whose time has come."
Vanguard Total Stock Market Index Fund: $1.2 trillion
Vanguard 500 Index Fund: $740 billion
SPY ETF: $362 billion
Source
Parnassus Core Equity Fund, the largest ESG fund, $23 billion
Vanguard FTSE Social Index $13 billion
Total of the 20 largest ESG funds: $169 billion
VOTE ETF: "The firm says that at least $100 million is already committed to investing in its ETF."
Vanguard Total Stock Market Index Fund: $1.2 trillion
Vanguard 500 Index Fund: $740 billion
SPY ETF: $362 billion
Source
Parnassus Core Equity Fund, the largest ESG fund, $23 billion
Vanguard FTSE Social Index $13 billion
Total of the 20 largest ESG funds: $169 billion
VOTE ETF: "The firm says that at least $100 million is already committed to investing in its ETF."
Last edited by nisiprius on Tue Jun 22, 2021 8:03 pm, edited 1 time in total.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
I may research this ETF further to swap out of my total market etfs in tax free and advantaged accounts. It seems to be a no brainer, but need to learn about the company’s purpose.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
I also wonder to what extent Vanguard, BlackRock, and others don't already press CEOs to improve on these issues. If one is stuck holding the stock for the long term as part of a fund, why not push the company to improve anyways?
In fact Vanguard has a whole page with multiple subpages dedicated to explaining their approach to stewardship ( https://about.vanguard.com/investment-stewardship/ )
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Interesting idea! At 0.05%ER I will be taking a closer look. I liked what Engine No.1 did with Exxon. It was a win-win for shareholders and society in my opinion. And it addresses the potential complacency problem with excessive passive investing.
However, my concern would be that such win-win situations could be few and far between. That in order to justify the ETF’s existence, they would eventually feel compelled to take activist positions that are not necessarily in the best interest of shareholders.
Another issue - would the 0.05% fees be used only for management of the fund, or could they be diverted to supporting activism? Proxy battles are expensive. Who would fund the activist activities?
And it seems to me there could be a conflict of interest here, in that Engine No.1 would also have an active hedge fund. I’m not sure what the regulations are with regard to using voting proxies from a passive ETF to influence companies also held in an active fund by the same entity. What if Vanguard used voting power in VTSAX to change the boards of companies it held in the Wellington fund? Seems like that would raise some regulatory eyebrows.
Nonetheless, I am interested in this idea, and plan to read the prospectus.
However, my concern would be that such win-win situations could be few and far between. That in order to justify the ETF’s existence, they would eventually feel compelled to take activist positions that are not necessarily in the best interest of shareholders.
Another issue - would the 0.05% fees be used only for management of the fund, or could they be diverted to supporting activism? Proxy battles are expensive. Who would fund the activist activities?
And it seems to me there could be a conflict of interest here, in that Engine No.1 would also have an active hedge fund. I’m not sure what the regulations are with regard to using voting proxies from a passive ETF to influence companies also held in an active fund by the same entity. What if Vanguard used voting power in VTSAX to change the boards of companies it held in the Wellington fund? Seems like that would raise some regulatory eyebrows.
Nonetheless, I am interested in this idea, and plan to read the prospectus.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
This thread has run its course and is locked (climate policy). See: Non-actionable (Trolling) Topics
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
After receiving a PM, this thread is unlocked to discuss the investing aspects. Rationale for the unlock:
- The fund has an ER of 0.05%. The low ER seems to make it appropriate for consideration by Bogleheads.
- The extent to which the ESG focus of the fund might impair or otherwise affect its ability to track an index, the extent to which the fund might have results different from S&P 500 or other more traditional equity fund, etc.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
My concern with this approach (and what occurred with Exxon) is whether it is designed to maximize long-term returns and performance of each company being "targeted" or whether it is simply a method of forcing companies to comply with certain cultural and/or political positions regardless of the implications of doing so on the financial health and viability of the company.
As an investor, I expect the funds in which I invest to put my financial interests (and the financial interests of other fund investors) first. If the approach of this fund results in better long-term outlooks, returns and perfomance, great! However, if this fund is willing to sacrifice those in pursuit of other objectives of "stakeholders" (as compared to "shareholders"), 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.
As an investor, I expect the funds in which I invest to put my financial interests (and the financial interests of other fund investors) first. If the approach of this fund results in better long-term outlooks, returns and perfomance, great! However, if this fund is willing to sacrifice those in pursuit of other objectives of "stakeholders" (as compared to "shareholders"), 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.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Alas, not quite; CNBC: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...
So what is that, and what does "select" mean, exactly?The ETF will track the Morningstar U.S. Large Cap Select Index, a large-cap fund similar to the S&P 500 that is market-capitalization weighted.
Wow, Morningstar provides 15,764 equity indexes. OK, here it is:
Morningstar US Large Cap Select TR USD
Their rulebook mentions some screening criteria but also saysThe Morningstar US Large Cap Select Index is designed to provide exposure to a select list of the largest companies by market capitalization in the US.
Darned if I can find what that "transparent ranking system" is, am I missing something in the document?The index targets 500 companies based on a transparent ranking system subject to selection and eligibility criteria at reconstitution.
So, of course, performance has not been, and will not be identical to an S&P 500 fund which gives endless opportunities for mischief.
From Morningstar's factsheet for the index:
For the S&P 500 itself:
Morningstar U. S. Large Cap Select:
S&P 500:
There might be a potential risk here. Every S&P 500 index fund I know of, even those with crazy expense ratios (RYSOX), has done a good job of tracking the S&P 500 before expenses. That is, the mechanics of managing 505 stocks in accordance with the index is something that "everyone" has done a good job on. Vanguard nailed it forty-five years ago, possibly with thanks to Gus Sauter? Since then everyone else who has tried has succeeded. (Whereas both Fidelity and Vanguard took stumbles, not catastrophic but quite noticeable, trying to track the Bloomberg-Barclays-formerly-Lehman Aggregate Bond Index).
What is the risk that a brand new ETF provider's first ETF might actually screw up tracking the index, badly enough to care about? Given the liquidity of the 500 largest-cap stocks you wouldn't expect a problem, but still.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Let me emphasize a very subtle point in nisiprius' post - he's using the S&P 500 TR index. What's that? The S&P 500 Total Return index. What you see in the news is the S&P 500 Price index.
What's the difference? A Total Return index is calculated by reinvesting dividends. The Price index is simply the price of the stock. You can see this in real time from the source itself: S&P 500® - S&P Dow Jones Indices
Select either Price Return or Total Return to see the difference.
Tip: If you have a Fidelity account, the performance analysis compares your account return to an "S&P 500 index". They don't say whether it's the Price or Total Return index. For a fund, it's the Total Return. You can match Fidelity's index numbers by selecting Table View --> Latest Month-End.
You'll get a table containing return info for 1 month, 3 month, YTD, 1 Year, 3 Year, 5 Year, 10 Year. It matches Fidelity's S&P 500 index columns exactly. From the account was looking at, it's the Total Return index performance.
Over a 1 year period, the Total Return was 2.22% higher than the Price return. When a financial advisor points out how great your fund is doing, be sure he's not using the Price index. The Total Return will drop his performance claims by 2.22% (over the past year).
What's the difference? A Total Return index is calculated by reinvesting dividends. The Price index is simply the price of the stock. You can see this in real time from the source itself: S&P 500® - S&P Dow Jones Indices
Select either Price Return or Total Return to see the difference.
Tip: If you have a Fidelity account, the performance analysis compares your account return to an "S&P 500 index". They don't say whether it's the Price or Total Return index. For a fund, it's the Total Return. You can match Fidelity's index numbers by selecting Table View --> Latest Month-End.
You'll get a table containing return info for 1 month, 3 month, YTD, 1 Year, 3 Year, 5 Year, 10 Year. It matches Fidelity's S&P 500 index columns exactly. From the account was looking at, it's the Total Return index performance.
Over a 1 year period, the Total Return was 2.22% higher than the Price return. When a financial advisor points out how great your fund is doing, be sure he's not using the Price index. The Total Return will drop his performance claims by 2.22% (over the past year).
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
It would seem to me that the invisible hand of the free market would govern this as it does in most stock market matters.galawdawg wrote: ↑Thu Jun 24, 2021 6:54 am My concern with this approach (and what occurred with Exxon) is whether it is designed to maximize long-term returns and performance of each company being "targeted" or whether it is simply a method of forcing companies to comply with certain cultural and/or political positions regardless of the implications of doing so on the financial health and viability of the company.
As an investor, I expect the funds in which I invest to put my financial interests (and the financial interests of other fund investors) first. If the approach of this fund results in better long-term outlooks, returns and perfomance, great! However, if this fund is willing to sacrifice those in pursuit of other objectives of "stakeholders" (as compared to "shareholders"), 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.
If most investors believe that ESG issues positively contribute to financial returns, they will pile into this fund, or funds (like Blackrock and Vanguard) who have actively come down on the side of ESG.
If they don’t, they would put their money in funds that actively oppose ESG measures.
There are >$100B in assets at ESG funds, and much more invested at index funds who vote with ESG funds (as exhibited by the Exxon situation).
Yet I have not heard of a single fund that advertises that it actively votes against ESG.
It seems to me that the money has spoken.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
This is an important observation worth parsing. Where pollution control (and other things) is not practiced anywhere near to the extent it is in the US, manufacturing sure is less expensive, making companies more profitable. So already companies in the US are perhaps at a "disadvantage." One point here is that doing the right thing may be at a cost, but more and more people are willing to pay it. Hence the current rise of ESG.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Or Chinese companies see where the world is headed and make the enormous capital investments (with generous government support) to own that new future.valleyrock wrote: ↑Thu Jun 24, 2021 9:25 amThis is an important observation worth parsing. Where pollution control (and other things) is not practiced anywhere near to the extent it is in the US, manufacturing sure is less expensive, making companies more profitable. So already companies in the US are perhaps at a "disadvantage." One point here is that doing the right thing may be at a cost, but more and more people are willing to pay it. Hence the current rise of ESG.
Case in point- China is where 70% of the world’s solar panels produced. Same with electric cars and electric car batteries.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Why not push to improve? Because they should be focused on profits, not green window dressing.tomsense76 wrote: ↑Tue Jun 22, 2021 8:24 pmI also wonder to what extent Vanguard, BlackRock, and others don't already press CEOs to improve on these issues. If one is stuck holding the stock for the long term as part of a fund, why not push the company to improve anyways?
In fact Vanguard has a whole page with multiple subpages dedicated to explaining their approach to stewardship ( https://about.vanguard.com/investment-stewardship/ )
That said, BlackRock is fairly active/aggressive in pushing companies for change. Vanguard and Fidelity are very passive.
Personally, I believe a passively-managed index fund shouldn't even be allowed to vote its shares. I don't want Vanguard to pay analysts to read proxies, I want them to just invest and keep their mouths shut and let companies run themselves.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
This made me laugh; thank you!
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
They list about 19 risks in their prospectus, including this.nisiprius wrote: ↑Thu Jun 24, 2021 7:00 am
There might be a potential risk here. Every S&P 500 index fund I know of, even those with crazy expense ratios (RYSOX), has done a good job of tracking the S&P 500 before expenses. That is, the mechanics of managing 505 stocks in accordance with the index is something that "everyone" has done a good job on. Vanguard nailed it forty-five years ago, possibly with thanks to Gus Sauter? Since then everyone else who has tried has succeeded. (Whereas both Fidelity and Vanguard took stumbles, not catastrophic but quite noticeable, trying to track the Bloomberg-Barclays-formerly-Lehman Aggregate Bond Index).
What is the risk that a brand new ETF provider's first ETF might actually screw up tracking the index, badly enough to care about? Given the liquidity of the 500 largest-cap stocks you wouldn't expect a problem, but still.
Some of their other risks highlight that they may be prevented from investing or taking action in certain companies where there's a conflict of interest. That's the best I could find for why Morningstar lists 'Select' in their index names. Some of the other indexes with that in their name are due to ESG inclusion/exclusion.
Edit to add:
I didn't mean that first sentence to come off snarky. After reading it I can see how it may. I was just trying to point out to highlight that they list a boatload of risks pertaining to some of the questions above.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
This seems to resolve the dispute about Engine 1 being a political operation. During the Exxon contest, many people said Engine 1 wasn't political, they just thought Exxon needed a nudge to keep up with other energy companies.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.
Others argued Engine 1 was trying to impose a political agenda. This concern was supported by the liberal organizations Engine 1 allied with viewtopic.php?f=10&t=349780
Now we know. Engine 1 isn't just trying to make Exxon more profitable company but they are trying to advance a political agenda.
Make of that what you will, but clarity is always a good thing.
We plan. G-d laughs.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
I have been learning a lot about ESG investing, it is a real thing, it is a trend, and more people are interested in investing their money this way. As for me, I don't want to invest my money unethically but other than that I don't fret too much over this. From what I have found, the ESG products tend to be growthier, have a bit larger market cap, and tend to be more Tech sector heavy; thus ESG investments have been performing relatively well. The problem I have with ESG is that it is hard to define, my definition of moral and ethical is different than others' definitions. For example, I think making the weapons systems for national defense is an ethical endeavor, I also believe that energy production is a vital service. Of the Environmental, Social, and Governance parts of ESG, right now I am most interested in Corporate Governance, which in my view has big need for improvement.
So I am all for people having the choice to invest with ESG principles, I am not as passionate as others regarding these issues. That said being responsible to the environment, having a diverse work force, and companies being well governed are things that I agree with. It is in the application of those principles where folks have differing views.
From my own research, there are really good ESG products out there. iShares (Blackrock) has a whole suite of ESG aware products. If you have a deeper commitment to ESG, there are such companies as Calvert and Praxis. There are also various religious based ESG products for Catholics, Evangelical Christians, Muslims, and more socially aware funds.
So I am all for people having the choice to invest with ESG principles, I am not as passionate as others regarding these issues. That said being responsible to the environment, having a diverse work force, and companies being well governed are things that I agree with. It is in the application of those principles where folks have differing views.
From my own research, there are really good ESG products out there. iShares (Blackrock) has a whole suite of ESG aware products. If you have a deeper commitment to ESG, there are such companies as Calvert and Praxis. There are also various religious based ESG products for Catholics, Evangelical Christians, Muslims, and more socially aware funds.
A fool and his money are good for business.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Nice catch. I hope they enjoy false advertising lawsuits.nisiprius wrote: ↑Thu Jun 24, 2021 7:00 amAlas, not quite; CNBC: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...So what is that, and what does "select" mean, exactly?The ETF will track the Morningstar U.S. Large Cap Select Index, a large-cap fund similar to the S&P 500 that is market-capitalization weighted.
Wow, Morningstar provides 15,764 equity indexes. OK, here it is:
Morningstar US Large Cap Select TR USDTheir rulebook mentions some screening criteria but also saysThe Morningstar US Large Cap Select Index is designed to provide exposure to a select list of the largest companies by market capitalization in the US.Darned if I can find what that "transparent ranking system" is, am I missing something in the document?The index targets 500 companies based on a transparent ranking system subject to selection and eligibility criteria at reconstitution.
So, of course, performance has not been, and will not be identical to an S&P 500 fund which gives endless opportunities for mischief.
From Morningstar's factsheet for the index:
For the S&P 500 itself:
Morningstar U. S. Large Cap Select:
S&P 500:
There might be a potential risk here. Every S&P 500 index fund I know of, even those with crazy expense ratios (RYSOX), has done a good job of tracking the S&P 500 before expenses. That is, the mechanics of managing 505 stocks in accordance with the index is something that "everyone" has done a good job on. Vanguard nailed it forty-five years ago, possibly with thanks to Gus Sauter? Since then everyone else who has tried has succeeded. (Whereas both Fidelity and Vanguard took stumbles, not catastrophic but quite noticeable, trying to track the Bloomberg-Barclays-formerly-Lehman Aggregate Bond Index).
What is the risk that a brand new ETF provider's first ETF might actually screw up tracking the index, badly enough to care about? Given the liquidity of the 500 largest-cap stocks you wouldn't expect a problem, but still.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
No snarkiness perceived. But, where did you find the prospectus? It will presumably be easy when it is actually out. I still haven't learned where to find SEC draft prospectuses.runninginvestor wrote: ↑Thu Jun 24, 2021 9:59 am ...They list about 19 risks in their prospectus, including this...
Edit to add:
I didn't mean that first sentence to come off snarky. After reading it I can see how it may. I was just trying to point out to highlight that they list a boatload of risks pertaining to some of the questions above.
Who? It's a sloppy press report, not an advertisement by the ETF providers. And most of the press reports found by Google name the correct index. If it were a crime to say that the S&P 500 is the 500 largest stocks, a lot of people would be in jail.
Last edited by nisiprius on Thu Jun 24, 2021 11:45 am, edited 2 times in total.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Tangentially, I see that the Vanguard FTSE Social Index fund has caught up with and passed VICEX.
Source
But not through 2020.The Vice Global Fund invests in domestic and foreign companies engaged in the aerospace and defense industries, owners and operators of casinos and gaming facilities, manufacturers of cigarettes and other tobacco products, and brewers, distillers, vintners and producers of other alcoholic beverages. These sectors have exhibited resilient demand through economic cycles...
Source
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
It's a neat idea. I hope it gains enough traction to have some effect and can prove whether this works or not.
We all are co-owners of these companies in our (index) funds, but have no voting rights. Doesn't seem right to me. So, VOTE essentially seems to be a new "party" in the "parliament" which, as opposed to the other ones, has an agenda other than (or in addition to) "just make us the most money possible".
Would have been really interesting to hear John Bogle's take on this, he was critical of the concentration of voting power , e.g. in this WSJ article.
We all are co-owners of these companies in our (index) funds, but have no voting rights. Doesn't seem right to me. So, VOTE essentially seems to be a new "party" in the "parliament" which, as opposed to the other ones, has an agenda other than (or in addition to) "just make us the most money possible".
Would have been really interesting to hear John Bogle's take on this, he was critical of the concentration of voting power , e.g. in this WSJ article.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Good, I'm a straightforward speaker and use voice to text. Some family and friends have pointed out that reading my words sometimes sounds too blunt. Been trying to get a little more perceptive!nisiprius wrote: ↑Thu Jun 24, 2021 11:26 amNo snarkiness perceived. But, where did you find the prospectus? It will presumably be easy when it is actually out. I still haven't learned where to find SEC draft prospectuses.runninginvestor wrote: ↑Thu Jun 24, 2021 9:59 am ...They list about 19 risks in their prospectus, including this...
Edit to add:
I didn't mean that first sentence to come off snarky. After reading it I can see how it may. I was just trying to point out to highlight that they list a boatload of risks pertaining to some of the questions above.Who? It's a sloppy press report, not an advertisement by the ETF providers. And most of the press reports correctly name the index. If it were a crime to say inaccurately that the S&P 500 consists of the 500 largest stocks, or that the S&P 500 is an index of large-caps, a lot of people would be in jail.
I posted a link as the first reply:
Here's the landing page for Eng No 1, for VOTE and the future climate fund.
https://www.sec.gov/cgi-bin/browse-edga ... scd=series
Clicking through the links eventually gets to:
https://www.sec.gov/Archives/edgar/data ... 10_497.htm
I was initially looking to see if the expense ratio was truly that low, or if they were relying on fee waivers like other new funds trying to compete. They don't appear to be. But then I skimmed the rest because I was curious how they were going to be a passive fund but also activist. Moreso than companies like vanguard and blackrock that outline their voting strategies. One of their principal risks is activism and they state:
"
In the event that an affiliate of the Fund or its investment adviser is engaged in an activist campaign with respect to a portfolio company, the Fund may be foreclosed from taking certain actions with respect to that company as a result of prohibitions on engaging in joint transactions with affiliates under Section 17(d) of the 1940 Act or as a result of other regulatory or fiduciary concerns. In addition, while the Fund intends to seek select opportunities to actively engage with one or more portfolio companies, it may only be able to do so in limited circumstances where no other affiliated fund has elected to do so with respect to the same portfolio companies.
"
I haven't quite figured out or fully comprehend the consequence of this. But it kind of seems like they may not be able to trade a company when they are actively campaigning. Which could cause issues with tracking a typical S&P500 index.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
What if those changes made their products more appealing to consumers who increasingly show "taste" in what they purchase? ( https://www.mckinsey.com/business-funct ... o-go-green )MAKsdad wrote: ↑Thu Jun 24, 2021 9:37 amWhy not push to improve? Because they should be focused on profits, not green window dressing.tomsense76 wrote: ↑Tue Jun 22, 2021 8:24 pmI also wonder to what extent Vanguard, BlackRock, and others don't already press CEOs to improve on these issues. If one is stuck holding the stock for the long term as part of a fund, why not push the company to improve anyways?
In fact Vanguard has a whole page with multiple subpages dedicated to explaining their approach to stewardship ( https://about.vanguard.com/investment-stewardship/ )
That said, BlackRock is fairly active/aggressive in pushing companies for change. Vanguard and Fidelity are very passive.
Personally, I believe a passively-managed index fund shouldn't even be allowed to vote its shares. I don't want Vanguard to pay analysts to read proxies, I want them to just invest and keep their mouths shut and let companies run themselves.
That said, I agree it is important to identify the right improvements that lead to profitability. Currently we still seem to be in early stages of figuring this out. I'm sure it will improve with time.
Not sure if you are familiar with Dan Ariely. He's a famous professor of psychology and behavioral economics and has done a number of interesting studies over the years that show basically how bad we are at making smart decisions with our money (or even generally). Recently he was a guest on the Odd Lots discussing some issues with the current ESG approach and suggested some alternative ways to identify productive companies based on behavioral science ( https://www.bloomberg.com/news/articles ... an-capital ). Admittedly I'm not about to race out and buy a fund following that strategy now (and don't hold any ESG funds today), but I did find it interesting and would expect those seeking alpha pay attention to what he said (meaning it would eventually be "priced in").
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
I tend to agree with your way of thinking, but I think you underestimate how quickly the consensus is shifting (and has already shifted). Shareholder capitalism, the notion that maximizing the return to shareholders is the main purpose of a company, used to be the accepted wisdom. Now, not only has stakeholder capitalism become much more popular among both policy makers and the general public, it has also become much more popular among shareholders themselves. I don't think Tingting is right thatgalawdawg wrote: ↑Thu Jun 24, 2021 6:54 am My concern with this approach (and what occurred with Exxon) is whether it is designed to maximize long-term returns and performance of each company being "targeted" or whether it is simply a method of forcing companies to comply with certain cultural and/or political positions regardless of the implications of doing so on the financial health and viability of the company.
As an investor, I expect the funds in which I invest to put my financial interests (and the financial interests of other fund investors) first. If the approach of this fund results in better long-term outlooks, returns and perfomance, great! However, if this fund is willing to sacrifice those in pursuit of other objectives of "stakeholders" (as compared to "shareholders"), 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.
ESG has come up often on this forum and you'll see that most ESG investors become excited about it because they see it as a way of doing good in the world. Very very few investors are coming into ESG from a purely financial perspective (say which is the case for most factor investors). Thus, it's very likely that the Exxon vote was motivated at least partially by non-shareholder maximization concerns.It would seem to me that the invisible hand of the free market would govern this as it does in most stock market matters.
If most investors believe that ESG issues positively contribute to financial returns, they will pile into this fund, or funds (like Blackrock and Vanguard) who have actively come down on the side of ESG.
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.
Last edited by langlands on Thu Jun 24, 2021 1:42 pm, edited 1 time in total.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Yeah it's interesting to learn about. Also haven't worried about this from the investment front. Have been more focused on directing my consumer behavior in ways that align with my personal values (were I suspect it has more effect). Though am hardly perfect there either.nedsaid wrote: ↑Thu Jun 24, 2021 11:16 am I have been learning a lot about ESG investing, it is a real thing, it is a trend, and more people are interested in investing their money this way. As for me, I don't want to invest my money unethically but other than that I don't fret too much over this. From what I have found, the ESG products tend to be growthier, have a bit larger market cap, and tend to be more Tech sector heavy; thus ESG investments have been performing relatively well. The problem I have with ESG is that it is hard to define, my definition of moral and ethical is different than others' definitions. For example, I think making the weapons systems for national defense is an ethical endeavor, I also believe that energy production is a vital service. Of the Environmental, Social, and Governance parts of ESG, right now I am most interested in Corporate Governance, which in my view has big need for improvement.
So I am all for people having the choice to invest with ESG principles, I am not as passionate as others regarding these issues. That said being responsible to the environment, having a diverse work force, and companies being well governed are things that I agree with. It is in the application of those principles where folks have differing views.
From my own research, there are really good ESG products out there. iShares (Blackrock) has a whole suite of ESG aware products. If you have a deeper commitment to ESG, there are such companies as Calvert and Praxis. There are also various religious based ESG products for Catholics, Evangelical Christians, Muslims, and more socially aware funds.
For sure there are still some fuzzy things here. I think there is certainly room for improvement on the index front, but I suspect that happens over time. Though I do think this subjective nature of what aligns with ones values might lead to something else (perhaps direct indexing strategies). Though I wonder to extent anyone can go through and make the 1000s of choices one needs to end up with something they feel comfortable holding. I think psychology has already shown we are kind of bad even at making one of these decisions and how easily we can be swayed based on how the question is asked.
I do think this point of ESG having a more growth bent is a good point. Not sure if you listened to this Rational Reminder episode with Lubos Pastor ( https://rationalreminder.ca/podcast/124 ). It covered a number of things that were all very fascinating, but one that pertains to this discussion is that if investors have a preference towards ESG it will become more growthy (almost by definition) resulting in anything that doesn't align with the ESG metric becoming more valuey (again almost by definition). This made a lot of sense to me. Admittedly this is not the only thing that would drive companies into either of those categories, but the general argument made sense to me
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Call me old fashioned, but despite what people might say, I think they are fundamentally self interested. Now, maybe there is a shift from short term self interest with a limited scope to long term self interest with a broad scope. And I would say that’s a good thing.langlands wrote: ↑Thu Jun 24, 2021 1:31 pmI tend to agree with your way of thinking, but I think you underestimate how quickly the consensus is shifting (and has already shifted). Shareholder capitalism, the notion that maximizing the return to shareholders is the main purpose of a company, used to be the accepted wisdom. Now, not only is stakeholder capitalism much more popular among both policy makers and the general public, it is also much more popular among shareholders themselves. I don't think Tingting is right thatgalawdawg wrote: ↑Thu Jun 24, 2021 6:54 am My concern with this approach (and what occurred with Exxon) is whether it is designed to maximize long-term returns and performance of each company being "targeted" or whether it is simply a method of forcing companies to comply with certain cultural and/or political positions regardless of the implications of doing so on the financial health and viability of the company.
As an investor, I expect the funds in which I invest to put my financial interests (and the financial interests of other fund investors) first. If the approach of this fund results in better long-term outlooks, returns and perfomance, great! However, if this fund is willing to sacrifice those in pursuit of other objectives of "stakeholders" (as compared to "shareholders"), 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.
ESG has come up often on this forum and you'll see that most ESG investors become excited about it because they see it as a way of doing good in the world. Very very few investors are coming into ESG from a purely financial perspective (say which is the case for most factor investors). Thus, it's very likely that the Exxon vote was motivated at least partially by non-shareholder maximization concerns.It would seem to me that the invisible hand of the free market would govern this as it does in most stock market matters.
If most investors believe that ESG issues positively contribute to financial returns, they will pile into this fund, or funds (like Blackrock and Vanguard) who have actively come down on the side of ESG.
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 investors who support shareholder 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.
And for folks who are opposed to this shift, ask yourself what is more likely: that the large majority of shareholders are actually deceived by ESG about what is in their long term self interest? Or that you are actually wrong about what is good for investors’ long term self interest?
Last edited by Tingting1013 on Thu Jun 24, 2021 2:19 pm, edited 1 time in total.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
I think his position was clear enough. On the one hand, he felt strongly that mutual funds ought be exercising their voting power and not just rubber-stamping management; for example, in the Financial Times in 2012:alpine_boglehead wrote: ↑Thu Jun 24, 2021 11:46 am...Would have been really interesting to hear John Bogle's take on this, he was critical of the concentration of voting power , e.g. in this WSJ article...
Fund managers must break their silence
On occasion he criticized Vanguard by name on this."Take responsibility for governance" says John C. Bogle.
On the other hand, as best I can remember, he only suggested that the action be taken with regard to governance issues, such as excessive CEO salaries. So he was all in favor of the "G" in ESG.
But I can't remember him ever saying anything positive or negative about the E or the S, environmental and social activism.
Unless it's implicit in comments like
But I don't think so.Management remuneration is based on raising the short-term price of the stock, labelled “increasing shareholder value”, rather than building intrinsic corporate value over the long term.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
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.tomsense76 wrote: ↑Thu Jun 24, 2021 1:42 pmYeah it's interesting to learn about. Also haven't worried about this from the investment front. Have been more focused on directing my consumer behavior in ways that align with my personal values (were I suspect it has more effect). Though am hardly perfect there either.nedsaid wrote: ↑Thu Jun 24, 2021 11:16 am I have been learning a lot about ESG investing, it is a real thing, it is a trend, and more people are interested in investing their money this way. As for me, I don't want to invest my money unethically but other than that I don't fret too much over this. From what I have found, the ESG products tend to be growthier, have a bit larger market cap, and tend to be more Tech sector heavy; thus ESG investments have been performing relatively well. The problem I have with ESG is that it is hard to define, my definition of moral and ethical is different than others' definitions. For example, I think making the weapons systems for national defense is an ethical endeavor, I also believe that energy production is a vital service. Of the Environmental, Social, and Governance parts of ESG, right now I am most interested in Corporate Governance, which in my view has big need for improvement.
So I am all for people having the choice to invest with ESG principles, I am not as passionate as others regarding these issues. That said being responsible to the environment, having a diverse work force, and companies being well governed are things that I agree with. It is in the application of those principles where folks have differing views.
From my own research, there are really good ESG products out there. iShares (Blackrock) has a whole suite of ESG aware products. If you have a deeper commitment to ESG, there are such companies as Calvert and Praxis. There are also various religious based ESG products for Catholics, Evangelical Christians, Muslims, and more socially aware funds.
For sure there are still some fuzzy things here. I think there is certainly room for improvement on the index front, but I suspect that happens over time. Though I do think this subjective nature of what aligns with ones values might lead to something else (perhaps direct indexing strategies). Though I wonder to extent anyone can go through and make the 1000s of choices one needs to end up with something they feel comfortable holding. I think psychology has already shown we are kind of bad even at making one of these decisions and how easily we can be swayed based on how the question is asked.
I do think this point of ESG having a more growth bent is a good point. Not sure if you listened to this Rational Reminder episode with Lubos Pastor ( https://rationalreminder.ca/podcast/124 ). It covered a number of things that were all very fascinating, but one that pertains to this discussion is that if investors have a preference towards ESG it will become more growthy (almost by definition) resulting in anything that doesn't align with the ESG metric becoming more valuey (again almost by definition). This made a lot of sense to me. Admittedly this is not the only thing that would drive companies into either of those categories, but the general argument made sense to me
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.
A fool and his money are good for business.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Yes, I agree it's a good thing if everyone agrees on what is in our long term self interest. It's clear though that we don't.Tingting1013 wrote: ↑Thu Jun 24, 2021 1:49 pm Call me old fashioned, but despite what people might say, I think they are fundamentally self interested. Now, maybe there is a shift from short term self interest with a limited scope to long term self interest with a broad scope. And I would say that’s a good thing.
And for folks who are opposed to this shift, ask yourself what is more likely: that the large majority of shareholders are actually deceived by ESG about what is in their long term self interest? Or that you are actually wrong about what constitutes what is good for long term self interest?
Regarding the second paragraph, this logic is essentially the logic of "trust the experts." Distrust of media and institutional consensus from all corners of society is very high. Since i'm sure most people have strong opinions about this (and is basically off topic), I won't say more.
Last edited by langlands on Thu Jun 24, 2021 2:25 pm, edited 1 time in total.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Obviously not everyone agrees. But that’s why we have the market mechanism. I might think Doximity is worth $10 but it’s currently trading for $46. I might not change my mind but the least I can do is acknowledge the high likelihood that I am wrong.langlands wrote: ↑Thu Jun 24, 2021 2:23 pmYes, I agree it's a good thing if everyone agrees on what is in our long term self interest. It's clear though that we don't.Tingting1013 wrote: ↑Thu Jun 24, 2021 1:49 pm Call me old fashioned, but despite what people might say, I think they are fundamentally self interested. Now, maybe there is a shift from short term self interest with a limited scope to long term self interest with a broad scope. And I would say that’s a good thing.
And for folks who are opposed to this shift, ask yourself what is more likely: that the large majority of shareholders are actually deceived by ESG about what is in their long term self interest? Or that you are actually wrong about what constitutes what is good for long term self interest?
Regarding the second paragraph, this logic is essentially the logic of "trust the experts." Distrust of media (from all corners of society) and institutional consensus is very high. Since i'm sure most people have strong opinions about this (and is basically off topic), I won't say more.
And the term you are looking for is not “the wisdom of experts” but rather “the wisdom of crowds”, which is a very different thing.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
That's what my first post was about though. The market mechanism was originally designed with shareholder capitalism in mind. If you ask any economist what the share price of a company is supposed to represent, you get something about discounted cash flow of future earnings.Tingting1013 wrote: ↑Thu Jun 24, 2021 2:25 pmObviously not everyone agrees. But that’s why we have the market mechanism. I might think Doximity is worth $10 but it’s currently trading for $46. I might not change my mind but the least I can do is acknowledge the high likelihood that I am wrong.langlands wrote: ↑Thu Jun 24, 2021 2:23 pmYes, I agree it's a good thing if everyone agrees on what is in our long term self interest. It's clear though that we don't.Tingting1013 wrote: ↑Thu Jun 24, 2021 1:49 pm Call me old fashioned, but despite what people might say, I think they are fundamentally self interested. Now, maybe there is a shift from short term self interest with a limited scope to long term self interest with a broad scope. And I would say that’s a good thing.
And for folks who are opposed to this shift, ask yourself what is more likely: that the large majority of shareholders are actually deceived by ESG about what is in their long term self interest? Or that you are actually wrong about what constitutes what is good for long term self interest?
Regarding the second paragraph, this logic is essentially the logic of "trust the experts." Distrust of media (from all corners of society) and institutional consensus is very high. Since i'm sure most people have strong opinions about this (and is basically off topic), I won't say more.
I mean you're right that strictly speaking, it's still a free market, but a free market of types of investors. And now it's a question of whether there are more shareholder or stakeholder investors in a company. If you think about what this is, there's a name for it. It's called politics where in the US we have a free market of ideas.
Looks, this is a complex issue, but I don't think there is any way of skirting around the fact that what is happening is obviously that politics is being injected into capitalism. Proponents say that this is necessary because money is power and an "apolitical" capitalism is a political stance itself. My main point is just that the position that ESG is not fundamentally political is untenable.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
Wow! I didn’t know this.Thanks, LadyGeek and nisiprius!LadyGeek wrote: ↑Thu Jun 24, 2021 8:43 am Let me emphasize a very subtle point in nisiprius' post - he's using the S&P 500 TR index. What's that? The S&P 500 Total Return index. What you see in the news is the S&P 500 Price index.
What's the difference? A Total Return index is calculated by reinvesting dividends. The Price index is simply the price of the stock. You can see this in real time from the source itself: S&P 500® - S&P Dow Jones Indices
Select either Price Return or Total Return to see the difference.
Tip: If you have a Fidelity account, the performance analysis compares your account return to an "S&P 500 index". They don't say whether it's the Price or Total Return index. For a fund, it's the Total Return. You can match Fidelity's index numbers by selecting Table View --> Latest Month-End.
You'll get a table containing return info for 1 month, 3 month, YTD, 1 Year, 3 Year, 5 Year, 10 Year. It matches Fidelity's S&P 500 index columns exactly. From the account was looking at, it's the Total Return index performance.
Over a 1 year period, the Total Return was 2.22% higher than the Price return. When a financial advisor points out how great your fund is doing, be sure he's not using the Price index. The Total Return will drop his performance claims by 2.22% (over the past year).
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
It’s interesting that you think free market principles should govern, but when money moves to ESG, that is “politics” not markets.langlands wrote: ↑Thu Jun 24, 2021 2:33 pmThat's what my first post was about though. The market mechanism was originally designed with shareholder capitalism in mind. If you ask any economist what the share price of a company is supposed to represent, you get something about discounted cash flow of future earnings.Tingting1013 wrote: ↑Thu Jun 24, 2021 2:25 pmObviously not everyone agrees. But that’s why we have the market mechanism. I might think Doximity is worth $10 but it’s currently trading for $46. I might not change my mind but the least I can do is acknowledge the high likelihood that I am wrong.langlands wrote: ↑Thu Jun 24, 2021 2:23 pmYes, I agree it's a good thing if everyone agrees on what is in our long term self interest. It's clear though that we don't.Tingting1013 wrote: ↑Thu Jun 24, 2021 1:49 pm Call me old fashioned, but despite what people might say, I think they are fundamentally self interested. Now, maybe there is a shift from short term self interest with a limited scope to long term self interest with a broad scope. And I would say that’s a good thing.
And for folks who are opposed to this shift, ask yourself what is more likely: that the large majority of shareholders are actually deceived by ESG about what is in their long term self interest? Or that you are actually wrong about what constitutes what is good for long term self interest?
Regarding the second paragraph, this logic is essentially the logic of "trust the experts." Distrust of media (from all corners of society) and institutional consensus is very high. Since i'm sure most people have strong opinions about this (and is basically off topic), I won't say more.
I mean you're right that strictly speaking, it's still a free market, but a free market of types of investors. And now it's a question of whether there are more shareholder or stakeholder investors in a company. If you think about what this is, there's a name for it. It's called politics where in the US we have a free market of ideas.
Looks, this is a complex issue, but I don't think there is any way of skirting around the fact that what is happening is obviously that politics is being injected into capitalism. Proponents say that this is necessary because money is power and an "apolitical" capitalism is a political stance itself. My main point is just that the position that ESG is not fundamentally political is untenable.
I am agnostic on what policies should govern. I am not smart enough to figure it out. Instead, like a good Boglehead, I let the markets reveal the truth for me. And right now the markets are telling me that ESG is a good thing. Who am I to disagree?
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
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?Tingting1013 wrote: ↑Thu Jun 24, 2021 2:40 pmIt’s interesting that you think free market principles should govern, but only for non-ESG policies.langlands wrote: ↑Thu Jun 24, 2021 2:33 pmThat's what my first post was about though. The market mechanism was originally designed with shareholder capitalism in mind. If you ask any economist what the share price of a company is supposed to represent, you get something about discounted cash flow of future earnings.Tingting1013 wrote: ↑Thu Jun 24, 2021 2:25 pm Obviously not everyone agrees. But that’s why we have the market mechanism. I might think Doximity is worth $10 but it’s currently trading for $46. I might not change my mind but the least I can do is acknowledge the high likelihood that I am wrong.
I mean you're right that strictly speaking, it's still a free market, but a free market of types of investors. And now it's a question of whether there are more shareholder or stakeholder investors in a company. If you think about what this is, there's a name for it. It's called politics where in the US we have a free market of ideas.
Looks, this is a complex issue, but I don't think there is any way of skirting around the fact that what is happening is obviously that politics is being injected into capitalism. Proponents say that this is necessary because money is power and an "apolitical" capitalism is a political stance itself. My main point is just that the position that ESG is not fundamentally political is untenable.
I am agnostic on what policies should govern. I am not smart enough to figure it out. Instead I let the markets reveal the truth for me. And right now the markets are telling me that ESG is a good thing. Who am I to disagree?
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
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.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
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.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.
So what does that tell you?
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
It’s pretty clear that you are the one trying to make this exchange political, not me.langlands wrote: ↑Thu Jun 24, 2021 2:49 pmYou 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?Tingting1013 wrote: ↑Thu Jun 24, 2021 2:40 pmIt’s interesting that you think free market principles should govern, but only for non-ESG policies.langlands wrote: ↑Thu Jun 24, 2021 2:33 pmThat's what my first post was about though. The market mechanism was originally designed with shareholder capitalism in mind. If you ask any economist what the share price of a company is supposed to represent, you get something about discounted cash flow of future earnings.Tingting1013 wrote: ↑Thu Jun 24, 2021 2:25 pm Obviously not everyone agrees. But that’s why we have the market mechanism. I might think Doximity is worth $10 but it’s currently trading for $46. I might not change my mind but the least I can do is acknowledge the high likelihood that I am wrong.
I mean you're right that strictly speaking, it's still a free market, but a free market of types of investors. And now it's a question of whether there are more shareholder or stakeholder investors in a company. If you think about what this is, there's a name for it. It's called politics where in the US we have a free market of ideas.
Looks, this is a complex issue, but I don't think there is any way of skirting around the fact that what is happening is obviously that politics is being injected into capitalism. Proponents say that this is necessary because money is power and an "apolitical" capitalism is a political stance itself. My main point is just that the position that ESG is not fundamentally political is untenable.
I am agnostic on what policies should govern. I am not smart enough to figure it out. Instead I let the markets reveal the truth for me. And right now the markets are telling me that ESG is a good thing. Who am I to disagree?
I just want to make money, and if the markets say that the way to make money is through green stocks, so be it.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
The only one who used the phrase “tracks the S&P500” was OP. Neither the fund summary, Engine 1, nor The Atlantic article say that (they all correctly use the term “Transition 500”). I’m assuming just a simplification rather than misleading. Certainly not lawsuit-worthy on anyone’s part.
Last edited by TropikThunder on Thu Jun 24, 2021 3:15 pm, edited 1 time in total.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
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.Tingting1013 wrote: ↑Thu Jun 24, 2021 3:03 pmAnd 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.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.
So what does that tell you?
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.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
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).Tingting1013 wrote: ↑Thu Jun 24, 2021 3:12 pmIt’s pretty clear that you are the one trying to make this exchange political, not me.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?
I just want to make money, and if the markets say that the way to make money is through green stocks, so be it.
Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
And for owners of passive funds who don't wish to see their returns diluted if the priority becomes "stakeholder" rather than "shareholder," what is one to do? For example, I have held VTSAX since inception. I have significant portions of those holdings in taxable. When I purchased the majority of those shares, ESG and "stakeholder capitalism" wasn't a thing. So if Vanguard fund managers or Vanguard executives decide to adopt a "stakeholder's first" approach, they have fundamentally altered the investment objectives of my investment. And unlike a stockholder of a publicly-traded company where I can (perhaps without effect) vote my shares, as a fund investor I have no input. I can watch Vanguard insert the cultural, social and political activism of our time into corporate affairs and hope that there are no adverse financial consequences for my investments or I can divest from my Vanguard holdings at a very substantial financial cost, the extent of which could very well eliminate any advantage I gained from holding low-cost index funds.langlands wrote: ↑Thu Jun 24, 2021 1:31 pmI tend to agree with your way of thinking, but I think you underestimate how quickly the consensus is shifting (and has already shifted). Shareholder capitalism, the notion that maximizing the return to shareholders is the main purpose of a company, used to be the accepted wisdom. Now, not only has stakeholder capitalism become much more popular among both policy makers and the general public, it has also become much more popular among shareholders themselves. I don't think Tingting is right thatgalawdawg wrote: ↑Thu Jun 24, 2021 6:54 am My concern with this approach (and what occurred with Exxon) is whether it is designed to maximize long-term returns and performance of each company being "targeted" or whether it is simply a method of forcing companies to comply with certain cultural and/or political positions regardless of the implications of doing so on the financial health and viability of the company.
As an investor, I expect the funds in which I invest to put my financial interests (and the financial interests of other fund investors) first. If the approach of this fund results in better long-term outlooks, returns and perfomance, great! However, if this fund is willing to sacrifice those in pursuit of other objectives of "stakeholders" (as compared to "shareholders"), 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.
ESG has come up often on this forum and you'll see that most ESG investors become excited about it because they see it as a way of doing good in the world. Very very few investors are coming into ESG from a purely financial perspective (say which is the case for most factor investors). Thus, it's very likely that the Exxon vote was motivated at least partially by non-shareholder maximization concerns.It would seem to me that the invisible hand of the free market would govern this as it does in most stock market matters.
If most investors believe that ESG issues positively contribute to financial returns, they will pile into this fund, or funds (like Blackrock and Vanguard) who have actively come down on the side of ESG.
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.
Perhaps before voting shares held by a mutual fund, fund managers should be required to send proxy materials to the fund investors and only be permitted to vote the shares for which they are given a proxy. Shares for which no proxy is given would not be voted. After all, it isn't Vanguard's money and shares they are voting, it is the money and shares belonging to their investors.
From Vanguard: https://about.vanguard.com/who-we-are/a ... e-history/#
In the mid 1970s, a pioneering mutual fund company decided to stand alone in serving clients' interests exclusively.
Vanguard would be the first ever to be owned by its member funds and operated solely in the interests of its funds' shareholders.
Founder John C. Bogle structured Vanguard for just one purpose—to build wealth for its clients...and only for its clients.
In a fiercely competitive investment arena, Vanguard remains alone in placing clients' interests in the driver's seat.
Because Vanguard can't be acquired by an outside entity, our clients can be confident that we will remain the same unique company, focused solely on their interests, in the years ahead.
So by voting in the manner it did on Exxon, was Vanguard focused solely on our interests?
Obviously, this is an evolving topic of interest for investors. The effect remains to be seen.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
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.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: The Atlantic: A Major New Index Fund Should Unnerve Climate-Skeptical CEOs
The first thing to do is acknowledge that you will no longer follow Boglehead principles of investing in the full market.
The second thing to do is look for companies with executives that are not responsive to “stakeholder” input, whatever that means, and put your money there.