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Passive Fund Providers Take an Active Approach to Investment Stewardship

The shift to index investing hasn't led to an abdication of stewardship responsibilities.

Hortense Bioy, CFA 08 February, 2018 | 10:15
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This article is a summary of the findings from our research report “Passive Fund Providers Take an Active Approach to Investment Stewardship”. You can access the full report here.

As assets continue to flow from actively managed to index-tracking strategies, the largest index asset managers1 are becoming increasingly influential, often ranking among the largest investors of public companies. Despite this fact, little research has been done to understand how index managers carry out their investment stewardship responsibilities.

It is legitimate to assume that devoting resources to monitor investee companies is not as high a priority for an index manager as it is for an active manager. After all, index managers tend to compete on fees, and their overriding objective is to match the performance of indexes. But, unlike active managers, index managers can’t sell poorly run companies. They must either put up with poor governance or encourage positive change through voting and engagement. The former is not an option. These managers have a fiduciary duty to their investors to push for changes that will increase shareholder value. As large, permanent owners of a wide swath of public firms, they have the clout to advance their agendas. Being active owners is also a means for these managers to galvanize their reputation as investor advocates.

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About Author

Hortense Bioy, CFA

Hortense Bioy, CFA  Hortense Bioy, CFA, is Director of passive fund research for Morningstar Europe.

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