I believe this author has it exactly backward: Expensive and ethically compromised analysts were shown to be of so little help to investors that they actively contributed to the rise to indexing.
“Index funds contribute to poor corporate governance.”
Again, I think is exactly backward — it’s the long-term owners of public stock, that is, index funds — that management must deal with year after year.
Consider what Dave Nadig, managing director of ETF.com (part of CBOE Global Markets) wrote earlier this year:
State Street voted against the slates of directors proposed by companies over 400 times, because those companies failed to add women to their boards. And BlackRock recently published an open letter to markets, putting every company on notice that they would be taking a hard, hard look at everything from executive compensation to community development to environmental impact.
Active managers and activist investors can threaten to sell their stock, and sometimes they do. But then what? The indexers are long-term owners — and they vote their proxies. Management has to acknowledge their permanence.
The complaints about indexing have become tiresome: Indexing is Marxist, it’s a bubble waiting to burst, it’s dangerous to the economy or the efficiency of the market, and so on. The need to relitigate every lost battle is telling. The people who want to sell you newsletters, expensive mutual funds, or costly trading advice have suffered greatly from the move toward low-cost, passive investing. No wonder so many of them refuse to accept the obvious benefits of indexing to average investors.
This article provided by Bloomberg News.