With the S&P 500 on the verge of bear market territory, what should long-term investors be doing? Join us Monday on ETF Edge when our guest will be Gerard O'Reilly, co-CEO of Dimensional. Dimensional has $659 Billion in assets under management. They are not stock pickers, but they do seek to outperform the market by systematically pursuing sources of higher expected returns they have uncovered by decades of rigorous academic evidence. We'll talk about the perils of market timing, understanding your risk profile, and how they are generating alpha for their clients. Also joining us is Dave Nadig, Financial Futurist at VettaFi, the newly renamed company formerly known as ETF Trends.
Our friends at ETF Trends (Tom Lydon, Dave Nadig, Todd Rosenbluth) have announced a big name change, to "VettaFi." "We are pleased to introduce VettaFi - the new collective brand encompassing the team from ETF Trends, ETF Database, Alerian, and S-Network Global Indexes," Tom Lydon, Vice Chairman, said in an email. More at https://vettafi.com/.
Speaking of Dave Nadig, VettaFi's Financial Futurist, he has a great article this week on "The Ethics of Indexing."
Simeon Hyman at ProShares has also produced an excellent piece looking at dividends vs. buybacks: "Over time, dividends have been more stable than buybacks, and arguably represent a stronger and more lasting signal by management in their confidence in the future growth of their business...Dividend growth over time potentially delivers a stronger and more consistent signal to shareholders of a company's future prospects. In addition, a dividend growth approach has delivered higher risk-adjusted returns over time." Well worth a read.
Should index fund investors vote their own proxies? It may be a very expensive proposition. A group of Senate Republicans led by Alaska's Dan Sullivan have proposed that index fund investors, rather than the fund operators themselves, vote their shares in annual corporate proxy campaigns when those operators own more than 1% of a company's outstanding stock.
Dan Wiener, who runs the Independent Adviser for Vanguard Investors newsletters, had this to say about the proposal:
"What will that do to expense ratios, which have been falling for years? One place to look is a fund's own annual operating expense reports.
In 2017 Vanguard ran a proxy campaign seeking votes on a number of shareholder issues. The cost of that campaign was captured in each fund's Statement of Operations as a line item, Shareholders Reports and Proxy. Looking at 500 Index, one of Vanguard's largest index funds, those costs, 6.57% of the total operating costs for the fund (data below), were almost five times higher than the average of the two years prior and the four years since that vote was taken. For Total Stock Market Index the costs during the proxy year were four times higher.
So, the question becomes, what will happen to costs for index fund and ETF investors if the Senate proposal becomes the law of the investment land? It seems obvious those costs will rise. Will this improve corporate governance? Probably not since I would also wager that most individual investors will not take the time to read, nor vote on most corporate proxy materials."