Risk/Reward Vol. 362
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
How do you invest? Do you buy individual stocks, mutual funds, closed end funds or exchange traded funds? Do you know or do you have your financial advisor make all such decisions? Chances are everyone who reads this owns some fund sponsored by one or more of these four companies: Blackrock, Vanguard , State Street or Fidelity. Blackrock and Vanguard combined have $11 trillion under management. These giants are quickly becoming the go-to portals for anyone investing in passive funds which have become all the rage. Indeed, index funds, the passive investor's favorite vehicle, are attracting record inflows each quarter.
So what does this mean? By year end 2016, the average total stake that these four owned in each of the companies comprising the S&P 500 was over 21%. Moreover, combined they are the largest shareholders in 90% of all of the S&P 500 firms. Yes, you read that correctly, 90%. That means that these four now, or in the foreseeable future, are in a position to control every major corporation in the United States. And we scoff at the oligarchs that control Russia!
Does this bother anyone? Well, yes. Slowly and ever so quietly, scholars and regulators are beginning to evaluate the implications. Will firms controlled by commons shareholders actively compete with each other? Will there be room for innovation and creative destruction, the life forces of a free market? These questions are why words such as collusion and conscious parallelism which harken back to trust busting days are emerging once again.
I don't see this development impacting investing any time soon. But it is something to watch as these behemoths grow ever larger and ever more powerful.
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