Index funds may be forced to use derivatives to not own > 10% of stocks?

[dividendman]

https://finance.yahoo.com/news/vanguard-warns-investors-u-weighs-120000197.html?

It seems like the FDIC, FERC and SEC might force index funds to not be able to own > 10% of shares in certain companies to comply with the law? Only regulations have given "passive" investments a pass... this could lead to higher expenses for index funds.

I'm trying to find more info, but maybe that's all there is for now. It looks like it will only impact heavily regulated sectors like banking and utilities but who knows... if anyone else has more info I'd love to see it.

[dividendman]

I'm trying to find the actual vanguard statement, I don't have a vanguard account (I own vanguard funds through ETFs), if someone could paste the entire statement in here I'd appreciate it.

[MustacheAndaHalf]

Vanguard Growth holds 3 stocks at over 10% weight (MSFT, AAPL, NVDA).
https://investor.vanguard.com/investment-products/etfs/profile/vug#portfolio-composition

The S&P 500 is nowhere near that (7.2% MSFT).

[Telecaster]

Vanguard Growth holds 3 stocks at over 10% weight (MSFT, AAPL, NVDA).
https://investor.vanguard.com/investment-products/etfs/profile/vug#portfolio-composition

The S&P 500 is nowhere near that (7.2% MSFT).

The issue isn't weight, it is institutional ownership. 

[dividendman]

Vanguard Growth holds 3 stocks at over 10% weight (MSFT, AAPL, NVDA).
https://investor.vanguard.com/investment-products/etfs/profile/vug#portfolio-composition

The S&P 500 is nowhere near that (7.2% MSFT).

The issue isn't weight, it is institutional ownership.

Yeah, but a weight of over 10% by any one owner triggers all of these laws apparently.

edit: whoops, yeah, it's not weight at all, I also confused weight and ownership just now, yeah, it's just ownership.... but even still, we don't want those fees going up just because an index fund controls over 10% of any particular company!

[Tigerpine]

The Pennsylvania-based manager filed disclosures across several funds with the Securities and Exchange Commission (SEC) to underline the possibility regulators could enforce caps on its physical equity ownership of individual banks and utilities on behalf of clients.

I'm trying to find the actual vanguard statement, I don't have a vanguard account (I own vanguard funds through ETFs), if someone could paste the entire statement in here I'd appreciate it.

Isn't the article referring to the SC13G/A reports that Vanguard filed with the SEC?

https://www.sec.gov/edgar/search/#/dateRange=1y&ciks=0000102909&entityName=VANGUARD%2520GROUP%2520INC%2520(CIK%25200000102909)

[MustacheAndaHalf]

Vanguard Growth holds 3 stocks at over 10% weight (MSFT, AAPL, NVDA).
https://investor.vanguard.com/investment-products/etfs/profile/vug#portfolio-composition

The S&P 500 is nowhere near that (7.2% MSFT).

The issue isn't weight, it is institutional ownership.

Thanks for the correction:  The FDIC is concerned with Vanguard's ownership in some banks and utilities, despite ignoring this problem previously.  Derivatives solve the stock voting rights issue, but at the cost of realized gains and higher expenses.

"In the event an ownership cap is enforced in future, Vanguard and other giants such as BlackRock and State Street Global Advisors (SSGA) could be forced to offload physical equity in certain companies and rely on derivatives-based exposures."

[ChpBstrd]

Would it solve the problem if the funds allowed their owners to vote on each company's issues? E.g. Your ETF directs you to a website where you can vote your whole shares on any and all corporate events, and if you don't vote the fund cannot vote for you?

This might increase costs less than expected if centralized service vendors were used to match ownership shares with voting rights. However, because very few shares would ever vote (imagine the workload for VTI owners), it would concentrate power in the hands of individual shareholders and activists.