ETFs lead to bad stewardship – survey

Passive management confounds good stewardship because investors are likely to become unaware of their underlying holdings, forgo voting rights and lose influence.

This, the view of 61% of more than a hundred institutional investors surveyed by Hermes Investment Management, challenges the idea that passive investment tools are good for the industry.

It is a provocative finding because asset managers and consultants alike have generally argued that passive investment products such as trackers and exchange-traded funds (ETFs) are good for investors because they are flexible, transparent and offer low fees.

The Hermes Responsible Capitalism Survey also found that 44% of investors believe quarterly reporting should cease in favour of long-view reporting.

“The short-term factors driving the management of pension schemes require detailed attention,” says Saker Nusseibeh, chief executive of Hermes Investment Management, who commented on the survey.

Nusseibeh expressed surprise that less than a third of investors in the survey thought they should consider the overall quality of life of their beneficiaries rather than just maximising retirement income.

His remarks echoed comments made in an interview with Funds Europe published in November when he identified what he believes is a move towards a more responsible form of capitalism, in opposition to the policies of Margaret Thatcher, a former UK prime minister, and Ronald Reagan, a former US president, which were inspired by the economist Milton Friedman.

“Friedmanesque capitalism very clearly does not work,” he said.

©2014 funds europe

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