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Index funds have grown at tremendous pace, now totaling over $6 trillion and representing more than 17% of total stock market value. Including actively managed funds, mutual fund managers represent more than 35% of the shares of U.S. corporations - and the trend indicates this will grow to 50% or more. John Bogle discusses the emerging issue, and potential ways to mitigate the risk of corporate voting being controlled by a small number of individuals.
Solutions to resolve the issues connected with the concentration of corporate ownership are not self-evident, but a number of tentative possibilities have been advanced: • Competition from new entrants to the index field. For the reasons noted above, this eventuality seems highly unlikely. • Force giant index funds to spin off their assets into a number of separate entities, each independently managed. Such a drastic step would—and should—face near-insurmountable obstacles, for it would create havoc for index investors and managers alike. • Require index funds to hold just one company in any industry. Leaving aside the dubious ability of either academia or federal bureaucrats to define precisely what constitutes a given industry, such a drastic change would lead to the destruction of today’s S&P 500 index fund, by common agreement, the most beneficial innovation for investors of the modern age.
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