The Hazards of Index-Based Investing to Stewardship
Simon C. Y. Wong
Northwestern University School of Law; London School of Economics
The Financial Times, June 14, 2010
This article argues that the way institutional investors (pension funds, fund managers and others) use stock market indices - in particular, measuring performance based on short-term relative returns, replicating an index's constituent holdings so that equity portfolios (including actively-managed ones) contain an excessively large number of companies, and "underweighting" stocks - vitiates the active, long-term "stewardship" mindset that policymakers in the UK, Netherlands, and other markets are promoting.
Note: This article served as the basis for an opinion piece that appeared in the Financial Times on 14 June 2010.
Number of Pages in PDF File: 2
Keywords: Investment management, shareholder responsibilities, corporate governance
JEL Classification: G23, G34Accepted Paper Series
Date posted: June 14, 2010
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