BBC wades into the passive vs active discussion

Bravepants

BananaRepublic wrote: »

For example, how often do you hear Northern accents among 'serious' presenters e.g. on the news? Or Devon, or Bristol, or Norfolk? I can think of one recent example, Chris Mason. And yet it is fine to have RP, posh Scots (James Naughtie), posh private school (Mishal Hussain), and posh West Indies. Look at the Archers, all successful characters speak RP, the more regional the accent, the thicker and more dishonest the character!

There's a guy who reads the new on BBC Radio 1 who has the strongest Welsh accent I have ever heard! If you could have subtitles on Radio then I would welcome them. (I'm only joking about the subtitles, I'm half Welsh myself, and half Manc.)

le_loup

BananaRepublic wrote: »

I heard Martha Carney state that the day after the Blair landslide election victory, the corridors of the BBC were full of empty champagne bottles outside the doors of the senior figures.

Might they just have been celebrating the end of a general election stint? They would have brought in the champagne before the result was announced and thus celebrated whoever won.

........... and let's face it, that sort of niggling comment is par for the course when speaking about any public body.

talexuser

I readily acknowledged the item was useful to a beginner, just amazed it should be described as wading into something as if it set some precedent in sensationalist information.

As a (part) active investor myself the most dubious argument was that active managers somehow hold a lid on executive pay for poor performing directors, whereas passive funds have less sway. Judging by the continuing increase in wealth distribution towards the top end it doesn't seem a very potent point.

However the idea that if most investment was passive there would be less oversight of poor performance paying themselves what they like may have some merit since many cases of many unhappy individual shareholders being outvoted by the block votes of vested interests seem to be reported, though the Vanguard guy says they do vote in what they perceive as their shareholders interests.

eskbanker

ColdIron wrote: »

Another thread dies a political death, this time after only 3 posts

Sorry, my fault - should probably have anticipated my passing flippant comment sparking more debate and taking the thread further off-topic....

BananaRepublic

Bravepants wrote: »

There's a guy who reads the new on BBC Radio 1 who has the strongest Welsh accent I have ever heard! If you could have subtitles on Radio then I would welcome them. (I'm only joking about the subtitles, I'm half Welsh myself, and half Manc.)

I said serious presenters, not Radio 1. They have no problem using regional voices for comedy, and light entertainment.

BananaRepublic

eskbanker wrote: »

Sorry, my fault - should probably have anticipated my passing flippant comment sparking more debate and taking the thread further off-topic....

The more off topic the better, given that active-passive seems akin to a religion these days. It's almost as bad as Brexit ...

ivormonee

I thought the discussion was on types of funds. How did it get hijacked into a debate on the political bias of the BBC. Anyway, active funds have been shown to be a bit of a moneyspinner ... for the fund managers, advisers and platforms. As for the BBC, I want my licence fee refunded.

bowlhead99

talexuser wrote: »

As a (part) active investor myself the most dubious argument was that active managers somehow hold a lid on executive pay for poor performing directors, whereas passive funds have less sway. Judging by the continuing increase in wealth distribution towards the top end it doesn't seem a very potent point.

However the idea that if most investment was passive there would be less oversight of poor performance paying themselves what they like may have some merit since many cases of many unhappy individual shareholders being outvoted by the block votes of vested interests seem to be reported, though the Vanguard guy says they do vote in what they perceive as their shareholders interests.

Whether or not the passive investment fund operators bother to cast a vote based on their personal ideologies or what they think might be good for their investors, I agree they do have less sway and their votes aren't taken as seriously as the active / activist investors.

If an active investment manager says, "I own a couple of percent of your company, a hundred million quid worth, if you continue to run it in a sensible way that I like, I might buy two or three hundred million more of your stock, and recommend to my industry friends they do likewise, pushing up the valuation; but if you continue paying this silly money to that idiot director or continue with your poor strategy in area ABC or XYZ, it's going to be time for me to dump my stock and move on."

Then the board will listen to the concerns and may modify their behaviours, because at the end of the day the investors are their employers and they want to keep them happy and interested.

Whereas if an investment firm running an index fund says, "I have a hundred million of your stock, and I'm upvoting your current proposal... And if you keep up the good work, I won't buy any more, and if you do things I don't like, I won't sell any, because I'm basically just a slave to the index and I won't buy more or less based on my judgements, I'll only buy whatever I have to buy to maintain the index proportions, which means no more net sales or purchases assuming my investor base stays broadly the same."

Then the directors won't really care. They just know they have a constant x% from index funds who will vote up or down but can't actually carry out any threat to sell or any promise to buy more.

So you're right that active investors, who are the ones that create and maintain the market, are the ones that influence large listed corporates. The companies don't really care as much about the index fund managers, as the only threat is that the index manager tells his active colleagues that he doesn't 'like' the stock, but he isn't actually going to take action to drop it himself, and he isn't going to talk it down too much in public because that can't be in his own investors' interests while he still holds it for them.

As a result, the threats and desires of index funds are taken less seriously than those from people who have the ability to modify their investment portfolios and add a high concentration of the company concerned, or drop it to nil.

That doesn't mean that you as an individual retail investor should use an active manager over an index fund. It just means that if you do, your managers will actively select the companies they like and reject the companies whose behaviours they don't like. And some of them will certainly, actively, try to influence the companies they like, and have a chance of doing so - a higher chance than if they were an index fund.

That's not something that is expected to halve the gap between rich and poor, or improve the distribution of wealth much any time soon. But it is far from a "dubious" or impotent point. It's a common-sense and level headed point. When you hear that the board of a company revisited the director compensation arrangements due to strength of feeling from institutional and professional investors, it's due to the investors who were in the room casting their vote -or writing a letter to them, or having a private meeting with them ahead of the AGM - where those investors were in a position to dump their stock or not buy more stock. Given many directors are incentivised by share price or have large elements of their remuneration paid through shares, they listen to those active investors who like or dislike what they are doing.

Of course, no professional investor, active or inactive, is going to say we should slash the CEO's remuneration to £200k because that's 10x the cost of a call centre supervisor and we can't have over a 10x gap between rich and poor. Because they recognise the CEO would quit and go to the competitor that offers £1m++, and you wouldn't attract a top candidate with experience of running a £10bn listed company from the global pool of candidates if you only offered £200k. So, don't expect the active fund managers to "keep a lid" on exec pay at £200k, because they're not idiots. But they're more likely to be able to keep the lid at £10m of whatever, than the passive fund managers who have zero ability to drop the company's stock when they don't like the board's actions.

talexuser

Yes, I probably conflated two different issues, the major one of wealth distribution where the very very top end continues to have a greater and greater relative increase and share compared to the rest, and the relatively minor one of active managers influence on directors pay having a discernible difference on the whole.