I thought this was an excellent article on index funds and corporate governance:
No passive investor cares much about governance of a particular company. The impact on an index when a single company underperforms is usually either slight or offset by gains from its competitors. It may be rational for index funds to ignore governance, since the money they spend on improving it benefits not just them but also rival funds that invest in the same stocks.
So it’s a problem when these investors control voting outcomes for the companies that they invest in. This is often the case, since 88% of public companies count one of three large institutional investors— State Street Global Advisors, Vanguard, and BlackRock—as their largest investor. All investors have a stake in companies being well-run, but they aren’t always willing to pay higher fees for monitoring or governance. And because there is no such thing as universally good governance, the blind application of one-size-fits-all governance solutions across vastly different companies often has negative effects.
Blackrock touts its Investment Stewardship team:
The BlackRock Investment Stewardship team is a centralized resource for portfolio managers. In our stewardship work we aim to:
1 Protect and enhance the value of clients’ assets through engagement with companies
2 Encourage business and management practices that support sustainable financial performance over the long-term
3 Provide specialist insight on environmental, social and governance (ESG) considerations to all investment strategies, whether indexed or actively managed.
… but the opinion piece points out:
But there is reason to believe that these teams are not up to the task. As of October 2016, Vanguard’s governance team employed 15 people to cover some 13,000 companies; BlackRock employed about 20 for its 14,000 companies; and State Street employed fewer than 10 for about 9,000 companies.
The Globe had an excellent article on productivity in Ontario which well illustrates my view on the minimum wage controversy:
Don’t lecture Jocelyn Bamford about lack of ambition. She helps run Automatic Coating Ltd., a company founded by her husband’s family in the 1950s.
…
“We are absolutely losing our competitiveness,” Ms. Bamford said.The culprit, she said, is a provincial government that has rained blows on small and mid-sized businesses over the past two years. The unwelcome changes include unpredictable energy costs, a complicated cap-and-trade system for greenhouse-gas emitters, the planned hike in the minimum wage and new rules that will make it far easier for organizers to unionize workplaces.
…
Right now, she says, the only factor that allows many of the province’s manufacturers to compete against U.S. rivals is the low Canadian dollar. But she worries about the impact of the new workplace legislation, especially the radical hike to the minimum wage.The problem, she says, is that a higher minimum wage forces up wages across the entire pay scale. Experienced workers who are already making $15 an hour will demand a few dollars more, and the ripple effect will result in dramatically higher labour costs over all.
What are her alternatives? She and her husband have debated whether it makes sense to cut jobs and automate more of their factory operations. Even simpler, though, would be a move to Mississippi, where the state is dangling a tempting package of relocation benefits.
Well, I’m not impressed by business owners who seek success through cheap labour and government handouts. Fortunately, the Globe also interviewed a man after my own heart:
“But all that being said, I don’t think the $15 minimum is likely to be a game changer in the long run,” says Craig Alexander, chief economist of the Conference Board of Canada, a not-for-profit research organization.
He notes that several U.S. states have announced their own plans to move to similar wage levels over the next few years. Rather than relocating operations, many employers in Ontario are likely to respond to higher wages by reducing jobs and installing more automation.
“You already see the trend at some fast-food restaurants, where you order at a screen instead of talking to a human,” Mr. Alexander says.
His analysis demonstrates the complexity of any policy change: By encouraging automation, higher minimum wages could boost productivity over the long run, which the province badly needs.
… and at least one of the interviewed business owners gets it:
Mr. Josephs, the freezie maker, acknowledges the many conflicting factors. It’s difficult to find anyone who will work for minimum wage these days, he says. His big worry is not so much the hike itself but the knock-on effect it will have on workers who may be making slightly more than the $15-an-hour level and will want raises of their own.
If he decides to stay in Ontario, he’s looking at automating his plant to drastically reduce his use of seasonal workers, slashing the number of hires from 100 to about 40. “And we’ll be looking to reduce even further,” he says.
Meanwhile CRM2 is having its intended effect:
Financial advisors who work at three of the Big Six banks had much to complain about concerning their pay as a result of recent changes to their compensation packages.
Notably, advisors who work at Toronto-based Bank of Nova Scotia, Montreal-based National Bank of Canada and Toronto-based Canadian Imperial Bank of Commerce (CIBC) either gave their firms the lowest or much lower ratings in the “firm’s total compensation” category in this year’s Report Card on Banks because of changes that led to drastic reductions in their take-home pay.
Scotiabank received the lowest rating in the category (6.9) – a tie with National Bank – because advisors are dissatisfied that Scotiabank eliminated the investment bonus from advisors’ pay packages.
“[The bank] took away about $16,000 to $18,000 – or 20% of my salary,” says a Scotiabank advisor in British Columbia.
…
Similarly, advisors with National Bank took issue with several recent tweaks to the firm’s compensation regime. For starters, the bank announced a new compensation structure this past January, through which advisors will take an 8% cut in their salary as of July 1; this did not sit well with many advisors surveyed.
…
The new payout structure for National Bank advisors is 70% base salary and 30% variable compensation, says Nancy Paquet, vice president, partnerships, with National Bank. The changes include an 8% reduction to advisors’ salary, as well as changes to how the variable portion is calculated; specifically, the latter now is paid quarterly instead of annually.
Isn’t it great? Trailer fee disclosure will drive a lot of business away from independents to the banks, where the nice man at the bank will put investors into the bank’s funds and GICs (because GICs are safe!) – with no fee! Well, sure, there’s a MER, but all funds have MERs … advice will be free, free, free!
I am sure we all look forward to the day when trailer fees are banned completely; then all those expensive bank advisors can be replaced with high school students working part time. The banks were successful in implementing such a change (as far as I was ever able to tell) with respect to institutional salesmen in the first decade of this century and we can all look forward to universality.
The trouble is that nobody ever asks, considers or resolves the question: ‘what are the capital markets for? How can the capital markets accomplish their purpose more efficiently?’. Nobody’s paid to do it. In an ideal world the regulators would have these questions front and centre of every proposal, but in this world regulators are mandated to make sure there are no scandals that might embarrass their political masters. And so public markets get more inefficient, investment outcomes become more of a one-size-fits-all plain-vanilla whitewash and – most importantly – big banks get bigger and find they need more ex-regulators on staff.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.5000 % | 2,113.3 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.5000 % | 3,877.8 |
| Floater | 3.75 % | 3.75 % | 75,759 | 17.95 | 3 | -0.5000 % | 2,234.8 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 3,053.4 |
| SplitShare | 4.71 % | 4.32 % | 58,893 | 1.48 | 5 | 0.0000 % | 3,646.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,845.1 |
| Perpetual-Premium | 5.31 % | 4.64 % | 68,173 | 3.43 | 25 | -0.1490 % | 2,783.3 |
| Perpetual-Discount | 5.12 % | 5.09 % | 85,896 | 15.24 | 12 | -0.3300 % | 2,996.9 |
| FixedReset | 4.43 % | 4.09 % | 197,940 | 6.51 | 96 | -0.2013 % | 2,348.5 |
| Deemed-Retractible | 5.00 % | 5.11 % | 130,855 | 6.21 | 30 | -0.2848 % | 2,893.3 |
| FloatingReset | 2.55 % | 3.10 % | 49,482 | 4.34 | 10 | -0.3042 % | 2,555.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| PWF.PR.K | Perpetual-Discount | -1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-26 Maturity Price : 23.48 Evaluated at bid price : 23.75 Bid-YTW : 5.28 % |
| IAG.PR.A | Deemed-Retractible | -1.47 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.81 Bid-YTW : 6.08 % |
| TRP.PR.H | FloatingReset | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-26 Maturity Price : 13.96 Evaluated at bid price : 13.96 Bid-YTW : 3.35 % |
| SLF.PR.J | FloatingReset | -1.26 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.70 Bid-YTW : 8.82 % |
| SLF.PR.H | FixedReset | -1.12 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.39 Bid-YTW : 6.87 % |
| BAM.PR.B | Floater | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-26 Maturity Price : 12.57 Evaluated at bid price : 12.57 Bid-YTW : 3.76 % |
| TRP.PR.F | FloatingReset | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-26 Maturity Price : 18.66 Evaluated at bid price : 18.66 Bid-YTW : 3.36 % |
| VNR.PR.A | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-26 Maturity Price : 21.61 Evaluated at bid price : 21.61 Bid-YTW : 4.61 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CM.PR.R | FixedReset | 378,355 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-26 Maturity Price : 23.15 Evaluated at bid price : 24.97 Bid-YTW : 4.39 % |
| NA.PR.A | FixedReset | 173,141 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-08-15 Maturity Price : 25.00 Evaluated at bid price : 26.63 Bid-YTW : 3.87 % |
| PWF.PR.I | Perpetual-Premium | 75,052 | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-07-26 Maturity Price : 25.00 Evaluated at bid price : 25.82 Bid-YTW : -20.85 % |
| CU.PR.E | Perpetual-Discount | 60,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-26 Maturity Price : 24.12 Evaluated at bid price : 24.41 Bid-YTW : 5.05 % |
| MFC.PR.R | FixedReset | 56,004 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.77 Bid-YTW : 4.17 % |
| BMO.PR.C | FixedReset | 55,970 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-26 Maturity Price : 23.34 Evaluated at bid price : 25.55 Bid-YTW : 4.31 % |
| There were 40 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRP.PR.H | FloatingReset | Quote: 13.96 – 14.25 Spot Rate : 0.2900 Average : 0.2123 YTW SCENARIO |
| BAM.PR.R | FixedReset | Quote: 19.22 – 19.47 Spot Rate : 0.2500 Average : 0.1771 YTW SCENARIO |
| TRP.PR.G | FixedReset | Quote: 23.80 – 24.00 Spot Rate : 0.2000 Average : 0.1349 YTW SCENARIO |
| IAG.PR.G | FixedReset | Quote: 22.50 – 22.79 Spot Rate : 0.2900 Average : 0.2284 YTW SCENARIO |
| BAM.PF.H | FixedReset | Quote: 26.35 – 26.59 Spot Rate : 0.2400 Average : 0.1829 YTW SCENARIO |
| SLF.PR.B | Deemed-Retractible | Quote: 23.77 – 23.97 Spot Rate : 0.2000 Average : 0.1576 YTW SCENARIO |