PrefBlog

There’s some good news from S&P:

S&P said Monday that it would no longer consider companies with multiple share classes for its main U.S. stock indexes. The one that matters is the S&P 500, which is tracked by about $2.2 trillion worth of assets and which serves as a benchmark for more than $7.8 trillion of investments. The share structures S&P is targeting usually grant insiders control of the company by giving their shares far more votes than shares held by outside investors.
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The shift mainly targets Silicon Valley, where companies from Facebook to Google and, most recently, Snap , have sold shares while giving investors virtually no say in how the companies are run. Snap, now down more than 20% from its IPO price, was seen as the tipping point because it gave investors no say at all. Companies already in the index will be allowed to stay.

With billions flowing into index funds every month, blocking these companies will likely reduce their potential valuation.
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The rise of index funds, and companies such as Vanguard, BlackRock and State Street that dominate the business, has concentrated power in the hands of investors in a way never seen before. The three companies have long said they believe in one share, one vote. And they pay a lot of money to index providers like S&P to use their products. The fund managers, of course, are paid by investors.

It is regrettable that the dominant Canadian index firm is the Toronto Stock Exchange, which is owned by the banks, who also own fool service brokerage houses while running many index-linked ETFs and closet-indexing mutual funds; so don’t hold your breath waiting for participating debentures masquerading as equity to be out of our indices any time soon. Fortunately, we know that the oligopoly is wonderful and works in our favour, because many of the oligopoly’s future employees currently at the Canadian Securities Administrators say so.

This entry was posted on Tuesday, August 1st, 2017 at 7:37 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.