Skip to Content
Rekenthaler Report

Are Index Funds Too Soft on CEOs?

Let's look at the argument that indexers fail with corporate governance.


The Third Accusation
Friday's column absolved index funds completely from one alleged crime, and largely from another. They have not inflated the level of the overall stock market. Nor have index funds substantially distorted prices within the marketplace. Yes, index-fund inflows are invested unequally, such that those companies held by the S&P 500 have received massive proceeds that other firms have not. But the effects have been minor, because when index funds exit, trillions of actively managed dollars remain to fill the gap.

(Consider, for example,  First Solar (FSLR), dropped from the S&P 500 in March, after the company lowered its 2017 profit forecast. The company's shares took a two-month beating but recovered when First Solar raised its estimates. The stock is now 50% higher than when Standard & Poor's announced it would be dropping the company from the S&P 500. Devastating, that news was not.)

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.