Listen to the Coach’s Corner segment here or the full Untucked episode here.
Meghan Tait: [00:00:00] We’re going to talk about an article from Nick Majuli. He writes the blog of Dollars and Data. The article is titled, Do BlackRock, Vanguard, and State Street Run the World? We’ve come across a fair amount of skepticism about these three companies and their ownership in air quotes, um, in the largest publicly traded companies in the United States today.
Um, so what we wanted to discuss is what that means as them, those three companies specifically showing up as the biggest owners of nearly every public company and the reason that happens and what it means for you as an investor. Mike, do you maybe want to explain just yeah. So this is a,
Mike Traynor: this is a something you see kind of, and here, I think fairly a lot, which is that especially on social media where people will say, well, Vanguard, state street and black rock, they’re the three more or less kind of the three behemoths, [00:01:00] um, investment managers in the world, certainly in the U S and specifically they manage a lot of.
Index funds and ETFs, meaning they’re passive investments, meaning unlike say, I dunno, Fidelity, who is got a lot of actively managed funds where they have stock pickers and portfolio managers that are trying to weave in and out of certain companies, um, index funds, buy everything and hold it. And, and that’s kind of how they operate.
They’re very cheap and cost effective and tax efficient. And it partially explains the wild success of index funds. over the past, you know, a couple of decades. So fast forward to today, you know, you BlackRock Vanguard State Street managed trillions of dollars in investments on behalf of individuals and institutions.
Um, the way that the rules work is that the SEC requires any [00:02:00] investment manager who, who runs a hundred million dollars or more on behalf of others. And a hundred million dollars is small. In the world of institutional investing, like
Jeff Mastronardo: what does Vanguard have?
Mike Traynor: Probably 7 trillion BlackRock 10. Yeah. Yeah. So they’re required on a quarterly basis to, to file their holdings.
So the number of shares of every single, you know, publicly traded stock that they hold on behalf, by the way, on behalf of investors, not their, it’s not their money.
Jeff Mastronardo: But when you say that, like Vanguard’s holdings, it’s not like, the star fund, the prime cap fund, the Wellington fund. They’re not listing those holdings.
They’re listing the things inside. Yeah. Yeah. Pfizer,
Mike Traynor: J and J apple, you know, Nvidia, whatever. And by virtue of their sheer size, it turns out that those three companies more or less top the list of almost every company that’s, that’s traded, um, that’s listed. So of course [00:03:00] all the internet sleuths of the world are like, Oh, look what I uncovered.
Vanguard owns 10 percent of this company and BlackRock owns 9 percent of that company. And I’m talking the biggest companies all the way down to the smallest ones. So the conspiracy theories abound where these three companies own and control all corporate America. You know, red alert, red alert, red alert.
Like the one thing I saw last week was Did you know that the company that is hired to clean up the mess in North Carolina, the biggest investor, the biggest owner of it, and this is how they say it, is Vanguard. They own 9 percent of the company or whatever. Um, and there’s a whole bunch of lithium under the ground there.
And there is a, it’s like, first of all, Vanguard and BlackRock and State Street do not own these companies. The investors do Jeff, you do Meg, you do it for one K, uh, investors do. They’re the beneficial owners of all of this on behalf of the institutions that manage it, who are the ones [00:04:00] that are required to file these reports.
So that’s it. So Nick Majoli’s article is dead on spot on. He explains it kind of like that. This is what’s going on. It’s not some vast. Conspiracy where Blackrock is, uh, you know, they own a whole bunch of Pfizer. So they’re pushing the COVID vaccine. It’s all this kinds of stuff. Right. It’s crazy. Right. So like,
Jeff Mastronardo: uh, who runs apple, uh, Tim cook, right.
So he probably has shares of apple. You would imagine, right? Yeah. He has a lot. So like he may own like 15 percent of apple or 10 percent of that because he owns X amount of shares of apple. Right. That’s ownership of the company, right? Not just a Vanguard that has other, that holds other people’s money.
That’s invested in stocks like that. Like they’re two completely different things.
Mike Traynor: Yeah. They’re the, why are they saying it’s ownership proxy? They are filing this on behalf of all the millions of people who [00:05:00] are the actual owners of those shares through the mutual funds that they own or whatever.
Meghan Tait: They’re saying it because they don’t
Mike Traynor: understand it. That’s the
Meghan Tait: problem. Like they can make sense of the owner of Apple owning Apple shares. Vanguard being the proxy owner by way of investors owning Apple shares is a foreign concept completely. And it’s led to these crazy, crazy. Ideas, schemes, theories about Vanguard, BlackRock, and State Street being purveyors in like spaces in which they, they don’t matter.
Yeah. That, that stuff just
Jeff Mastronardo: like doesn’t exist and they’re just making it up.
Meghan Tait: Yeah. Well, there, there is some impact, right? Like Nick’s article does talk about where the concentration can matter.
Mike Traynor: In terms of like the voting and things. Yeah. So that’s a secondary thing, [00:06:00] which is that, you know, based on how many shares you own, your ownership percentage, you get a proportion amount of votes for mundane things like, you know, reelecting the boards of directors or compensation policies for the senior management or, but there’s other things too, like climate policies or DEI policies, diversity of, of.
The board and other management positions that land on proxies, which are voted for by, by the shareholders. So in that context, BlackRock, Vanguard, State Street have an outsized say or influence on those sorts of things. And people have argued, I think, RFK politically, in particular about BlackRock’s jamming down certain Woke agendas or DEI policies because of their position as a as a huge shareholder in many companies or in many [00:07:00] cases the biggest It’s not totally off base But it’s overblown yeah, it’s overblown it just is so
Meghan Tait: all of this is
Jeff Mastronardo: yes It kind of reminds me of like something that and this is this is a complete tangent, but And we didn’t plan to talk about this.
So if we don’t want to talk about it, that’s fine too. But like I’ve had a couple conversations with clients recently about like concentration. I got like the eggs in one basket thing. Like, well, I don’t want to have all my money at Vanguard. And I like, does that even matter anymore?
Mike Traynor: No, like
Jeff Mastronardo: who cares if you have all of your money at Vanguard?
Cause it’s not invested in. Vanguard stock.
Mike Traynor: Right.
Jeff Mastronardo: Right. It’s invested in different funds that own hundreds of companies. Like, it doesn’t matter.
Meghan Tait: That would be held regardless of Vanguard existing, Schwab existing, Fidelity existing.
Mike Traynor: Yeah. They’re a management company that invests on your behalf. [00:08:00] You being Jeff or an institution or whoever it is.
And they get paid a management fee to do that. That’s all it is. It’s very simple. Um,
Jeff Mastronardo: what’s the, what’s the harm if you had. All of your money invested in funds at Vanguard. What happens if Vanguard goes out of business?
Mike Traynor: You still own those, you still own, the funds would, if Vanguard went out of business for some bizarro world reason, I’m not even sure how that would happen.
They would be, absorbed, acquired, assumed by another investment manager. And it wouldn’t be the Vanguard Wellington Fund anymore. Maybe now it’s the Fidelity Wellington Fund. And you
Meghan Tait: would log into Fidelity to access your accounts and you would get statements from Fidelity. But your assets
Jeff Mastronardo: wouldn’t change.
Yeah, I just had a couple conversations about that. That and like some other stuff like, um, um, aren’t like, [00:09:00] This one client was concerned about like having a lot of money in money markets. Um, look, it’s not a, it’s not a ridiculous concern, but you’re concerned about losing money in a money market versus having it in an FDIC insured like CD.
Just some of the things that we get concerned about are just so nominal
Mike Traynor: to me. Money markets are, they’re technically mutual funds. So they are not guaranteed. They’re not FDIC insured. They’re not guaranteed. There have been cases where they’ve quote unquote called broken the buck because it’s a dollar a share constantly.
It’s how they work. Yep. Um, but in those instances, the literally if need be, the government steps in and makes everyone whole. No one’s, no one’s gotten to date. No one has gotten, uh, screwed because of that, uh, something going south in that world. It’s [00:10:00] too much of a political lightning rod in a sense. They come in and just bail out the money market, right?
Right. Which they’ve done. And I think they would, it would happen again. Um, because remember this is, you know, who owns the, the, um, assets in that fund. It’s a bunch of mom and pop, you know, individuals, right? It’s not, you know, too big to fail institutions or any of these are the people that will get hurt.
So I’m pretty confident that in a scenario like that, I mean, this happened at Schwab in 2008. It wasn’t a money market fund. It was close to one. It was a really, really short term duration bond fund. And it, and it got annihilated. It was five, I forget 150 billion wipe out. And it was made whole Schwab made whole and others.
It was made whole. So, um, That’s not like great news, but, [00:11:00] um, back to your, your point, Jeff, about the consolidation in a, in a, in an investing in one institution or having your assets custody at one place or whatever it is, absolutely nothing to worry about in the event something goes wrong, they get absorbed by somebody else.
And your investments are intact. And on top of that, there’s insurance that’s a backstops, all this stuff too. It’s, it’s way more. Um, it’s, it’s not something for anyone to lose sleep about is my, that was, that was exactly what I was going to say. Like there, these are not things that people should worry about.
Okay. Okay.
Jeff Mastronardo: Happy investing.