The era of low-cost index funds from asset management giants such as Vanguard Group and BlackRock has simplified the fund-buying process — and that has been a good thing — but there is more work to be done.
The Securities and Exchange Commission is contemplating a new rule that would represent a fundamental rethink of the way funds disclose key information to investors, and, as technology advances, how information is released to them, as well.
One top SEC official, Commissioner Robert Jackson, believes this rethink should include discussion of how funds disclose their votes on key social issues.
Mutual fund investors have learned that there are a few critical pieces of information to ask about before making an investment purchase: How much does the fund cost, and how has its performance compared with other funds and the index? But that leaves out a layer of information that is becoming increasingly important to a new generation of investors: Does your fund care about social conditions across the Earth today and the future of the planet itself?
Investors can choose funds designed (and branded) as environmental, social and governance (ESG) investments. But the vast majority of investors are still in funds designed to buy stocks first and deal with the social repercussions after as they cast votes at annual meetings — the most votes of any public company shareholders.
Those proxy voting records of big fund companies on issues — including climate change, human rights, gun control and CEO pay — are a key metric to measure their social responsibility. On issues such as climate change, they've proven to be more talk than action.
"We should be showing how votes are cast with Americans' dollars at the point of sale," Jackson said in a recent interview with CNBC. "When you sit down with a broker and they put you in a fund, that investor ought to know how the money voted."
While mutual funds are required by the SEC to disclose their proxy voting record once a year in a public document called an N-PX, that information remains hidden from most investors — who wouldn't be able to understand the disclosure even if they knew how to find it.