Maybe the Index Funds Don’t Vote

Back in 2019, I wrote about “a half-baked theory I have about index fund voting.” The theory is:

When people want to bet against a stock by selling it short, they have to borrow the stock. Short sellers borrow stocks from brokers; brokers, in turn, borrow it from big institutional long holders. Some holders are more willing to lend stock than others, and index funds are particularly willing lenders. Short sellers pay a fee to borrow stock, brokers pass the fees along to the lenders, and index funds pass them along to their investors, in the form of slightly better performance and/or slightly lower management fees. Stock-lending revenue is crucial to index funds because their basic business is about giving investors index performance at the lowest possible cost, and stock-lending revenue is one of the only ways to subsidize the cost of running an index fund.