Morningstar Magazine - December 2017/January 2018 - 39

team went from 10 in 2015 to 21; and UBS UBS
will employ 11 dedicated professionals
to stewardship by the end of 2017, up from four
in 2015 ( E X H I B I T 2 ). These increases will
allow the firms to undertake more and betterquality engagements with investee companies.

active), but also according to the philosophy,
region, and history of the asset managers.

such as BlackRock and Vanguard, typically
vote for all portfolio holdings where possible as
long as the potential benefit of voting outweighs
the cost of exercising the right. By contrast,
smaller firms and those with fewer resources, such
as Deutsche Asset Management and Lyxor,
focus more on their home country or region, or on
their largest holdings. For example, Deutsche
AM works with a "watchlist" of around 700
companies that typically represent around 50% of
its equity fund assets under management.

Below, we share our findings and highlight
what managers have in common and areas where
they differ.

The role of index managers as active owners
is all the more important in that they are the
ultimate long-term shareholders of listed
companies. Unlike active portfolio managers, index
managers can't sell poorly run companies.
They must either put up with their bad governance
practices or encourage positive change through
voting and engagement.
That said, one shouldn't assume that all index
managers undertake stewardship activities
in the same way. From the responses to our survey
and our interactions with the firms, it is clear
that voting and engagement activities vary
significantly-not just according to the size and
predominant investment style (passive or

Voting Behavior Is Changing

We found that firms that offer both actively
managed and index-tracking strategies apply their
voting policies universally to all portfolios,
irrespective of investment style. The only exception
was Fidelity, which delegates the full management and voting responsibilities of its index funds
to subadvisor Geode. Therefore, Geode's proxy
voting policy and activities are completely separate
from Fidelity's. In our view, this setup has
the disadvantage of duplicating efforts and limiting
the benefits of scale with respect to proxy voting.

The starting position for all surveyed
asset managers is to be supportive of company
management and boards, as most votes
are linked to routine administrative matters.
However, as voting records show, there
are significant differences among firms in how
they voted, especially with respect to voting
against management ( EXHIBIT 3 ).

Meanwhile, the scope of voting varies widely
across asset managers, depending primarily
on their size. Large managers with a global reach,

We're starting to see anecdotal evidence of
mounting dissent. This is particularly so in the case

EXHIBIT 2

EXHIBIT 3

Increased Commitment Almost every
firm is devoting more talent
to investment stewardship teams.

Voting Differences Firms are not voting in lockstep with each other. They are also
becoming more engaged and taking more total votes.

Number of Stewardship Team Members

Asset Manager

2014-2015

2015-2016
% For % Against

Votes

2016-2017
% For % Against

Votes

% For % Against

31,237

83

17

32,396

82

18

32,771

83

17

147,400

92

8

158,965

92

8

163,461

91

9

4,984

83

17

5,754

79

21

7,735

77

23

11

Geode (Fidelity) 74,484

91

9

78,184

91

9

77,039

91

9

8

11

LGIM

42,631

89

11

44,823

89

11

44,332

88

12

UBS AM

4

11

Lyxor

0

0

0

0

0

0

461

81

19

Amundi

5

5

Nikko AM

23,117

91

9

23,657

91

9

22,956

83

17

-

5

Nomura AM

8,816

87

13

8,819

82

18

7,709

78

22

Geode (Fidelity)

3

4

SSgA

130,840

89

11

143,540

88

12

158,053

86

14

Nikko AM

0

4

Schwab

81,811

84

16

83,838

84

16

86,925

85

15

Deutsche AM

0

3

UBS AM

74,655

93

7

87,348

91

9

97,670

90

10

Schwab

2

3

Vanguard

119,130

92

8

153,768

93

7

170,974

94

6

Lyxor

0

2

Source: Asset manager data. Data as of 12/31/2016, except for BlackRock, Vanguard, and Nikko AM, which publish data as of 06/30/2017.
Deutsche AM data is only for funds of legal entities domiciled in Europe. Nomura and Nikko disclose votes on Japanese equity-related proposals only. In
most cases, "against" votes include "abstain" and "withhold" votes..

Asset Manager

Amundi

Votes

2014-15

2017

BlackRock

20

33

BlackRock

Vanguard

10

21

Deutsche AM

LGIM

9

SSgA

Nomura AM

Source: Asset manager data. Data as of 10/31/2017.

global.morningstar.com/Morningstarmagazine

39


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Table of Contents for the Digital Edition of Morningstar Magazine - December 2017/January 2018

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