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The Secret Power Behind Top U.S. Firms: Index Funds

Nell Minow, editor of The Corporate Library, an independent research firm specializing in corporate governance, said large fund managers such as Barclays have had a very good reason for remaining silent on their votes until now: "They don't want to alienate their current or potential clients," she said, noting that every large company is currently, or could potentially become, a customer for its pension fund management services.

Minow said index-fund managers' eleventh-hour conversion to proxy-vote disclosure will ultimately cast Barclays in a good light, however. She says that aside from their obvious conflict of interest, index funds are inclined by their nature to vote for the long-term interests of companies.

"Barclays has always been a very good, very principled owner," she said. "They act in accordance with the strictest standards of fiduciaries. They can't trade out of these companies if they're dismayed, so the only thing they can do is be vigilant about shareholder rights."

Make Yourself Heard

If you're an index fund holder and want more of a say in how the funds' shares are voted, you could become a shareholder of Barclays and State Street and vote on their proxies. At the moment, that might not be such a bad idea. Barclays, at least, appears to be modestly undervalued and pays a 1.1% dividend.

The company's 2003 earnings report was sound, and while the iShares business is one of the sexiest elements of its story from this side of the pond, it's by no means a high-margin or wildly profitable business. British analysts were more apt to highlight the company's accretive acquisitions, its credit card and private-client business, as well as its success at controlling costs.

Shares have appreciated 55% since January 2000, which is much better than the S&P 500's return of -22%. And yet, though analysts expect 8% to 10% growth next year, Barclays trades for a forward P/E multiple of only 11.

The trend toward consolidation of stock ownership might be problematic from a public policy point of view, but there's no reason you can't make a buck off it by buying Barclays at around $37.25 for a long-term hold while you're fingering your worry beads.

Top U.S. Companies in Fewer Hands
Bold type indicates the fund manager is the top noninsider institutional holder
Company Barclays % State Street % Fidelity % Vanguard % Top 4 own %
General Electric (GE:NYSE) 3.9% 2.90% 2.50% 2.90% 12.20%
Microsoft (MSFT:Nasdaq) 3.6 2.8 3.9 2 12.3
Pfizer (PFE:NYSE) 4.5 2.9 3.1 2 12.5
ExxonMobil (XOM:NYSE) 4.2 3 2.3 1.9 11.4
Wal-Mart (WMT:NYSE) 3.2 2.6 1.5 1.6 8.9
Citigroup (C:NYSE) 4.5 5.0 3.9 1.9 15.3
AIG (AIG:NYSE) 3.7 2.9 5.4 2 14
Intel (INTC:Nasdaq) 4.5 3.1 2.3 1.7 11.6
IBM (IBM:NYSE) 4.2 7.3 1.8 2 15.3
Johnson & Johnson (JNJ:NYSE) 4.3 4.4 4.6 1.2 14.5
Cisco (CSCO:Nasdaq) 3.7 2.9 2.8 2 11.4
Procter & Gamble (PG:NYSE) 4.0 3.4 2.6 2 12
Coca-Cola (KO:NYSE) 3.3 2.9 3.1 2 11.3
Bank of America (BAC:NYSE) 5.0 3.1 3.6 2 13.7
Altria (MO:NYSE) 3.9 3.7 2.6 1.9 12.1
Source: MSN Money

Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at At the time of publication, Markman had positions in the following securities mentioned in this column: Intel, Cisco Systems, Microsoft, ExxonMobil and General Electric.
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