This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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 jdm68@lycos.com. At the time of publication, Markman had positions in the following securities mentioned in this column: Intel, Cisco Systems, Microsoft, ExxonMobil and General Electric.
3 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs