In the world of investing, there are 2 types of investments with lots of subcategories, passive or active investing. Passive investing has grown is linked to buying the index of the stock market or index of part of the stock market. As an investor you buy a share in the fund which mimics the index and if the index does well, you do very well. If the markets are not performing well, then you do not do well. Active investing is paying a manager to use analytics to go through all the stocks in the market and pick a select few and based on the theory of the manager he or she outperforms the index or the stock market. If they do, because the fee is higher, you do not mind because the manager outperformed the market with their stock selections. If they do not do as well as the index, in the back of your mind you will think I should have bought the index and been better off.

The reality is over a long period of time, because all index funds at least twice a year let go the losers and pick up winners not in the index, over a long term the index will go up. In the short term or medium term, active management might do as well or better than indexing. That said, there is always lots of disagreement among investors what is the correct strategy.

In an article by Svea Herbst-Bayliss of Reuters, the largest asset management firm in the world is BlackRock and has over $10 trillion in assets under administration (AUM). Blackrock owns multiple funds including index funds, closed end funds, private equity funds and the list goes on. In every one of their funds, every year the Board of Directors is voted on. Most of the votes go smoothly and as long as the fund is making money, everyone is reelected.

In some closed end funds, a hedge fund manager Boaz Weinstein through Saba Capital Management has a large holding. Mr. Weinstein wants to replace the BlackRock nominees for Directors with nominees from Saba Capital. The process is a simply voting and a 50% plus 1 vote wins. Saba Capital has fought BlackRock for the past couple years and lost each time.

Glen Hubbard, Chair of the Boards of BlackRock Closed End Funds, noted for the 2nd year in a row Saba has failed to convince shareholders that Saba will deliver more value than the fund’s current stewardship and management teams.

There are 12 funds in the Closed-End Funds, in 10 of the funds have voted with BlackRock and 2 more will vote in July as they did not meet the quorum requirements for number of shareholders.

Closed-end funds unlike open-end funds, do not issue or redeem new shares which can leave them trading above or below the value of the securities held by the fund. Saba Capital has made the case if BlackRock bought shares from investors and that could potentially unlock $1.4 billion in value.

Linking to dividend paying stocks, on Wall Street performance is promised or expected and if delivered investors are happy to pay whatever fees are associated with the management of the funds. If the performance is not delivered, investors can either sell or vote against management at the Annual Meetings. If you own dividend paying stocks, as long as the company is profitable and pays a dividend, investors are more willing to understand prices go in both directions, however over the course of a year one expects to be more of the high side than the low side. When you buy your stocks what is your expectation?

There are more questions than answers, till the next time – to raising questions.