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Testing Amazon's Controversial Facial Recognition Technology | Forbes Tech
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Brace yourself for four new iPhones in 2016...
As some investors had feared, Research In Motion this afternoon reported worse-than-expected results for its fiscal first quarter ended June 2, posting a large loss as demand for the company’s BlackBerry smartphones continued to crumble.
This is it.
Companies That Control Everything
The top 50 of the 147 superconnected companies 1. Barclays plc 2. Capital Group Companies Inc 3. FMR Corporation 4. AXA 5. State Street Corporation 6. JP Morgan Chase & Co 7. Legal & General Group plc 8. Vanguard Group Inc 9. UBS AG 10. Merrill Lynch & Co Inc 11. Wellington Management Co LLP 12. Deutsche Bank AG 13. Franklin Resources Inc 14. Credit Suisse Group 15. Walton Enterprises LLC 16. Bank of New York Mellon Corp 17. Natixis 18. Goldman Sachs Group Inc 19. T Rowe Price Group Inc 20. Legg Mason Inc 21. Morgan Stanley 22. Mitsubishi UFJ Financial Group Inc 23. Northern Trust Corporation 24. Société Générale 25. Bank of America Corporation 26. Lloyds TSB Group plc 27. Invesco plc 28. Allianz SE 29. TIAA 30. Old Mutual Public Limited Company 31. Aviva plc 32. Schroders plc 33. Dodge & Cox 34. Lehman Brothers Holdings Inc* 35. Sun Life Financial Inc 36. Standard Life plc 37. CNCE 38. Nomura Holdings Inc 39. The Depository Trust Company 40. Massachusetts Mutual Life Insurance 41. ING Groep NV 42. Brandes Investment Partners LP 43. Unicredito Italiano SPA 44. Deposit Insurance Corporation of Japan 45. Vereniging Aegon 46. BNP Paribas 47. Affiliated Managers Group Inc 48. Resona Holdings Inc 49. Capital Group International Inc 50. China Petrochemical Group Company According to the Investment Company Institute, a trade group for the mutual funds industry, as of the end of August, mutual funds held $11.6 trillion in assets. Money market funds held $2.6 trillion as of last week. Exchange-traded funds owned $1 trillion in assets as of the end of August. U.S. retirement accounts as of the end of August held $18.2 trillion in assets as of the end of Q2. Worldwide, the mutual fund industry held $25.9 trillion in assets as of the end of the second quarter. The value of the Wilshire 5000, which represents all U.S. equity securities, as of the end of September had a value of $13.8 trillion. 51.6 million U.S. households own mutual funds; they are held by 90.2 million individuals. 44% of U.S. households are fund investors. As of the most recent report from the ICI, funds own 27% of U.S. stocks, 33% of municipal debt securities, 45% of commercial paper, and 11% of all U.S. government securities. The median size of U.S. investment in mutual funds is $100,000; the median number of funds owned is four. In short, it isn’t Barclays (a larger manager of index funds), Capital Group (which runs the American Group of funds) and FMR (the holding company for the Fidelity Funds) that controls the world – you do, via holdings in mutual funds, both through retirement funds and in brokerage accounts. This is no secret cabal; this is the capital markets at work, allowing everyone a way to save for college, a new home and retirement. Are there abuses that come from the ability of these institutions to make large investment decisions? Sure. But there are alternatives: if you don’t like the results, pull your assets from the offending institutions and put them someplace else. There’s no conspiracy here, just the financial markets doing what they do, allocating capital on behalf of investors large and small. The Four Companies That Control the 147 Companies That Own Everything According to the 2011 annual factbook from the Investment Company Institute, there is $24.7 trillion in all the mutual funds in the world (a little less than half from the US). Based on data from the ICI, $1.24 trillion of this is directly invested in index funds, plus another $992 billion in assets beyond that $24.7 trillion in Exchange Traded Funds, which aren’t mutual funds but are index funds. That means the bulk of that money is in “active” managed funds or fund of funds. But then consider this: the chief of hedge funds at a very large asset manager told me last week (alas, I cannot identify either) that an internal study his firm recently performed found that the vast majority of mutual funds defined as actively managed see 95% of the assets they hold determined by an index. That means just 5% of actively managed funds really are driven by the active manager’s judgment. This less-than-active management is for two reasons: one is to maintain the fund in a style box (i.e. large value stock, medium value stocks) and comply with the reality all mutual funds are required to have a benchmark index they compare their relative performance to. The other reason is to adhere to risk metrics to which most of the fund industry is beholden. This second point is partly due to Modern Portfolio Theory (a complex topic we won’t debate here) and to the human nature that active managers tend to build portfolios close to the indexes they benchmark against to avoid really awful downward relative performance years that ends up costing them their jobs. So of the $25.69 trillion in worldwide assets we’ve identified, $2.23 trillion are directly in indexes (ETFs and index mutual funds) with another $22.3 trillion indirectly beholden to indexes (that 95% of actively managed fund holdings said to be determined by an index). You can see where I’m headed here. That means the real power to control the world lies with four companies: McGraw-Hill, which owns Standard & Poor’s, Northwestern Mutual, which owns Russell Investments, the index arm of which runs the benchmark Russell 1,000 and Russell 3,000, CME Group which owns 90% of Dow Jones Indexes, and Barclay’s, which took over Lehman Brothers and its Lehman Aggregate Bond Index, the dominant world bond fund index. Together, these four firms dominate the world of indexing. And in turn, that means they hold real sway over the world’s money. While that may seem benign – they are indexers after all you may say – a financial index isn’t cut and dried like the index of a book. It’s a misperception indexers merely do some simple math like identifying the 500 largest US companies and voila! you have the S&P 500. Every indexer has a fudge factor that allows them to say one company is more “economically significant” for the index at hand than another company. To again take the S&P 500 as an example, the 502-largest company by market cap could get the nod over number 500 by size if S&P decides it wants to. The power is even more obvious in bonds. The now-Barclays Aggregate Bond Index attempts to mirror volume of bond issuance in a region or the world, but it can’t include even a sizable percentage of all the bonds issued. Essentially, there’s a big judgment call in there in what bonds it adds to its index. A judgment that influences bond fund flows worldwide. What does all this mean? Researchers at a desk in midtown Manhattan are the butterflies that cause the hurricanes in the markets. For instance, 37% of all index funds in stocks are in a S&P 500 index fund. That’s $370 billion directly buying and selling stocks based on when the S&P analysts decide to drop ITT from the S&P500 and replace it with just one of three ITT spin-off, Xylem, as announced on Monday. Then add on top of that all of the so-called active mutual funds aiming to beat the S&P 500 (but still reflect 95% of the S&P in their funds) who react to the change and then all of the hedge funds who trade ahead of time trying to guess what S&P may drop or add. I don’t have a grudge against any indexer (and full disclosure, I’ve done work for some of them). And the folks at McGraw-Hill don’t seem to spook people the way George Soros manages to. But when you discuss power in the world markets, the answer isn’t what you think it is.
