Do you know who the biggest owners of Apple (AAPL) stock are? If you look it up, you will see that the top three are Vanguard, who owns 8.7%, BlackRock who owns 6.9%, and State Street who owns 3.5%.
Now look up Microsoft (MSFT) and you will see the same thing. The top 3 owners are Vanguard (9%), BlackRock (7.5%), and State Street (4%). Keep looking up big companies and you will see these names again and again.
Vanguard. BlackRock. State Street.
Vanguard. BlackRock. State Street.
Vanguard. BlackRock. State Street.
It’s like a broken record.
If you didn’t know any better, this would look a little fishy. How is it that these three companies own significant amounts of every publicly-traded company? Is this some sort of Iluminati-level cover up? Are they secretly running the world?
Unfortunately for the conspiracy theorists, the answer is “No.”
In this blog post, I will explain why Vanguard, BlackRock, and State Street’s “ownership” of the stock market is not an elaborate scheme to control the world. However, I will also discuss why their ownership may still be concerning for other reasons.
To begin, let’s explain why Vanguard, BlackRock, and State Street’s ownership of U.S. stocks is not the true definition of ownership.
Ownership is Not Ownership
As much as I would love to entertain notions of a Vanguard-BlackRock-State Street cabal, unfortunately, the truth is far less glamorous.
Vanguard, BlackRock, and State Street show up as the biggest owners of nearly every public company because they offer ETFs and mutual funds which hold all of these underlying stocks. There’s no secret scheme, just aggregated ownership from their fund owners.
For example, when you buy VOO (Vanguard’s S&P 500 ETF) in your retirement or brokerage account, Vanguard’s ownership percentage of every stock in the S&P 500 increases ever so slightly. The same thing happens for BlackRock and State Street if you buy IVV (BlackRock) or SPY (State Street), respectively.
So, if you had $100,000 in VOO, you’d have approximately $7,000 (~7%) in Apple stock. That $7,000 represents about 31 shares (assuming AAPL is $225 a share). So, out of the 15,287,521,000 AAPL shares outstanding, this means that you would own approximately 0.0000002% of them. This is roughly how much you contribute to Vanguard’s total ownership of Apple stock.
Though your total ownership of Apple in this example is negligible, when you aggregate your ownership with every other holder of the same ETF/mutual fund, it ends up being a significant percentage. In other words, it’s not Vanguard per se that owns 8.7% of Apple, but all of the holders of Vanguard’s ETFs and mutual funds that own 8.7% of Apple. That ownership percentage represents the combined ownership of millions of investors.
So, no, there is no grand conspiracy or cover up. Your ownership, along with the rest of the owners of their ETFs and mutual funds, is simply being aggregated under their name.
And this aggregated ownership has increased dramatically in recent decades because of the rise of passive investing. As Eric Balchunas noted earlier this year:
Passive fund ownership of the S&P 500 is about 24% today- up from 7% ten yrs ago. Meaning that on average an SPX stock has 24% of its shares out owned by index funds (which can incl smart-beta or themes tho).
This is a huge change in the distribution of ownership of American companies. It also explains why Vanguard, BlackRock, and State Street have the massive ownership concentrations that they do. And, though this ownership isn’t technically ownership, there are still some legitimate reasons to be concerned.
The Real Concerns about Concentration
While Vanguard, BlackRock, and State Street may not be controlling the world from behind the scenes, they do still have significant voting power at nearly every major U.S. public company. The reason why is because of something called proxy voting.
Proxy voting is when a fund provider votes on behalf of the owners of their funds. In this case, Vanguard, BlackRock, and State Street vote on management proposals so that you or I don’t have to. They do this because getting the vote of every fund owner on every management proposal for every company would be a logistical nightmare.
Think about it. Would you want to vote on every proposal across every company you own in an S&P 500 index fund? I wouldn’t. For some context, according to Vanguard’s 2023 investment stewardship report, their team voted on over 30,000 different management proposals just in the Americas:
This is why proxy voting exists. Because its far more efficient (and sensible) to outsource your voting decisions to a fund company who employs a large team of people to do this on your behalf.
More importantly, these teams vote based on a specific set of guidelines outlined by the fund company. For example, here are Vanguard’s proxy voting guidelines for various management issues for 2024. And here are BlackRock’s. Go ahead and read them. I know you won’t. They’re the most boring thing in the world.
Oh, a director didn’t attend at least 75% of their board meetings last year so Vanguard is going to vote against them as clearly stated in their guidelines? Oh no! The travesty! We need to tell TikTok immediately.
Yes, in theory, Vanguard, BlackRock, and State Street could conspire to go rogue and shake up corporate America. But they haven’t historically. As you can see in the table above, Vanguard supported nearly all of the proposals put forth by company managements. They sided with management over 90% of the time in all but two categories!
Does that sound like a firm that is secretly controlling things behind the scenes? Not to me.
Of course, I could see how it is a problem that these fund providers almost always side with management. As the table above illustrates, shareholder-led proposals tend to be voted against most of the time. I have no idea whether these proposals were reasonable, but I could imagine how this might be concerning.
My only counterpoint to this is that Vanguard is now allowing some fund owners to vote their own proxies, if they choose to. In 2023, Vanguard launched an opt-in proxy voting choice program and expanded it to a handful of their funds in 2024.
Why would a company hell bent on world domination do such a thing? Exactly. They wouldn’t. I know there aren’t a lot of funds with this option right now, but it’s a start.
The only other legitimate concern about concentration among these three companies is the amount of power they have over the asset management industry. While in any other industry this would be alarming, because of Vanguard’s mutual ownership structure, I don’t think it is.
As Eric Balchunas noted in The Bogle Effect, Vanguard’s mutual ownership structure is one of the key reasons why fund fees across the industry have declined over time. And, as fees have come down, the fight for passive fund marketshare has heated up between Vanguard, BlackRock, and State Street. As a result, I seriously doubt we will see any sort of collusion between the three.
Now that we’ve reviewed some of the concerns with Vanguard, BlackRock, and State Street’s concentrated ownership, let’s wrap things up by discussing why it does (or doesn’t) matter.
The Bottom Line
As much as I want to sound the alarm on the growing ownership of corporate America by Vanguard, BlackRock, and State Street, unfortunately, there is nothing there. Dig into the details for yourself and you will quickly get bored with what you find.
I get why this conspiracy theory first formed. To the uninitiated, it is a coincidental pattern. It can seem like you stumbled upon a secret hiding in plain sight.
But the truth is far less thrilling. After all, why else would Vanguard/BlackRock/State Street publish their voting guidelines and the direction of their votes for all to see? That’s not exactly how secret organizations work.
Of course, this doesn’t mean that these companies will never run into issues with their concentrated ownerships. It is possible that their voting patterns will cause a major issue among fund shareholders. However, I wouldn’t bet on that day coming anytime soon.
Happy investing and thank you for reading!
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This is post 419. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data
