Because of their extensive stock ownership, mutual funds have a significant influence over the management of public companies. Their decisions can determine if a company moves forward with a proposed merger or if a particular slate of candidates is elected to a company's board. Whether mutual funds use that potential influence effectively is the subject of debate among regulators, academics, corporate executives, and fund managers themselves.
In this chapter, we focus on a mutual fund's investments in the stock of other companies—ownership that comes with both rights and responsibilities. As we discussed in Chapter 2, mutual funds themselves have shareholders, namely the investors in the fund. While those investors enjoy ownership rights in the fund, they are not the topic of discussion here. When we use the terms stockholder and shareholder throughout this chapter, we refer to the fund's ownership of shares in operating companies and not to ownership of the fund's shares by investors.
This chapter reviews:
Mutual funds are major investors in stocks. The Investment Company Institute calculates ...