Academic Briefing | Do Mutual Funds Represent Individual Investors?

In recent decades, mutual fund families have wielded their voting power to influence the direction of corporate policy. Although mutual funds have widely varying voting patterns and predictable ideological disagreements, little is known about whether their underlying investors have similar preferences. I provide the first systematic documentation comparing the voting preferences of individual investors in the United States to those of the mutual funds they invest in. I find that individual investors are highly ideological in their voting but there is generally no relationship between how a fund votes and the preferences of its individual investors. I explore the sources of this divergence, providing evidence for limited attention of individual investors and market power by mutual funds. I conclude that mutual funds’ exercises of power do not derive from a free and competitive marketplace for ideology.