In a recent Wall Street Journal article, columnist Jason Zweig rebuts an argument that index fund expenses are drastically understated.

The argument comes from veteran value investor David Winters, portfolio manager of Wintergreen Fund, who in his latest letter to shareholders says that the typical S&P 500 index fund incurred expenses of over 4.3% in 2016.  Winters argues that index fund managers get away with “overpaying their bosses” more easily, as measured by shareholder votes on management pay (required by the SEC to occur once every three years). Winters estimates, the article says, that S&P 500 index funds saw approvals 97% of the time in 2016 which, he says, has led to new share issuances (that dilute ownership interests) and share buybacks (intended to counteract the former). According to Winters, “Because index funds have become so dominant, they have effectively created a hidden cost that affects the whole market.”

But Zweig doesn’t agree: “Far from every dollar that companies spend on paying their bosses is wasted,” he argues, “nor is every buyback misbegotten. Those expenditures can often add, rather than subtract, value.” Zweig also points out that index funds own only a “sliver more than an eighth of U.S. stocks. It seems silly to blame them exclusively.” While Zweig agrees that too many index investors approve high executive pay for poor performance, he says active investors are guilty of the same.