Sir S2000magician? I’ve been beknighted? Whoa!
escoleru wrote:1. Could you explain what is proxy-voting and why it is part of fiduciary duty? If a fund manager refuse to vote proxy, why is it a violation of CFA code and standard? Why is proxy-voting costly at times and can be avoided without violating code and standards in certain circumstances?
A proxy (in general) is an agent who acts on someone else’s behalf. In corporate matters, a proxy is an agent who votes for a shareholder.
The manager of a mutual fund, for example, has the right to vote the shares owned by the fund. Because the fund has investors, the manager has a duty to vote in a manner that benefits those investors (as opposed, for example, to voting in a manner that benefits himself). Failure to vote the shares denies the investors their right to have a say in the management of the corporation, so the manager has a fiduciary duty to vote the shares in the best interest of the investors.
However, there may be situations where considerable research is needed to determine the vote that is in the investors’ best interest. If the maximum benefit to the investors is small – less than the cost of the research – then it is imprudent to do the research. Because it is always a violation of fiduciary to cast an uninformed vote (even if it turns out to be the right vote for the investors), in the case where the research is too costly, the prudent action is to refuse to do the research, and to refuse to vote.
escoleru wrote:2. When the question say Cash Flow is increasing it means CFO absolute value increasse and CFI absolute value decreases?
If cash flow is increasing, then cash flow is increasing: CFO + CFF + CFI this year is larger than CFO + CFF + CFI last year. You cannot say for certain which components increase and which decrease.