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Corporate bankruptcies have been on the rise. Citing data from Epiq Systems Inc., The Wall Street Journal noted a 26% increase in Chapter 11 business bankruptcies in the U.S. during the first half of 2020 relative to 2019. This is not surprising given the economic fallout from the coronavirus pandemic.

Prior to the pandemic, there were many companies struggling to turn their businesses around. They included Hertz Global Holdings Inc. (HTZ) and J.C. Penney Co. Inc. (JCPNQ). The coronavirus, and the shelter-in-place orders associated with it, served as the catalyst that pushed some of them over the edge.

While the bankruptcies made headlines, what received less attention were the unfriendly actions many companies took. Reuters says nearly one-third of the 40 large companies seeking bankruptcy protection awarded bonuses to executives within a month of filing. Hertz and J.C. Penney “approved bonuses as few as five days before seeking bankruptcy protection.” These bonuses were paid as the shareholders saw their equity holdings get wiped out. They also reduced the amount of assets available to bondholders, including individual investors owning bond mutual funds and bond exchange-traded funds (ETFs).

I believe companies—and particularly their boards of directors—should be good stewards of shareholder assets and be cognizant of the impact they are having on the world around them. Businesses do fail, and investors are responsible for monitoring the companies they invest in. But this doesn’t excuse corporate actions that are unfriendly to investors.

In this month’s issue, you’ll find two articles to help you judge whether a company is friendly to investors.

The first is from long-time AAII Journal contributor, John Deysher. He talks about this year’s shift to virtual shareholder meetings. While acknowledging the need for them, Deysher points out what investors miss by not being able to attend the meetings in person—particularly those of smaller companies. Hopefully, we’ll be able to attend live events of all types in person next year.

Beyond discussing the meetings, Deysher lays out a scorecard for assessing how shareholder-friendly a company is. It is a simple set of questions individual investors can use to make judgments. You can download a printable version of the scorecard. Read the article here.

The second article is from my colleague, Derek Hageman. Hageman gives an overview of Mebane Faber’s shareholder yield strategy. Shareholder yield measures how much cash flow companies are returning to investors. It is considered a measure of shareholder friendliness because it reflects a sharing of profits with stockholders. Sharing profits is also good for investors’ portfolios, as the practice is associated with outperforming stock prices. The article can be found here. Stay tuned for a follow-up article, appearing in next month’s AAII Journal, that will turn Faber’s strategy into a screen.

Of course, it wouldn’t be August without a focus on ETFs—read our ETF Guide here. This year’s guide is a bit different than ones of the past. Previously, the information provided in the guide was a midyear snapshot. Now, thanks to the enhancements we’ve made to AAII.com, the data is dynamic. Information on annualized returns, portfolio composition, expense ratios, risk indexes and more for the nearly 2,400 U.S.-listed ETFs and exchange-traded notes (ETNs) is now updated monthly and available to all AAII members.

We are also including our second Quarterly ETF Update in this issue along with our long-running, and previously premium, Quarterly Mutual Fund Update.

One type of ETF and ETN we have long cautioned investors about is leveraged funds. The cautious stance proved to be warranted this year, as a few imploded and cost investors significant sums of wealth. These types of investment products have a left-sided fat-tail risk—a greater chance of incurring an unusual but significantly negative return. Furthermore, their returns when bought and held can be far worse than investors expect, as AAII member and finance professor Matthew Crouse explains here.

On a final note, I encourage you to check out the completely redesigned AAII.com home page. It highlights useful content and directs you to areas of the site that should help you become a better investor. Along with the printable shareholder scorecard and the improved ETF Guide, the new home page is also a good excuse to join us at AAII.com and see all of the online resources you have at your fingertips.

Wishing prosperity and good health,