ETFs, ETPs behind stock boom, but could worsen its bust

London

PASSIVE investment has become so popular that it is a key reason for the ongoing bull market.

Month by month, money has been pouring into low-cost exchange- traded funds (ETFs) and other exchange-traded products (ETPs), according to ETFGI, which monitors the index investments.

The growth has been extraordinary, with total assets of ETFs and ETPs surging from under US$500 billion in 2005 to almost US$4.5 trillion in August this year.

Index-tracking funds and products, which now total just over 7,000, have outperformed most active hedge and mutual fund managers by a sizeable margin, according to Deborah Fuhr, who founded and heads ETFGI. Such have been the results, that professional and amateur investors are choosing ETFS to …