ETFs: Fail-safe investment vehicle or weapon of mass destruction?
Rather than adopt a 'set it and forget it' mindset, advisers need to be diligent and monitor the ETFs they invest in. Here's how to see the hidden risks
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EXCHANGE-traded funds (ETFs) attracted more flows than "any structure ever" in 2017, according to Bloomberg's Eric Balchunas.
Is that bad? Industry experts have issued calls for caution ranging from circumspect to outright alarming. Mohamed El-Erian, chief economic adviser at German insurer Allianz and former CEO of Pimco, believes that the instruments "over-promote" the liquidity of their underlying securities, which is in line with findings from BlackRock in 2015 that fixed-income ETFs trade much more often than the bonds that comprise them. Steven Bregman, CFA, president and co-founder of investment advisory Horizon Kinetics, says the herd behaviour ETFs inspire will be the "Delivery Agent of the Great Bubble".
Such sins, both real and imagined, mean ETFs are now described as "weapons of mass destruction" with disconcerting regularity. Mark Weidman, the global head of iShares, has said "ETF apocalypse concerns are way overdone" at least once. And yet the murmurs continue.
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