Tuesday, April 11, 2017

Where Has the Volatility Gone-Part Trois

Yesterday we published a note regarding the debate about ETFs and their impact on the current low volatility environment


To add to the “against camp”, Zerohedge just published a post, citing Eric Peters, the CIO of One River Asset Management:

“The people who are indexing now are the same ones who were selling in 2009,” continued VICE, agitated. “I just spoke at a conference filled for wealth advisors from all the major players. They say the same thing - today’s buyers are not long-term investors.” They’re guys who put $1mm into index ETFs.
“When they lose 6%-7% and decide to sell, who will be on the other side of those trades?” And the stocks that will be savaged worst will be the ones that lagged the indexes on the way up. “It reminds me of 2000, when people piled into the QQQs.”
“I don’t know when the next major crisis will hit, no one does,” admitted VICE. “But I do know that even in the next normal correction, the market’s losses will be amplified enormously by this move away from active management.”

This means that ETF actually increases the market volatility, especially during a downturn.

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