European stock markets are generally lower today.
It looks like the dollar is getting hit gain based on the quotes I see on Yahoo Finance except against the kiwi.
Hedge fund manager Hugh Hendry from Eclectica was on Squawk Box Europe and had an interesting comment. He said a soft landing is perfection. He doesn't see a lot of perfection in his life. He said a lot of people are betting on a soft landing which is to say a lot of people are betting on perfection. I should note that Hugh generally comes of as bearish where the US is concerned.
There was a reader question about how much of an ETF's move is from the underlying index vs. trading in the ETF itself. Because of the ability to create more shares the tail should never wag the dog. I don't discount the possibility that every great once in a while it could happen but as a practical matter no. The most popular ETFs are tied to very liquid indices with active futures markets that really do away with the effect the reader asks about. The smaller ETFs have such small dollar volume that it does not become an issue there either.
I should note that Jim Cramer has written and or spoke on this quite a bit in the past. Basically he takes the other side of this debate. The dollars involved in the entire ETF industry just don't back up the contention that this is an issue. On any given trade sure but as a real market moving issue; no.
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3 comments:
I agree with your stated view that ETFs are not having undue influence over the investment vehicle(s) they represent.
Having ETFs as a foundation with stocks and/or other investments comprising a diversified investment portfolio is logical.If more sector specific ETFs are utilized, one just needs to be aware of risks involved, and choose a few less speculative stocks or other bets to compensate.
I look forward to the time when ETFs do not grab so much of the available newspace. We have overkill opines at a gross level now.
Can demand on a narrow sector etf, where the volume is usually under 50k, like VAW, drive up the price of the etf itself? Premium prices like cefs, to a point of being a problem? Not sure what the percentage of low volume etfs to the etf universe but I suspect it is close to half.
ETF inflows can move a sector, (think gold and silver, or even better water related stocks.)
However the ETF itself will track the underlying basket quite tightly because of the built in arbitrage from creating/redeeming creation units. Any time they diverge, people will make more/liquidate ETF units.
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