Asjylyn Loder
speaker
56 appearances
2 recordings
1 series
first heard Mar 2018
last heard Jul 2018
Asjylyn Loder’s voice in public audio — every appearance, attributed to the second.
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Appearances
I'm J.R.
Yeah, and this is the latest in a long-running debate about the impact of passive investing on the markets.
And what S&P concluded was quite interesting.
They looked at all index strategies, ETFs, mutual funds, and they concluded that on February 8th, when the market was down almost 3.8%, that index strategy outflows accounted for about a third of that, which is not inconsiderable.
Yeah, so exchange-traded funds, just like mutual funds, take every stock in, say, the S&P 500 and wrap it into sort of a single, easy package.
The difference here is that exchange-traded funds can be, as the name implies, bought and sold on the exchange all day, whereas mutual funds can't.
And there are some who say that the tradability really attracts people who want to buy and sell them far more quickly and that that means that flows are sort of sloshing in and out of the markets at a greater velocity than they had in the past.
But they're going to ignore how much daily volume is available in that stock, what's the depth of book, how much is actually on the market, and they're very price insensitive in the way that they buy and sell.
They need to buy those stocks in that proportion, and that's what they'll do, whereas an active manager might look and say...
you know what, I've bought a lot, the price is starting to move ahead of me, why don't I step back a bit, wait, maybe do the rest of my trading later.
And generally speaking, passive funds don't do that.
It's really dependent on the liquidity in the individual stocks.
And what's interesting that S&P tried to do here is to measure why some stocks might be more sensitive to index flows than others, and how can you quantify that and, as an investor, look at the market and plan for that.
In the past decade, assets in passive funds that try to match the market rather than beat it have quintupled to $6.9 trillion.
That's a figure from Morningstar.
And as this has happened in recent years, you've seen ETFs especially linked to price distortions in oil futures, VIX futures, Japanese equities or gold mining stocks.
I don't think this is going to be the end of this debate.
Well, they're the most visible piece of the passive investing market, and they tend to be the most sort of hotly traded.
But they're not the only piece of passive investing.
And the real question is, is as people become more passive, does that muddle the price signals?
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