Vanguard’s McNabb Says Data Doesn’t Support ETF Bubble Fears

Although the shift to ETFs over the past ten years has been dramatic—since the start of 2008, the industry has attracted nearly $2.8 trillion in investment dollars (according to the Investment Company Institute)—Vanguard chief executive Bill McNabb told The Financial Times that he doesn’t see this as a “systemic” trajectory indicative of a market bubble. In the interview, McNabb argues that index tracking funds represent less than 15 percent of the equity market capitalization around the world, and less that 5 percent of daily trading volumes in global financial markets. [Vanguard, the article says, has “set industry records for new […]

ETFs Make Markets Less Efficient Writes Klarman

While exchange-traded-funds have claimed a growing share of investor funds, critics say these funds are “potentially dangerous and untested through a crisis,” says a Bloomberg article from last week. In a recent letter to investors, Baupost Group founder Seth Klarman explains that the dominance of ETFs is making markets less efficient: “The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient the market is likely to become.” Most ETFs, the article notes, endeavor to track weighted indexes which are “dominated by the biggest companies with the […]