A Trillion Dollars – Muhaha!
After adding $209Bn (26.3%) in total assets so far this year, the US ETF industry has passed the Trillion Dollar mark led by $31Bn of inflows into fixed income ETFs, of all things as well as $29Bn of inflows into emerging markets, and $21Bn into domestic. Recent outflows have knocked commodity ETFs down to $11.4Bn, miles down from last year’s $32.6Bn inflow – rats leaving a sinking ship, perhaps? That would be very bad news for the firm that bought up 90% of the LME copper supply recently. Do ETF traders really know something or are they a lagging indicator?
“There is little doubt that money chases performance, so the bedrock for significant (ETF asset) growth is clearly a continuing move higher for risk assets,” said Nicholas Colas, chief market strategist at ConvergEx Group. He added that growth for ETF assets would essentially be a “tug of war” between hedge funds and retail investors. “As retail investors grow more confident in a continued rally in risk assets, they will shift capital from cash to equity ETFs,” said Mr Colas, who described growth for equity focused hedge funds as the “other side of the growth coin” for ETFs.
Mr Colas noted that hedge funds tended to use ETFs on the short side which was negative for asset growth. He said that as hedge funds expanded their equity trading books, a growing portion would come from from ETF short sales. “This will come through as ‘supply’, dampening demand for new shares.” Barry Ritholtz ponders the end game of the ETF madness and concludes that soon there will be more ETFs than ever:
There is growing speculation surrounding what is believed to be the next breakthrough product in the ETF marketplace: Single stock tracking ETFs. Unlike their index-based cousins, these new single stock trackers would, as the name implies, track only a single stock, trade at exactly the same price as the stock to which they’re linked and consequently eliminate the need for single stock ownership. A top executive with a money management firm who is familiar with his company’s plans to launch such a product and was granted anonymity so he could speak freely, put it this way: “Think about the prospect of, say, a GE tracking ETF — an investor could capture over 99% of the movement of GE
…
