Never miss an update

STICO WSS-150 Orange STICO Mens Non Shoes Slip Safety Orange MESH Shoes Comfort BreathableKOREA_Mc f95b244

Never miss an update

STICO WSS-150 Orange STICO Mens Non Shoes Slip Safety Orange MESH Shoes Comfort BreathableKOREA_Mc f95b244 -

    STICO WSS-150 Orange STICO Mens Non Shoes Slip Safety Orange MESH Shoes Comfort BreathableKOREA_Mc f95b244
    STICO WSS-150 Orange STICO Mens Non Shoes Slip Safety Orange MESH Shoes Comfort BreathableKOREA_Mc f95b244
    New Mens Slip On Gommino Moccasin Driving Shoes Casual Leather Loafers Comfort 9 , Ted Baker Mens Shoes - Chelsea Boot EUR Size 47 - Brand New - Brown LeatherAlegria Bartlett Dark Brown Nubuck Shoe US Size 42.0 , men's shoes INVICTA 10 () sneakers grey suede textile AB65-D , Donald J Pliner Lazzaro Slip-On Loafers, Brown, Made in Italy, Size 8M, New , Brand New Clarks Originals Padmore II Stinson Navy Shoe Boots Men 65921 SZ 10.5M , MERRELL J63883 - Jungle Moc Ltr Size: - Color:TOTO A1913 - 2.8 Inches Elevator Height Increasing Navy Blue Suede Casual ShoesFlorsheim Summer Mens shoes Edge Double Gore Slip On Navy Blue 14224-410 , Florsheim Shoes Black Navigator Wingtip Oxford Leather Derby Shoes NEW , Florsheim Men's Corvell Moc Toe Slip On Black Shoes 14052-001 , MEZLAN Mens Oxfords Brown Size 11M DaVinci Sq Toe Leather Brogue Spain 58573 , NIKE SB BLAZER, Size 8, WATERMELON, Noble Green & Razzle, 310801-361, NIB XRAREMen's Atlas Metallic Gold | Black BootsFRED PERRY MAN SNEAKER POLISH SHOES CASUAL FREE TIME SUEDE CODE B3142 , NWB Frye Allen Venetian Moc Suede Charcoal Gray Loafer Men's 11 1/2 MSRP $228 , hommes GRENSON " Swindon " CUIR NOIR mocassin taille 13Ryn Onix Brown Leather Oxford US Size 8.0 (Euro 40.1, Kor 260)men's shoes INVICTA 11 () sneakers dark blue suede textile AB66-FMens Base London Brogue Caraway Tan Shoes , 12.5 New adidas Originals ADI EASE DAEWON SONG SKATE SHOES Black White CG4905 , Men Chic Floral Embroidery Chains Metallic Mules Slippers Slip on Leisure ShoesDonald Pliner Men's Shoes Vinco DT Penny Driver Walnut , Retro Mens Cow Leather Hollow Out Sandals T-Strap Buckle Breath Casual Shoes SZOfficial Program Sneakers Shoes Sz 9 Blac Leather Tan Portugal Worn 2x YGI H8S-4 , men's shoes SERAFINI 9 () sneakers black leather AF876-B , Diadora N9000 MM Bright in Yellow Fluo Size 8-13 BNIBmens shoes CALPIERRE SPORT 9,5 EU42,5 elegant / oxford-shoe gray leather AD534-C , Florsheim Men's Black Riva size 8 EEE
    STICO WSS-150 Orange STICO Mens Non Shoes Slip Safety Orange MESH Shoes Comfort BreathableKOREA_Mc f95b244 ->STICO WSS-150 Orange STICO Mens Non Shoes Slip Safety Orange MESH Shoes Comfort BreathableKOREA_Mc f95b244 -
    VINCE CAMUTO Womens 'Brunah' Black Leather Knee High Sz 11 Boots 217944Burberry Black Leather Multi Shearling "Marissa Equestrian" Boots SZ 38PALMROTH WOMEN'S WATERPROOF ZIP MID ANKLE BOOT, STYLEMADE IN FINLANDPIERRE HARDY Shoes 597359 Brown 37 , Dr Martens Slip on Louis Black Inuck 16709001 Original Classic Doc , shoes shoe shoes motorcycle scooter Tcx Xblend wp touring urban waterproof , French Connection Women's Capri Ankle Boots, US, Black, 8 EUCole Haan Womens Mariannesam Closed Toe Espadrille Flats, Grey, Size 6.0 , Burberry Silver Ballet Flats Womens Size 36.5- AH10Spring New Slip On Ladies Rivets Pointy Toe Formal Slim Heeled Date Prom ShoesWomens Peep Toe Platform Sequin Metal Scorpion High Heel Stiletto Shoes 14CM HotKendall & Kylie Women's Anabel Over-The-Knee Boot , Men's/Women's Heel Louise et Cie Kainey Black Louis, elaborate a good reputation in the world Tide shoes list , Icon TRIBAL UNION Brown Leather Wedge Mules 7057 Size 8 M NEW! , Trotters Women's Kimberly dress Pump - Choose SZ/Color , 100% AUTH NEW WOMEN LOUBOUTIN PRORATA 90 PATENT PLATFORM PUMPS/HEELS US 7US10.5 Women PVC Floral Rhinestones Patent Leather Peep Toes Wedge Sandals ShoesNIKE WOMENS AIR RIFT SZ 5 WHITE PURE PLATINUM WMNS 848386 100Nike Rosherun Volt Hyper Punch Black 669689 Shoes Mens Size 9.5 Sneakers Used sPuma Men's Mega NRGY Running Shoes White Style 190368-05 , NEW NIB Men's Nike Lunarglide 8 Training Experience Shoes Flex AA8676 013 , Nike Shox Gravity Running Shoe, Sequoia/White-Off White, 12 , Nike 315180-711 Air Force 1 2007 Low Premium New York City Edition men's 11.5AIR JORDAN 12 Men SZ 9 Metal Baseball Cleats Retro Black Silver White 854567 010 , Eastland AURORA-M Mens Aurora BootD US- Choose SZ/Color.OLUKAI MENS KAUWELA CHARCOAL PALE GREY SIZE 9Kenneth Cole New York Link Up Loafers-Men's size 9.5 M BlackHAFLINGER Grizzly Torben BLACK GZL wool clog Mens US 11 Slippers scuffs , Womens Wedge Platform Super High Heel Fashion Black Frosted Ankle Boots Jd_uk , BLONDO Eden Stretch Suede Waterproof Over The Knee Riding Boots Size 6.5M ,
    Will ETFs cause the next market crash?
    ETF Watch - Jun 29, 2017
    STICO WSS-150 Orange STICO Mens Non Shoes Slip Safety Orange MESH Shoes Comfort BreathableKOREA_Mc f95b244 -

    There’s no doubt that the last 2 years has seen the coming of age of ETFs. With what was once an unknown type of investment quickly becoming a $30b industry in Australia ($3 trillion globally). However, as ETFs have moved from the unknown to the flavour of the month, an increasing number of commentators have called on the risks ETF investors face, with some even stating that ETFs will be the source of the next market crash. Today we take a look at some of the claims as to why some believe there are so many risks associated with ETFs.

    Claim 1: ETFS are blindly pushing up stock prices

    Many have written about share markets being at record highs. In an interview with the AFR, Wilson Asset Management chief Geoff Wilson discussed his portfolios’ current high weightings to cash due to concerns of market over-valuations. 

    US based fund manager FPA capital called ETFs “Weapons of Mass Destruction”and stated “The flood of money into passive products is making stock prices move in lockstep and creating markets increasingly divorced from underlying fundamentals”. The argument they make is as ETFs blindly invest in stocks in their chosen index and ignore the underlying fundamentals of these companies. This causes these companies prices to be bid up to prices that do not support their fundamentals (ie a bubble), and eventually history repeats, the bubble bursts and markets crash.

    What do we think?

    ETFs account for around 10% of US stocks’ market value and less than 1% in Australia. In the US at least this is not an immaterial amount. However, the active managers whom ETFs have taken business from generally have mandates which force them to invest a certain percentage in the market. As a result, active managers have always been investing in expensive markets and pushing up prices. Additionally, what is currently called by many analysis as expensive equity markets could also be attributed to global record low interest rates rather than an uptick in passive investing. In saying that, since the last major market crash (the 2008 GFC), the proportion of total assets in ETFs are considerably higher and continual growth of passive investing must be considered as a possible cause of markets becoming expensive.

    Recently we’ve seen Vaneck reweight their huge Junior Gold Miner’s ETF as they approached 20% limits in some of their smaller holdings. This meant selling out of these small gold miners which saw large falls in some of these shares (some of which was blamed on hedge funds looking to capitalise on the opportunity). This is a great example of the influence that ETFs can have, albeit this is at the small end of the market.

    Claim 2: ETFs will sell on mass and compound market falls

    One of the known weaknesses of a managed fund structure is the ability for investors to fairly easily redeem their funds, meaning at times of market falls, when a fund manager may find the best investment opportunities, the investors in the fund are panicking and redeeming their investments, meaning the fund manager becomes a forced seller rather than a buyer. This was one of the reasons Forager decided to turn their Australian Share Fund (FOR) into a Listed Investment Trust, where the pool of capital for them to invest was guaranteed.

    The one thing stopping simple redemption of managed funds during market crashes is another one of its weaknesses, which is managed funds are not simple to trade, and require the investor to apply to the fund to redeem units. This can involve filling out paper forms, and an apathetic investor may simply not be bothered.

    What do we think?

    One of the greatest advantages of ETFs is also one of its weaknesses when it comes to the above, with ETFs able to be traded on the ASX, a panicked investor simply has to log into their online brokerage account and hit the sell button. If a buyer does not exist on the other side of the trade, the ETF issuer is forced to then sell the underlying holdings which could very well begin a contagion effect.

    However, we come back to the size of the ETF market, at around 1% of the Australian market and 10% of the US market. Investors selling underlying stocks that they own through their broker will have the exact same impact as the reasonably small proportion of ETFs. We believe the actual impact of this event would be not materially higher than what currently exists.

    Claim 3: ETFS with low liquidity will be hard to sell if markets fall

    Peter Switzer recently spoke about a client who had received advice that an ETF with low liquidity would be difficult to sell if markets fall. The argument being that without a liquid market the seller would be unable to find a buyer on the other side of the trade and would need to sell at a significant discount.

    What do we think?

    One of the somewhat unknown components of ETFs is the role of the market maker. Essentially the market maker’s role is to provide liquidity to an ETF, so that if there is not an existing ETF unit on the other side of an ETF trade, the market maker must create an ETF unit for a buyer, or absorb an ETF unit for a seller. It is then the ETF issuer's role to buy or sell the underlying assets that the ETF holds. This means that regardless of an ETF’s liquidity, a market maker will always exist to buy an ETF off an investor even if the markets in free fall.

    However, there is a caveat to the above. Market makers make a profit by charging a spread between the buy price and the sell price of an ETF. The spread becomes the market maker’s profit margin. In a free falling market it may be difficult for the market maker to price the underlying investments forcing them to create a huge spread between the buy and sell price to protect their margins. This was seen in the 2015 Dow Jones ‘Flash Crash’, where some ETFs dropped 30% when the market makers were unable to price the underlying securities.

    STICO WSS-150 Orange STICO Mens Non Shoes Slip Safety Orange MESH Shoes Comfort BreathableKOREA_Mc f95b244 -

    Finally, an ETF is only ever as liquid as its underlying holdings. ETFs which invest in illiquid investments may have great liquidity, but if the underlying investments do not, this will likely be reflected in falls in both the underlying holdings and the ETF during market falls. This may be more likely to play out at the small cap end of the sharemarket and within unlisted asset classes.

    Claim 4: ‘Exotic’ ETFs are higher risk

    In a recent RBA publication, economist Michelle Cunningham discussed the risks faced with some of the more exotic ETFs, those that are classed as ‘synthetic’ ETFs, meaning the ETF issuer does not hold the underlying investments, rather they rely on a counterparty to pay the return. These ETFs are generally referred to as ‘Synthetic’ or ‘Hedge fund’ in their title. Cunningham raised the risk that the counterparty may default on their obligation, so an additional level of risk exists for the investor.

    What do we think?

    We agree with Cunningham’s analysis, an additional level of risk certainly exists with these ETF structures, however in many cases this is the only way to access to investment strategy that the ETF provides. Nevertheless, investors should be aware of the additional risks that exist.


    There’s plenty of arguments in both camps about ETFs role in future market crashes. There’s no doubt the world has moved into uncharted territory with the rise of passive investing & ETFs in particular. We do believe, however, that some of the risks are overblow. Nevertheless, investors should be aware of these risks in order to make informed investing decisions. What do you think?


    Previous Article

    2017 Financial Year ETF and LIC Performance Table

    Next Article

    New Fixed Interest ETFs expand options for investors

    Leave a Reply
    Find a Fund
    STICO WSS-150 Orange STICO Mens Non Shoes Slip Safety Orange MESH Shoes Comfort BreathableKOREA_Mc f95b244
    Casual Shoes