Since the May 6 Flash Crash there has been growing concern that exchange-traded funds are a monster in the making—certainly something bigger than they were meant to be.
Or as Harold Bradley puts it, “What I worry about is the tail wagging the dog.”
Bradley, chief investment officer of the Kauffman Foundation’s $1.8 billion investment portfolio, is hardly alone.
By some estimates, as much as 68 percent of the bad trades during the Flash Crash involved ETFs.
And on a daily basis, there is concern the end-of-the-day rebalancing effect of some ETFs is a key factor in wild swings during the market’s final hour of trading.
While it’s impossible to fully quantify any true impact of ETFs, worries extend to their role in the changing nature of how people invest and to the market’s high correlation to itself.
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