An article published on Investment Executive.com reports that even though the fast-growing ETF sector is poised to sustain its momentum with passive-leaning investors, new systemic risks may develop in the markets due to highly stressed market conditions, according to a new report from the Investment Industry Association of Canada (IIAC) published on Monday.
And while ETFs trade intraday, thus offering a higher degree of liquidity than managed mutual funds, a sudden run on funds can cause a waterfall effect, affecting values of underlying assets that are sold down to meet redemptions, amplifying the market turmoil. Read the full article here.
So what does this mean to investors who have chosen the passive route? It means that it is not time to panic; rather, it is time to analyze your allocation model and decide which broad asset classes, sub-asset classes or sectors may be under- or over-weighted, according to your objectives-based plan.
Remember, too, that dollar cost averaging is the antithesis of market timing, and it works to your advantage if you are willing to invest in all market conditions, and avoid any form of market timing.
To active managers’ chagrin, ETFs are here to stay. With literally hundreds of new introductions annually, there are now close to 2,200 exchange traded funds listed in the U.S. markets valued at a whopping $3.6 Trillion.