While the exchange traded fund (ETF) market has shown considerable growth, some money managers are picking individual stocks once again. Is this the way things are going to be now?
Geoffrey Rogow for The Wall Street Journal reports that ETFs accounted for 40% of the total U.S. equities market in late October, and now the volume is around 35%. Is this the sign that single stock risk tolerance is back?
Institutional investors may be ready to rely less on ETFs and more upon single stocks as hedges, and excess cash is no longer an issue. While the diversification benefits are many, there are ways to access the best companies without holding the not-so-great performers either.
Make no mistake: money is still pouring into ETFs, with March pulling in about $8 billion. For comparison, the were $4 billion in inflows the first two months of this year. Many industry insiders believe that ETFs will still be the favored investment choice for large pools of retail cash, as well as individual investor’s portfolios.
I think that even 35% of the total volume is a huge number. There’s a lot of cash on the sidelines right now, and nine out of 10 ETFs right now are sitting below their trend lines. ETF investors tend to be sophisticated, based on our research. All this leaves ETFs poised to surge past even the 40% volume level they enjoyed late last year when a true recovery begins.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.