Exchange traded funds are being unfairly blamed for volatility, rising correlations and other problems in the market, according to industry analysts and top executives.
ETFs are facing higher scrutiny as the business continues to gain ground versus traditional mutual funds and as the financial products account for a growing percentage of equity trading volume.
ETFs have helped “level the playing field” but up until recently, there seemed to be the perception that they could do no wrong, said Don Phillips, president of fund research for Morningstar, at the firm’s recent ETF Invest conference.
Although Morningstar “truly believes” in ETFs, Phillips said there were “blind cheerleaders” for the financial products, which are baskets of securities that trade on exchanges like individual stocks. Their advantages include daily liquidity, low fees, tax efficiency and transparency.
Now, however, sentiment on ETFs has swung in the opposite direction, Phillips noted.
They have become “almost a boogieman” for everything that people don’t understand in financial markets and the subject of “senseless overstatements.”