Some critics are concerned that given the size of ETFs, large outflows, especially during periods of market volatility, could exacerbate declines. Belden, though, wants to dispel those myths, arguing that ETFs won’t likely drive markets by themselves. Investors, though, should watch out for areas where liquidity is tighter, such as high yield, bank loans, emerging market bonds or small-cap foreign stocks.
“But I don’t think that the impact will be that great. Despite the meteoric growth of ETFs, they are still a small percentage of market-cap,” Belden said.
Looking ahead, Belden is excited with the progress the ETF industry is going through. For example, there is discussion that the Securities and Exchange Commission will make it easier to launch ETFs in the future, which could engender greater competition and invite innovation, ultimately benefiting investors.
Additionally, more active managers are also eyeing the ETF space to capitalize on the growth in ETFs and bring time-tested investment strategies to market in the ETF space.
For more information on the ETF industry, visit our ETF performance reports category.