“There is an impact and that impact can be significant,” Sandberg told the WSJ.
The research was prompted by large institutional investors, whom are increasingly concerned that the rapid growth of passive funds may be affecting stock prices.
“Clients are asking, ‘How big do ETFs have to get before we get concerned?’” David Pope, a managing director at S&P Global Market Intelligence, told the WSJ. “It’s everyone’s underlying fear, that one fund gets so powerful that it starts to move prices in a disruptive manner.”
The S&P researchers found that some stocks are more vulnerable to price moves driven by a surge in ETF investment interest. As investors dump more money into an ETF, the fund provider may buy more of a stock than is readily available to produce creation units to meet the rise in investment demand, forcing prices higher to find more willing stock sellers, or vice versa.
“The ETFs just consume everything that’s available,” Pope added.
For more information on the ETF industry, visit our current affairs category.