ETFs fuels fears of stock market bubble
Record-breaking 2017 for ETFs fuels fears of stock market bubble
Exchange traded funds attracted $131bn in the first two months of the year
March 18, 2017
by: Chris Flood
Exchange traded funds have attracted the biggest inflow of money in the first two months of the year on record, heightening concerns that ETF buying is fuelling an unsustainable price bubble in the US stock market.
Investors across the world ploughed $131bn into these index-tracking funds in the first two months of 2017, according to ETFGI, a London-based consultancy. This follows a record-breaking year in 2016, when ETF managers gathered more than $390bn in new cash.
Donald Trump’s election as US president in November gave the already booming ETF business an extra shot in the arm. Encouraged by Mr Trump’s promises of sweeping tax cuts and large increases in infrastructure spending, investors have rushed into the US stock market via ETFs.
“We have seen a huge amount of money pour into US equity ETFs since the presidential election in November and that has contributed to the move higher in the stock market,” said Nick Nelson, an equity strategist at UBS, the Swiss bank. The US stock market hit an all-time high in early March.
Dan Mannix, chief executive of RWC, the UK asset manager that focuses on actively picking stocks, said he feared unsophisticated investors were being “sucked into the market” because ETFs were cheap. There were dangers if ETF flows reversed, he said.
“There is a risk that the tide will turn."
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