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Is the ETF Bubble About to Burst?

Last update on: Jun 18 2020

Exchange-Traded Funds are probably the most successful new product launch in the investment industry as measured by the rate of new money flows into it. But things haven’t been all roses for ETFs. A number of ETFs quietly folded or merged into other ETFs because they couldn’t attract enough assets. Many others still are available but have so few shareholders that it’s hard to believe they are profitable for their sponsors. ETFs also attracted some bad publicity, because some that are intended to track certain indexes from time to time haven’t done such a good job. There also are instances of brief, wild fluctuations in the prices of a few ETFs. Some observers blame ETFs for market volatility, arguing that they make rapid trading easier and increase trading volume.

Yet, ETFs keep growing and new ETFs regularly hit the market. Here’s an analysis that thinks these trends finally are nearing an end. It argues that the new ETFs haven’t attracted much money and explores whether PIMCO’s ETF for the Total Return Bond fund will be a success.

Rowland maintains an ETF “death watch” list, which includes all funds that are at high risk of shutting down because they lack sizable assets or negligible trading volume. Since October, the number of ETFs on that list has been growing each month, and currently stands at 268, representing nearly 20% of the entire ETF market.

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