Are ETFs the Result of the 2008 Financial Crisis? (w/ Grant Williams and Steve Bregman) | Summary and Q&A

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November 9, 2019
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Real Vision
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Are ETFs the Result of the 2008 Financial Crisis? (w/ Grant Williams and Steve Bregman)

TL;DR

The rise of ETFs has led to secondary and tertiary effects, including a decline in the ranks of equity analysts and the outflows from active management. This has also resulted in a lack of price discovery and valuation in the stock market.

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Key Insights

  • 😮 The rise of ETFs has led to a decline in the number of equity analysts and a shift towards index-based investing.
  • 😚 Active managers have been losing business as they struggle to outperform the indexes.
  • 🖤 The lack of price discovery and valuation in the stock market is a result of the mass exodus from equities into index funds.

Transcript

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Questions & Answers

Q: How has the rise of ETFs affected the ranks of equity analysts?

With the shift towards index-based investing, many brokerage firms and investment banks no longer require the services of equity analysts. This has resulted in a thinning of the ranks and some analysts converting to ETF analysts.

Q: How have active managers been impacted by the rise of ETFs?

Active managers have been losing business as they struggle to demonstrate their ability to outperform the indexes. Some have adopted index-based investing or robo-advisors, while others have chosen to hold their ground and tolerate losses.

Q: Why are ETFs becoming so popular among investors?

ETFs are attractive to investors due to their lower fees, liquidity, and the ability to trade throughout the day. They also provide a more diversified portfolio and are an easy way to gain exposure to various market sectors.

Q: What are the implications of the lack of price discovery and valuation in the stock market?

Without price discovery, it becomes difficult for investors to determine the true value of stocks. This can result in stocks being overvalued or undervalued, leading to potential market distortions and the misallocation of capital.

Summary & Key Takeaways

  • The rise of ETFs has affected all types of investors, from retail to institutional. This has caused a decline in the number of equity analysts and a shift towards index-based investing.

  • Active managers have been losing business as they struggle to outperform the indexes. This has led some managers to change their investment strategies or tolerate losses in an attempt to hold their ground.

  • The decline in interest rates and the availability of ETFs have coincided, leading to a mass exodus from equities into index funds. This has created a lack of price discovery and valuation in the market.

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