Is index investing getting too big? Dimensional says no. One complaint is that trading in ETFs, which are mostly tied to indexes, is getting so large that buy and hold investors who own the ETFs will swamp the market, and no active traders will be left to set prices. Dimensional Funds tackle this old canard in a new paper. First, there isn't any evidence that the group of buy-and-hold index investors is nearly big enough to make the market less efficient. Indexing is gaining, but it isn't taking over the world. One example: Indexers control only 18% of the ownership of the U.S. equity markets. Other investors like hedge funds, pension funds, life insurance companies, and individuals own most of the stock. Second, a lot of people who own ETF index funds aren't buy-and-hold types. The sheer daily volume of some of the largest ETFs indicate that much of the trading is being done by active traders, not buy-and-hold investors.
Dimensional examined the history of flows (which measure how many dollars are going into ETFs) to ETF trading volume. They looked at an enormous data set: all ETFs listed in the US from 1996 to 2022. They found that for every $1 flowing into ETFs there has averaged $78 in trading. Dimensional's conclusion: "These results indicate that a significant portion of ETF trading activity is not related to buy-and-hold trades." Looks like the day traders have clearly discovered ETFs.
Note: ETF Edge will be on hiatus next week and will return the following week (October 2).
Cathie Wood’s ARK makes big push into Europe by buying London-based ETF company. Earlier this week, ARK Invest acquired Rize ETF Limited, Europe’s first specialist thematic ETF issuer. Rize ETF manages more than $450 million in assets across 11 European funds centered around thematic trends like the cybersecurity, sustainability, cannabis and the future of food. Wood is looking to bet on rising demand from European investors for thematic ETFs and offer them exposure to ARK products – which they have not had access to until now. “We believe that the European ETF market presents a strong growth opportunity as new and younger investors continue to gain access to ETFs via the growth of digital platforms, and as active ETFs increase market share by meeting the demand for innovative investment exposures,” Wood said of the newly-minted deal.
As “higher for longer” takes hold, money is flowing into one bond ETF in particular. With Treasury yields spiking to more than decade highs, investors are pouring money into the Invesco Senior Loan ETF (BKLN), which comes with some built-in protection against higher rates. BKLN, which buys and holds loans made by banks and other financial institutions – often with floating interest rates – has seen nearly $400 million in inflows over the past week.
Grayscale files for ether futures ETF. After Grayscale’s big win for the crypto bulls last month, the company is now looking to launch a new ETF tracking ether futures as the crypto ETF race heats up. This comes just a few weeks after digital asset management firm Valkyrie also filed for an ether futures ETF, following dozens of other similar filings from companies like ProShares, Bitwise, Roundhill and Volatility Shares. Early reports from Bloomberg back in August indicated the SEC would likely approve such proposals as soon as October – but the jury is still out on spot crypto ETFs.
Looking to bet on a China rebound? Check out these ETFs. The Chinese economy has had several false starts since the government began easing Covid restrictions, but Citigroup’s Scott Chronert sees the the world’s second-largest economy nearing a turning point, finally poised for a potential rebound. With cyclicals bottoming and macro pressures easing up, Citi recommends a handful of funds that are most closely tied to the Chinese economy – including the Xtrackers Harvest CSI 300 China A Shares ETF (ASHR) and iShares MSCI China A ETF (CNYA). For investors seeking a little more risk with a tech twist, Citi recommends the KraneShares CSI China Internet ETF (KWEB) and Invesco China Technology ETF (CQQQ), which are down 9% and 16%, respectively, so far this year.
