More on ETFs as Financial Devil Spawn

There has been lots and lots written and said lately about systemic risks created by exchange-traded funds (ETFs), so I won’t belabor that here. I will, however, add this nice graphic from JPMorgan showing the rise in futures & ETF volumes as % of cash equity volumes. As the JPM folks rightly point out, if the market were just broad-index ETFs then the S&P 500 individual equity correlations would be 1.0 ….

etfs.png

To be somewhat more practicallly-minded, how can you not be a seller of implied correlation one- or two-years out at this point? Hello? This can’t continue, so it won’t. [-]

Related posts:

  1. Fun With ETFs
  2. More Fun with Levered ETFs
  3. When Correlations Attack: Buy One, You Bought ‘Em All
  4. Most ETF Managers Don’t Invest in ETFs
  5. Leveraged ETFs and Portfolio Insurance