30
Oct
ETFs and passive funds: the hidden risks of index investing
Passive investment management is much more active than it may seem. The role of index tracking in the creation of speculative bubbles. When index tracking leads to maximum risk-taking.
Key points
- 1,200 index-tracking and actively managed ETFs listed on the Swiss stock exchange
- Growth in number of index-tracking ETFs: a reaction to concentrated strategies and high management fees
- ETF trackers seem cheaper but they are not risk free
- Passive investment management is more active than it seems
- Index composition and performance are fundamentally unstable in the long run
- When bond index tracking leads to maximum risk-taking
- The composition of equity indices is not stable either and involves asymmetrical risk that is wholly unexpected with regards to passive investing
- The role of index tracking in the creation of speculative bubbles
