Kaminsky's Call: ETFs Not the Safe Haven You Think
Morgan Stanley, Vice Chairman
When I read Herb Greenberg's column, "Can an ETF Collapse?" I was intrigued. Becky Quick and I asked this very question of this past Friday's guest, Robert Ladd of LaddCap Value Advisors.
A money manager I respect for his intuitive market feel, Ladd was the perfect individual for follow-up to Herb's reporting. Asked whether ETF's (exchange-traded funds) are a safe haven for investors, Ladd responded, "Absolutely not." On the heels of Herb's report this didn't surprise me as much as what Ladd said next.
Essentially declaring ETF's tools for day traders, and taboo for long-term investors, Ladd opened the door for a future question to ponder. Are activists and/or traders trying to test this hypothesis now?
If this is the case, consider Herb's piece again. The mystery of who holds the components of an ETF if approximately a mere 17 percent is accounted for by the instrument's monitor, becomes a terrifying question.
Millions of shares trade daily, and many investors do not know what it is they are buying, selling, and most importantly to this conversation, holding, especially on the leveraged 2 times and 3 times directional derivative ETF's.
When I told Herb of my conversation with Ladd after the show, he absorbed it as a reporter whose case was not closed. Herb is expecting a new study this week that provides further evidence.
If conservatism is the ambition of "benchmark huggers," imagine their fear upon learning that many of the mechanisms of which their very strategy relies is subject to possible implosion?
We will continue to monitor this story on The Strategy Session. The revelations could be eye-opening to many.
- Online Brokers Offering More Cheap ETFs: BlackRock Exec
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Gary Kaminsky does not hold any equity positions.
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