ETFs, from Sam Humbert

May 8, 2007 |

It occurred to me the other day (and probably years ago to those more astute than I) that the broad shift of assets into ETFs has the second-order effect of raising demand for stocks. An investor thinks $1 in a mutual fund is "the same" as $1 in an ETF. But in fact the ETF is (by definition) fully invested, whereas the fund might be 5% in cash (because of liquidity needs, or just because the spirit so moved the fund manager).

Something like $300-400b of new money has flowed into EFTs since the 2002 market bottom; 5% of that is $15-20billion of marginal extra buying, equivalent to buying all of SUNW.

From Yishen Kuik:

As a tangential point, daily shares traded on the NYSE Group have doubled from about 1E9 in the 1st week of 2000 to about 2E9 today. During this period, the SPX has been largely unchanged, the NYSE Comp (new method) has gone from 7000 to 9400.

As an aside, I assume all trades on crossing networks show up as prints on T&S and thus are captured by metrics such as NYSE Daily Shares Traded. If someone knows better, I would love to be educated.





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1 Comment so far

  1. Marc Strausberg on May 9, 2007 10:21 am

    The money flow into ETF’s, where the big energy companies are an important component, as well as their agressive share buyback programs (Exxon is currently shrinking their outstanding shares at a rate of somewhere near 7% a year)might help explain the above average performance of this group relative to the recent price levels of crude and natural gas.


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