Farmer Diaries

There has been a substantial amount written about the systemic risks that ETF can cause when they account for a certain percentage of the total market.  The benefits of ETF are obvious, as large money managers (charging hefty fees) have increasingly looked like local index investors.  Fidelity Canada's Canadian fund is effectively a replication with a 93% correlation to the TSX60 and as such with fees of nearly 1% of AUM, the attractiveness of buying a simple TSX60 ETF is almost overwhelming.  Who would not want to reduce its money management fees by 99%... Back to our problem, ETF investors are not "investors" they ride the coat tail of the publicly listed index -- taking no investor selection position (aside from being in or out of the market).  In fact, the ETF investors invest in sectors, not companies. As long as ETFs were a small percentage of the market it was not too serious, and a substantial body of research has been written on what is the right level o...