Exchange traded funds (ETFs) are like mutual funds, but the average retail investor may access them anytime they want. These funds are also allowing investors to gain exposure to commodities and emerging markets, along with the exotic derivatives and concentrated bets that the regulators are keeping tabs on.
Billions of dollars are finding their way into emerging markets, but the markets that the ETFs track aren’t large enough to take in all the money and observers have noted that the indiscriminate buying is forcing up the value of bad companies, comments Martin Fluck for Seeking Alpha. []
Single-country ETFs may not have too many stock options to hold, so high concentrations in just a few companies is likely to occur. Additionally, as more money goes into emerging market ETFs, the funds would also match holdings to the emerging-market indexes and the compounded spiral of buying will help push prices higher. []
Are ETFs really driving the markets, though? Fund providers argue that regulation should be targeted more toward the underlying futures market than the ETFs themselves. Investors need to be alert to shifts in markets in order to protect themselves. Have a sell strategy and consider so you don’t miss a trading opportunity.
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