- When an ETF owns more than 10% of a company, any kind of rebalancing can be very dangerous for the stock.
- The VanEck Vectors Junior Gold Miners ETF is becoming too big for its index, and has been forced to look beyond junior miners and to sell up to 50% of some of its positions in order to rebalance.
- The main danger coming from ETFs is the lack of underlying liquidity, especially when there is no one to buy the assets sold in a fire sale.
ETFs are potential vehicles of mass destruction. There is a high chance that in a few years from now, we’ll be talking about the 2000 dot-com bubble, the 2009 subprime crisis, and the 201X ETF liquidity crisis.
After ETFs took the investment stage, there weren’t many issues with them as they remained relatively small. However, the continuous inflow of capital has already made some ETFs too big.