CNBC tapped the shoulder of Deborah Fuhr, BlackRock Global Head of ETF Research, to discuss a recent article that reviles stocks are trading in lock-step more than at any time since the 1987 crash. Within the article there is a paragraph that seemingly places some blame for the correlated movement on the use of ETFs.
ES Browning states: “Heavy trading in exchange-traded funds means more stocks are likely to move in the same direction on any given day. Analysts call that correlation, a mathematical term meaning similarity of behavior. Correlation is on the rise, to the frustration of investors who are trying to analyze stocks based on their underlying strengths and weaknesses. “It is an indexing market and not a market for stocks. On good days everything goes up, and on bad days everything goes down. Everyone talks about baskets or sectors,” says Jeffrey Yale Rubin, research director at Birinyi Associates. “It is harder for individual investors and even for mutual-fund managers to distinguish themselves by doing individual stock picks. They might get the product right and the earnings right, but the market goes down and the stock is going to go down as well.”
Deborah injects a bit of reality on the subject stating that when ETFs are trading themselves, it is the ETF shares trading not the underlying stocks. Deborah also gives her opinion on where money will flow for the remainder of the year.
See the full CNBC interview below:
You can find the full “The Herd Instinct Takes Over” article: HERE