Unintended Consequences of ETF Investing

Attached is a very interesting article from one of our new international fund managers Mr. Morten Springborg. It was originally published in Danish in 2015 and now Mr. Morten has translated it into English.

This article shows the unintended effects associated with ETF (or indexed) investing. The author is an active international fund manager. He does not support the indexing style of investing and speaks openly about it. Certain information about ETF investments is widely available in today’s financial press: cost savings, participation in market performance, eliminating the middle man etc. Mr Springborg’s insights suggest that one must also investigate the unintended consequences of ETF investing. These include:

• Indexed investing allocates most of your money to the largest, most expensive stocks on the market, not necessarily the most profitable, best managed or best growth oriented.
• Indexed investing works well in a healthy market, but not so much during market downturns.
• In the bond market, indexed investing favours the largest borrowers, but not at all the healthiest ones.
• The strategy of allocating money to size vs. quality was the cornerstone of the planned economy of the Communist states. As we can say today, history proved that concept wrong.

To read the complete article by Mr. Morten Springborg please click HERE.