ETFs Are Bubble Followers, Not Leaders
Investors, politicians and even government agencies, such as the SEC, have made the claim that exchange-traded funds create investment bubbles. However, it is only in the history of asset bubbles do we find that ETFs are followers, not leaders.
Most recently in 2008, global markets experienced their greatest bubble yet: an energy bubble. During this time, alternative energy companies of any size, shape, and source multiplied in price, prompting talking heads to declare the sector a bubble. Often blamed are ETFs, which helped drive cash into the bubbling stocks.
However, The Street takes a different take on the issue, showing that ETFs had little influence on the bubble. The tech bubble, one of the largest in history, was created without the influence of ETFs, with many money-losing companies commanding values in the range of billions of dollars. By contrast, at the peak of the oil bubble, ETFs in alternative energy and other products rarely broke the $1 billion mark.
Capitalizing on high energy demand in China, Global X Management launched the Global X China Energy ETF (CHIE) on Wednesday. The fund is the first to tap into the strength of energy and utility companies inside mainland China.
As oil prices carve out new 2009 highs, clean energy ETFs are also grabbing their share of a solid bull run. Although clean energy producers dived during the credit crunch, they’re back with vengeance, moving up more than 70% since March.
The push to develop a national “smart-grid,” which will more effectively transfer energy around the country, is setting up an opportunity for quick ETF profits. The project, which could cost as much as $2 trillion, will be a boon for many energy service corporations.
Pax World Management Corp., the first company to bring socially responsible funds to investors, has recently filed to create three new environmentally-friendly exchange-traded funds to be listed on the NYSE Arca exchange.
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