The U.S. stock market suffered its worst week in nearly two years last week, with major indexes dropping into correction territory for the first time in about two years. Was the phenomenal popularity of exchange-traded funds a contributing factor to the weakness or the scale of the decline?
“The numbers simply don’t support the idea that the rise in ETF ownership is creating a world where everything is correlated,” said Michael Venuto, co-founder of Toroso Investments. “Remember that ETFs were a fraction of their current size in 2008 [during the financial crisis], but you had the same kind of broad selloff we saw this week. When ETFs own about 20% of the market, that’ll be a different story, but right now they’re too small to have this kind of impact. People are throwing the baby out with the bath water.”