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With more than $4tn invested in ETFs and Vanguard owning a 5% stake in 491 stocks in the S&P 500, Bank of America is warning the passive trend will lead the overall market to fluctuate violently, especially to the downside, when there is an event affecting either a single stock or market at large.
The other side of the coin, however, is that "there will always be a liquidity problem for the markets any time the amount of sellers swamps the amount of buyers," said Halftime Report trader and CEO of Ritholtz Wealth Management Josh Brown. "ETFs are way more efficient and although there will always be hiccups, the machinery has demonstrated its ability to be extremely durable in times of market stress," Brown said. The Bank of America note points out that, like it or not, ETFs in the U.S. may still have a long way to go. The bank says almost 70 percent of all assets under management in Japan are passively managed ETFs — more than double the percent of assets in the U.S.
http://www.cnbc.com/2017/07/05/etfs-may-lead-to-a-market-liquidity-problem-bank-of-america-says.html
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