Hi Les , your April post that you linked to has 2734 stocks and this post today has 2728 stocks..... so the number of individual stocks continues to shrink..... while the proliferation and growth in the number of ETF's continues to expand.... almost exponentially....
at some point the number of ETF derivatives is going to be so much greater and have some much more assets under management, that it seems like it will cause a dislocation and turbulence in the underlying market.
I continue to find it fascinating that the Wilshire 5000 index is down to only 3618 components due to mergers, take unders (DELL going private) and the absolute dearth of IPO's..... what a changed world from the 1960's and the 1990's.. when Silicon Investor started in 1995..... and in 1998 -1999.... there was like an IPO a day...
I recall days when there were multiple IPO's....
The Wilshire 5000 Total Market Index, or more simply the Wilshire 5000, is a market-capitalization-weighted index of the market value of all stocks actively traded in the United States. As of December 31, 2016 the index contained only 3,618 components. [1] The index is intended to measure the performance of most publicly traded companies headquartered in the United States, with readily available price data, (Bulletin Board/penny stocks and stocks of extremely small companies are excluded). Hence, the index includes a majority of the common stocks and REITs traded primarily through New York Stock Exchange, NASDAQ, or the American Stock Exchange. Limited partnerships and ADRs are not included. It can be tracked by following the ticker ^W5000.
It's a changed world with Dodd-Frank and Private Equity keeping companies private longer and longer..giving rise to the unicorn (a Private company start up valued at over $ 1 billion dollars, )
A unicorn is a startup company valued at over $1 billion. ... A decacorn is a word used for those companies over $10 billion, while hectocorn is the appropriate term for such a company valued over $100 billion.
Unicorn (finance) - Wikipedia
en.wikipedia.org
my issue with the proliferation of ETF's is the risk parity concern that Paul Tudor Jones has raised.
ft.com
MAY 23, 2017 by: Robin Wigglesworth in New York Rising equities, stable bond yields and resilient commodity prices are proving a buoyant environment for so-called “risk parity” funds, with a widely-followed index tracking the strategy having climbed 10 per cent from its nadir in November. Risk parity is a passive investment strategy pioneered by Bridgewater’s Ray Dalio, and it has grown in popularity since the financial crisis, with estimates of the industry’s size typically ranging from $200bn to $600bn, depending on definitions. The funds invest in a variety of markets according to their mathematical volatility, often using leverage to ensure that all asset classes contribute equally and to enhance returns. The Salient Risk Parity Index has climbed to its highest level since September and is up 5 per cent for 2017.
AQR’s risk parity fund has done even better than the Salient index, gaining 6.75 per cent this year. The S&P 500 has generated a total return of 7.8 per cent so far this year. The Salient index is up 28.2 per cent over the past five years and up 58.6 per cent over 10 years. S&P 500, meanwhile, is up 80.98 per cent over five years and up 56.2 per cent over 10 years. “It looks nice and perky now,” said Roberto Croce, head of quantitative strategies at Salient, an asset manager that constructs the index. “Risk assets have done well this year, despite last week’s blip, and bonds have done well. At the same time, nothing terrible has happened to commodities.”
Risk parity funds are designed to be as perfectly-diversified as possible, so that they should in the long run perform reasonably well in almost every market environment. They periodically rebalance holdings in response to volatility to ensure that the riskiness of each asset class in the portfolio remains roughly equal, and typically use leverage to ensure that bonds contribute to performance equally alongside more volatile stocks. Mr Dalio constructed it “to hold the portfolio today that will do reasonably well 20 years from now even if no one can predict what form of growth and inflation will prevail”, according to the official Bridgewater history of its genesis. However, some investors and analysts have long worried that the burgeoning popularity of the strategy could cause problems in a sell-off, given that risk parity funds target fixed volatility measures. So if turbulence erupts, in theory they can add fuel to the fire by paring their exposure at a vulnerable time for markets. Paul Tudor Jones, one of the hedge fund industry’s pioneers,
likened risk parity to the “portfolio insurance” that caused havoc on the 1987 stock market crash known as Black Monday by exacerbating selling pressures through automated selling. “Risk parity will be the hammer on the downside,” Mr Jones told last month’s Goldman Sachs Asset Management conference, according to Bloomberg. Risk parity investors downplay that view, arguing that the industry is much smaller than most of the common estimates — and certainly compared with the trillions of dollars controlled by equally fickle, traditional money managers — and does not react swiftly enough to bouts of turbulence and thereby exacerbates downturns. “So few people have bothered to take the time to understand what it really is,” Mr Croce said. But institutional investors like pension funds have largely shrugged off the concerns, and are continuing to allocate to risk parity. “It’s full speed ahead,” he said.
JJP |
