Market Absurdity Squared: There Is Now An ETF ETF
By now everyone is familiar with the charts showing the tremendous growth of passive investing in general, and ETFs in particular, shown most recently in our discussion of how ETFs make markets dumber.
To be sure, everyone is also quite familiar with the mutant permutations of the above assets, such as inverse and 2x or 3x levered ETFs, whose only function is to fleece retail investors with unprecedented theta, including ETFs on VIX, essentially making them the modern day equivalent of Synthetic CDOs so familiar from the peak of the last financial crisis.
Yet while the exponential growth in ETF AUM continues, a landmark event took place yesterday, one which, at least according to Bank of America, may signal that we have hit a top.
The bank points out that after $2.9 trillion of inflows to passive funds, and $1.3 trillion redemptions from active funds past 10 years, an ETF ETF has launched.
That's right: the ETF Industry Exposure & Financial Services ETF (NYSE Arca: TETF) began trading overnight, composed of stocks of the companies driving the growth of the Exchange Traded Funds industry.
And since ETFs are effectively derivative products, something which will become abundantly clear when the liquidity mismatch chasm is exposed following the next violent market selloff, any similarity between ETF ETFs and CDO-squareds - whether synthetic or otherwise - which marked the top of the last credit bubble, is surely purely accidental.
So what is the ETF ETF, or TETF? Here is the explanation from the press release:
ETF Industry Exposure & Financial Services ETF (TETF) Launches April 20th, Providing Access to Full Range of Companies Driving ETF Industry Growth
The ETF Industry Exposure & Financial Services ETF (NYSE Arca: TETF), will begin trading today, April 20, 2017, providing investors with a single point of access to the companies driving and participating in the growth of the Exchange Traded Funds industry.
ETF will seek to track, before fees and expenses, the price and yield performance of the Toroso ETF Industry Index (the Index), which is designed to provide exposure to the publicly traded companies that derive revenue from the ETF industry. This includes ETF sponsors, index and data companies, trading and custody providers, liquidity providers, and exchanges.