Exchange Traded Fund (ETF) Fever is Saturating the Market with Risk (and Opportunity)

  • Passively managed ETFs are exploding in investment and value.
  • The market’s zeal for passive ETFs is creating undue risk.
  • This risk also presents tangible opportunity for those willing to take an active approach.

Over the last decade, passively managed Exchange Traded Funds (ETFs) have seen explosive growth. Similarly, actively-managed funds have consistently shrunk. This trend is hardly surprising, as investors have sung the praises of ETFs in the post-Recession era. Additionally, people often prefer to put their money in passive vehicles in the hopes of achieving considerable returns with fewer steps involved.

As a result, this market segment appears to be becoming inflated, which may be the result of ETF-hungry firms and individuals putting more cash into passive vehicles without taking a strategic, nuanced look at the companies and holdings that comprise each ETF, respectively.

In an era where digital finance enables trading at the speed of light, it’s easier than ever – and possibly more dangerous than ever – to ignore the foundations our funds are built on.

Making a quick investment decision instead of the right investment decision can put your long-term financial prospects at risk. Just as you wouldn’t purchase a home without inspecting it first, you shouldn’t go “all in” on a financial strategy without first assessing a portfolio’s inherent fundamentals in the context of broader market trends.

Fortunately, there is potential upside to the market’s insatiable hunger for ETFs. As the market undergoes saturation and share costs drop, companies with strong fundamentals can be acquired at favorable prices. If companies with poor fundamentals underperform and the market faces subsequent backlash, these companies and their parent portfolios will (theoretically) continue to perform, increase in value and reward investors.

Regardless of whether you choose to invest in ETFs, index funds or any other type of investment vehicle, it’s imperative you weigh all factors – from a fund’s composition to market dynamics – to make a strategic, informed decision aligned to a long-term plan.

As your Personal CFO, Cypress Private Wealth is positioned to help you chart a sensible course. Reach out to us today!


There is no guarantee that an investment strategy will yield positive outcomes. Investing involves risk, including loss of principal. The advisors of Cypress Private Wealth are Registered Representatives with, and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice is offered through Strategic Wealth Advisors Group, LLC, a registered investment advisor. Strategic Wealth Advisors Group, LLC and Cypress Private Wealth are separate entities from LPL Financial.

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