, Columnist
The Market Time Bomb That's Bigger Than the VIX
Loan funds pose a potential liquidity problem, which could have a destabilizing effect.
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As bad as the stock market turbulence has been from volatility-linked products, it could be even worse some day because of exchange-traded loan funds.
Stock tumbles have a way of pointing out investments that seemed like safe bets but turned out to be unstable, propped up solely by rising markets. And when these bets unwind they tend to take down the wider market with them. In the recent market drop, volatility-linked investment funds, which in retrospect are being called an $8 billion ticking time bomb, emerged as the culprit. A number of the exchange-traded products were wiped out, and it appears the unraveling hastened the stock market's fall.