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Eric Balchunas

ETFs Become the Investing World's No. 1 Scapegoat

Exchange-traded funds are being blamed for everything from trading glitches to imminent financial destruction.
As long as you're assigning blame...

As long as you're assigning blame...

Photographer: Gary Hershorn/Getty Images

Despite saving investors about $20 billion a year in costs and taxes on capital gains distributions, exchange-traded funds are being blamed for most everything these days -- even things that haven’t happened yet. In the past six weeks alone, ETFs were accused of being weapons of mass destruction, creating a stock market bubble, holding stocks hostage, being hideous, making the market dumb and causing trading glitches. Most of these are histrionics from threatened parties that can be largely refuted with a few pieces of contextual data, but the last two do point to a more legitimate concern.

Let’s start with the WMD, hostage and bubble claims, which are essentially the same attack: ETF flows are causing mindless buying of stocks regardless of fundamentals and this will end badly.