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Speaker 1: Welcome to Ask Fear and Greed, where we take your

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Speaker 1: questions and do our best to answer them. I'm Michael Thompson,

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Speaker 1: and good afternoon, Sean Ailmer.

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Speaker 2: Good afternoon, Michael, Sean.

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Speaker 1: Our question today comes from Paul. He's sent it in

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Speaker 1: via the website. He went to Fearangreed dot com dot

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Speaker 1: au and sent his question. And you can go to

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Speaker 1: any of the social media platforms LinkedIn Instagram, Facebook if

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Speaker 1: you have your own question to add. But Paul says, Hi, guys,

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Speaker 1: I'm a daily listener, really enjoy the show. In the

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Speaker 1: interview each morning, I have a question for Ask Fear

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Speaker 1: and Greed about ETFs. He says, how much of the

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Speaker 1: overall market is owned by ETFs and as they become

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Speaker 1: more popular, will they reach a point where they are

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Speaker 1: driving the share price of individual companies either up or down?

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Speaker 1: Sean over to you.

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Speaker 2: Right, So let's define an ETF and exchange traded fund.

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Speaker 2: It's basically a basket of securities that tracks think like

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Speaker 2: the AX two hundred or tries to outperform something. It's

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Speaker 2: a managed fund that you can buy and sell on

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Speaker 2: the exchange. When you invest in an ETF, you don't

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Speaker 2: actually own the underlying investments. You own units in the ETF,

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Speaker 2: and the ETF providers own the shares and assets. So

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Speaker 2: that's what an ETF is. There are now more than

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Speaker 2: two hundred exchange traded funds on the AX. They track equities,

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Speaker 2: you know, large, mid small caps, overseas markets US, UK, Japan, China, India, Asia, Europe.

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Speaker 2: They track infrastructure, property, currencies, fixed income, all sorts of things.

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Speaker 2: The question from Paul, though, relates to the impact ETFs

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Speaker 2: have on equities. So the short answer is, I'm not

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Speaker 2: one hundred percent sure.

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Speaker 1: All right, there we go. Thanks very much Paul for

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Speaker 1: but go on.

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Speaker 2: But the evidence suggests that they don't have much of

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Speaker 2: an impact. Now, a passive ETF, which is one that

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Speaker 2: you say, I want to buy the ASEX two hundred,

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Speaker 2: for example, So the provider of that product buys the

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Speaker 2: proportion of Commonwealth Bank shares that makes up the ASEX

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Speaker 2: two hundred and the proportion of Beage P shares and

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Speaker 2: CELSIAZ et cetera, et cetera. So they're actually buying the

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Speaker 2: proportion in line with the index. So that should have

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Speaker 2: literally zero effect on it. Of course, there are a

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Speaker 2: bunch of others that might say I want to have

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Speaker 2: an ETF mining stocks, or banking stocks, or a bunch

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Speaker 2: of other things, so that you would think would theoretically

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Speaker 2: have some sort of impact encouraging buying or selling off

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Speaker 2: certain stocks. According to black Rock, which is a huge

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Speaker 2: fund manager out of the US, from the period of

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Speaker 2: December twenty twenty to December twenty twenty two, approximately five

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Speaker 2: point six percent of equities trading volume in the US

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Speaker 2: on Wall Street was attributable to ETF activity. Five point

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Speaker 2: six percent is not very much in other regions, and

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Speaker 2: numbers were lower in Europe. Just one point nine percent

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Speaker 2: of trading in individual European stocks was attributable to ETF flows.

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Speaker 2: In Asia Pacific, this figure is even lower, at one

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Speaker 2: point four percent. So I get that ETF activity has

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Speaker 2: probably risen in recent years. I don't doubt that. But

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Speaker 2: even we're talking eighteen months ago, the figure was about

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Speaker 2: one point four percent. That's not going to move markets

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Speaker 2: very much. So even if it doubled in that eighteen months,

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Speaker 2: and I don't think it has doubled, but let's say

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Speaker 2: it has one point four plus one point four two

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Speaker 2: point eight percent, Michael, Let's say let's call it three

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Speaker 2: percent it's probably not going to make a significant difference

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Speaker 2: to the market. So, Paul, excellent question. I can't give

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Speaker 2: you a definitive answer on it, but the evidence points

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Speaker 2: to the eye idea that ETFs won't drive individual companies

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Speaker 2: share prices either up or down.

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Speaker 1: At least not for many, many, many years at that

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Speaker 1: growth rate.

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Speaker 2: Yes, yes, what do you mean by that.

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Speaker 1: Well, if it's been a kind of what did you say,

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Speaker 1: one point four percent now Australia and say, uh say

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Speaker 1: in the US five point six percent there, and presumably

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Speaker 1: it has grown in the last few years.

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Speaker 2: Yes, okay, yes, yes, yes, So if we all jump

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Speaker 2: into ETFs right now, Interestingly about ets is they were

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Speaker 2: used to be it's just be about passive investing. So

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Speaker 2: I want to invest in a bunch of mining stocks.

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Speaker 2: So you just got a bunch of mining stocks in

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Speaker 2: proportion to the mining index, you know, the A six

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Speaker 2: two hundred. Much more popular now are active ETFs, so

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Speaker 2: they actually try and outperform certain things, and kind of

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Speaker 2: ets have shifted from being well I don't know the down,

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Speaker 2: but certainly more active ETFs than there used to be.

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Speaker 2: So your point there, Michael, is if people continue to

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Speaker 2: use ETFs, and particularly put money into active ETFs. Well,

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Speaker 2: they are more likely to impact share prices than passive ETFs.

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Speaker 1: Yeah, that was exactly the point I was trying to

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Speaker 1: make that Sean, thank you, thank you for very cleverly

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Speaker 1: identifying the point somewhere within what I said. Thank you

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Speaker 1: very much Paul for the question. That was a cracker.

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Speaker 1: So do what Paul did. If you've got your own question,

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Speaker 1: head along to Fear Andgreed dot com dot au and

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Speaker 1: send it in via the website, or go to Facebook, LinkedIn, Instagram,

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Speaker 1: any of the social media platforms and send it on

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Speaker 1: through there and we shall get it, have a look

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Speaker 1: at it, pop it on the list and Sean will

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Speaker 1: tackle it one day and I'll add my sort of

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Speaker 1: a two cents worth. It's like half of one cent

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Speaker 1: really that I add to it, but it is a

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Speaker 1: valuable contribution.

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Speaker 2: Thanks Sean, Thank you, Michael, thank you Paul.

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Speaker 1: I'm Michael Thompson and this is as Fear and Greed