In a coincidence, perhaps, Planet Money's latest episode[2] dealt with Warren Buffet's bet on an ETF over hedge funds.
1: http://www.bloomberg.com/news/articles/2016-03-07/odd-lots-h...
2: http://www.npr.org/sections/money/2016/03/04/469247400/episo...
he built index funds just like before. he was just the first one to afford enough lawyers to launch a product that would be shut down by regulators because of 800 page conflicting regulations
Some people really do prefer slavery over liberty.
If the same guy had written a white paper and tweetstorm while employed as a VC or investment banker or economics professor it wouldn't exactly be the difference between liberty and slavery.
Lack of regulation leads to things like the global financial crisis.
While I may be acting like an old fuddy-duddy, there is this:
>Of the 1,278 securities halted for trading, 80 percent involved ETFs, according to the SEC.
not trading the original shares,
Portfolio insurance basically replicates a put option against some index, typically using index futures. The idea is that if you can't buy a put option against something, you can replicate it by creating a short position but you have adjust the size of the short position as the underlying price changes, aka a "dynamic hedge". Since the delta of a put option decreases as the price of the underlying falls, you have to short more (up to a point) when the price falls. There's nothing inherently wrong with this strategy.
However, if everyone (or a substantial portion of the market) is following this same strategy, it could be bad. This paper [1] reviews the commonly-point-to reasons for the October 1987 crash, and talks about program trading and the portfolio insurance strategy as potential causes, but also indicates that there were other issues at play. This other paper [2] looks at what happens when everyone, or substantially everyone, is following the same or similar strategy when it comes to portfolio management and/or trading strategies.
1. http://www.federalreserve.gov/pubs/feds/2007/200713/200713pa...
Monoculture comes to mind...
First ETMF by Eaton Vance Hits the Market
http://www.nasdaq.com/article/first-etmf-by-eaton-vance-hits...
Not. $3T is the value of the assets held by the funds, the value of the industry is the expense fees. Its probably lower than that, if ETFs didn't exist some portion of that $3T would instead be held in mutual funds.