“Since the low in 2009, ETFs that invest in stocks have seen assets rise about 500%,” Kleintop writes in his latest commentary. “This strong run is due to stock market appreciation, money moving from mutual funds into ETFs, and net new money coming in.”
Previous asset bubbles — including the technology, telecommunications and media stocks of the Nasdaq composite index; crude oil; precious metals; and homebuilder stocks in the S&P 500 Homebuilding Index — have all inflated 1,000% over 10 years before bursting and cutting prices by more than half in the following two years.
Kleintop says that both the 1,000% gain and the 10-year buildup are important to how embedded the bubble becomes in the markets and economy when it bursts.
“Applying the same classic profile of a bubble to ETFs, it appears that since their financial crisis low point in early March 2009, ETFs have not seen the 1,000% growth seen in destructive bubbles in the past,” he adds.
He notes, though, that the real bubble watch should be on the underlying assets in those ETFs (like tech stocks in 1999, for example) — not the vehicles themselves.
Kleintop finds that investors have been favoring international ETFs. While ETFs (including those based outside the U.S.) that invest in U.S. stocks gathered more assets so far in 2017 than any other individual country or region ($95 billion), most of the inflows were into non-U.S. ETFs ($267 billion).