Investors are Rushing into Equity ETFs

The latest Morningstar data shows investors are shunning precious metal ETFs and piling into large-cap equity ETFs

Jose Garcia Zarate 20 March, 2013 | 12:31AM
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The absence of particularly horrible news, rather than an abundance of good-news stories, has propelled equity valuations around the world. The euro has not collapsed, while the US budgetary shenanigans are being perceived as a political soap opera, spluttered with cliff hangers for the purposes of sheer entertainment, but posing no real threat to the world economy. Even emerging markets, while not growing at their briskest pace, have not come to a standstill. Meanwhile, fixed income and precious metals such as gold have seemingly lost a great deal of appeal over the last few months.

Behavioural economists must be having a field day trying to work out whether investors, who have been pummelled with a relentless stream of negative news over a number of years, are simply fooling themselves or accurately acting on the basis of the new investing mantra, namely 'it could be much worse'.

The fact is that when it comes to Europe, the economic outlook is still best defined by underperformance and uncertainty. UK investors are fully aware that the domestic economy is not particularly sterling (note: pun intended). Meanwhile in the eurozone, most economies face another year of recession and we still don’t know for sure whether the Italian clown (note: no pun intended) might just make Italy (and the euro) ungovernable for the sake of a few laughs. For what it's worth, my own take on the latter is that the clown might personally want to take people for a ride, but won’t be able to. So-called “anti-establishment” movements can only thrive in opposition, but tend to be quickly devoured by the “establishment” as soon as charged with a task where cold pragmatism is required, such as government. In other words, the clown might shout “revolution” from the rooftops, but when his deputies are faced with the choice “euro or bankruptcy”, they’ll probably choose wisely.

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About Author

Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe