Why passive ETFs are likely a poor bet moving forward

Passive ETFs returns have been strong, fees have remained low and exposure to the most popular technology stocks (Facebook, Amazon, Netflix and Google [now Alphabet] – the FANG stocks) has been a boon for investors. Passive ETFs have become so popular that they’re potentially becoming victims of their own success. The FANG stocks increased 88% on average in 2015, and as more money flowed into ETFs more money chased these high performers, which lights even more rocket fuel under their share prices. This momentum then attracts more investors paying scant regard to valuations. Current valuations compare with those just prior to the Great Depression and the tech boom that produced the tech wreck, but current profit margins are at record levels too. Low interest rates have severely reduced borrowing costs, companies have cut costs dramatically and wage growth has been almost non-existent. It’s easy to see how some stocks could easily lose half their value or more when today’s lofty expectations fall back to earth. Read more: (VIEW LINK)