Investors could find themselves trapped in plummeting ETF investments if the next crisis hits markets hard and liquidity remains scarce, the team said.
Algy Smith-Maxwell, fund manager on the Merlin team, said in a press conference in London this morning: “With ETFs, what is the liquidity going to be like when the exits are really narrow?
“Are people going to be able to get their money out?”
The team said many investors “re-learned” the risks that can exist when illiquidity limits investors’ ability to exit an investment during the 2008 financial crisis.
But they may be about to re-learn the illiquidity threat all over again as ETFs look precarious, the team said.
Smith-Maxwell said the Jupiter team had already experienced issues in the case of one ETF, where investing took just a day but it “took a couple of weeks to get out”.
“I’m really worried about liquidity in the ETF market, if the balloon was to deflate,” added Smith-Maxwell.
The warning came as the team said monetary tightening in major markets including the eurozone, US and UK was among various “straws in the wind” indicating potential trouble ahead.
The team declined to make specific time predictions on when the bull market may end.
But it cited signs of stress in interest rates in the Chinese inter-bank market – some experts have long been warning the Chinese economy is heating up excessively, propelled by a potentially hazardous shadow banking sector.
Jupiter warned the implosion of Home Capital Group, one of the biggest mortgage lenders in Canada, was reminiscent of the troubles at HSBC’s US loans division that sparked the 2008 crisis.
