The state of our industry is improving. The U.S. equity market is being viewed more as a savior and less as an albatross. Stock prices are stabilizing. Volatility is subsiding. Correlations are unwinding. But there are even more challenges ahead as we face the full impact of years of market evolution in a low volume environment.
One of those challenges is the constant barrage of finger-pointing as to what is causing equity markets to muddle through a weak economic recovery.
Let's just take ETFs for an example. I hear all sorts of perfectly reasonable people buy into the idea that ETFs are causing this tremendous increase in correlations over the last few years. But there is little real evidence to suggest that.
While I don't have a counter-evidence, this is clearly an example of where the one who lays the charges ought to carry the burden of proof. In terms of volumes, the ratio of U.S. single stock volume to ETFs with those positions has fallen since 2008, during which correlations have risen (see Exhibit 1).