Overview
We observe the following impact to be true for ETFs
- democratizing access for individuals to positions traditionally accessible only to hedge fund managers
- disrupting hedge fund business models
- increasing population of investors with passively managed portfolios
- giving tech savvy individuals with finance background an edge by reducing active professional competition
Related references
At the surface level we observe hedge fund managers flocking to alternative data to seek alpha
A deeper dive shows this trend to be driven by the deterioration of the sector over the past few years as more investors shift into ETFs.
- https://www.highlandfunds.com/business-insider-hedge-fund-apocalypse-coming/
- https://www.bloomberg.com/news/articles/2019-05-31/quant-hedge-fund-amplitude-returning-client-cash-after-outflows
- https://www.bloomberg.com/graphics/2019-asset-management-in-decline/
Survivors are struggling with transition to increased data intensity.
- https://www.businessinsider.com/hedge-funds-open-source-platforms-2019-5
- https://trulytimes.com/hedge-funds-are-getting-swamped-by-alternative-data-some-want-to-fast-track-how-they-buy-it-and-focus-back-on-trades.html
Even Goldman Sachs embraces the trend by going on a hiring spree to recruit coders as opposed to traditional traders.
As this trend of disruption forces more hedge funds to shutdown, a unexpected gap opens up in the field.
It more than levels the playing field for individuals that are savvy in both tech and finance
On the flip side, it can be interpreted that a bubble is forming within ETFs sector similar to the subprime CDO bubble that popped back in 2008