# ETFs - Do they impede the free float statistics?

Do ETFs impede the free float statistics?

A considerable share of ETFs does the physical replication, so that large number of shares seem to be frozen/parked in those funds.

Is this the case? Do they have significant negative impact on traded volumes of underlying shares?

It is a complex question. The first answer should be investors who bought these ETFs would otherwise have invested on equities (say we talk on Equity ETFs) a buy and hold way.

Seen like this ETFs concentrate assets under management (AuM) on stocks being parts of indices or "factors". On the paper these stocks should be chosen to be liquid enough to support such investments.

It means:

• the more ETFs, the more concentrate AuM on liquid stocks
• it should impact correlations (i.e. increase them on ETF components: more synchronized in and out, hence synchronized price moves via market impact).
• anyway: all shares are bought by someone at any time.

Such invested money should be counted into the free float since it is not different from passive investment strategies (buy and hold indices components). What has to be removed from free float (according to me) is what is bought for governance reasons and not for performance reason. You will always find special cases but I guess it is a simple way to understand free float.

In any case it would be very difficult to understand what would be the effect of removing shares from free float if they are bought by slow investors. It would be an interesting modeling question:

1. The more shares owned by slow investors (or on index based products)
2. The less free float
3. The less weight for them in indices
4. $\Rightarrow$ Indexed investors have to sell

Question: is there an equilibrium ?