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Too bad to fail

As central banks show little sign of turning off the liquidity taps, the markets are getting used to the idea that interest rates will be lower for longer.

This has presented investors with a tricky dilemma – take on more risk in the search for yield or stick with the strategy but expect lower returns. As not many of their clients are likely to go for the latter, increasing numbers of them are doing the former – as some of the worrying behaviour in the credit markets attests. One man has, however, come up with a fail-safe solution. Barry Ritholtz, CEO and director of equity research at Fusion IQ, an online quantitative research firm, has hit on a cunning plan.

“I am putting together a new ETF that consists entirely of companies that have become so large and systemically important that they are guaranteed survival regardless of their own incompetency,” he announced last month.

“It is a market cap-weighted index (naturally) so that those names that represent the greatest threat to the overall economy have the highest weighting.” His top 10 holdings: AIG, Citigroup, Bank of America, Morgan Stanley, Goldman Sachs, Wells Fargo, Fannie Mae, JPMorgan, US Bancorp and Ally Financial.

What could possibly go wrong?

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