skip to content
  1. Home
  2. >
  3. Questions
  4. >
  5. MISC: Sometimes when markets feel a little "frothy" I wonder what is behind the movement. [Miscellaneous]
You can view 2 more answers this month. Sign up for a free trial for unlimited access.

Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: Sometimes when markets feel a little "frothy" I wonder what is behind the movement. I think one causal factor would be that certain investment managers, such as for larger pension funds, have cash flowing from contributions weekly (or at some regular interval) and they MUST keep cash balances within the range of their investment portfolio objectives so they need to buy SOMETHING!

If this in any way accurate? How much does it move the needle? What other strategies can these managers use to reduce volatility? (Maybe this comes full circle to Dollar Cost Averaging and that much of the time the market is at a new all-time high.)

Thanks!!
Asked by Marilou on October 03, 2025
5i Research Answer:

We think this might be less the culprit in terms of any 'froth', but it is probbaly fair to make the case that it has helped contribute to higher valuations and quicker rebounds in weak markets. We haven't really seen a smoking gun in terms of research that proves this out but the theory has gained some acceptance over the years. As noted, some of this is from large institutions needing to own a certain allocation, and some could be from passive funds 'blindly' buying into their index. These are going to impact more the 'mainstream' kinds of investments that are out there. In terms of what might be more of the frothiness at the margins, is something we think alsways has been there, it is just easier to see or hear about it with technology and social media and likely more driven by individual investors opposed to institutions.