It is a risk that does not concern only those countries that it affects, but that, given the economic and financial interconnections between Member States, may rapidly reverberate throughout the euro area. Fragmentation leads to many serious problems from an ‘operational’ standpoint.
State-of-the-art strategies are likely to be similar across many funds; besides, as managers are compensated relative to benchmarks, they tend to replicate the investment strategies adopted by peers. The resulting herd behaviour will further amplify shocks and cause contagion.