Volume in exchange traded funds has exploded this week as more investors use the liquid financial vehicles to trade the market’s swings, hedge risk or take advantage of opportunities.
In recent weeks, global markets have endured “extreme levels of volatility” as the VIX surged about 80% from Aug. 4 to Aug. 10, according to ETF manager BlackRock (NYSE: BLK).
“As has been the case in previous times of volatility, investors globally have been turning to exchange traded products (ETPs) as an efficient means to express their views during these uncertain markets,” the investment manager said in a report.
ETP secondary trading volume has “represented a significant portion of total equity trading,” BlackRock added. For example, on Aug. 9, U.S.-listed ETP volume accounted for 39.2% of total equity volume, up from the 20-day average of 33.1%.
Year to date, ETPs accounted for about three out of every 10 dollars of equity trade volume, according to the report.
The investment products have stood up to the volatile swings in markets, BlackRock says. ETFs were questioned in the aftermath of the May 2010 flash crash as a large number cancelled trades involved ETFs on that wild day.
“ETPs have provided efficient and liquid access to a broad array of markets, and this is especially critical during volatile periods such as now,” the ETF manager said. “The majority of ETPs have delivered tight bid/ask spreads, minimal premiums and discounts, and tight tracking to the index.”
CBOE Volatility Index
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