Markets have grown increasingly complex with lightning-fast computers and high-frequency trading playing a larger role, and ETFs have become a part of the new landscape.
ETFs, which are baskets of securities listed on exchanges that trade like individual stocks, are a financial innovation that has been “beneficial to investors” in part because they’ve provided individuals with “low-cost, transparent” vehicles, Burns noted.
Rather than focusing on leveraged ETFs supposed role in boosting market volatility, a more relevant examination would include options, futures and other financial products that increase leverage in the system, the analyst added. The size and scope of these markets dwarf leveraged ETFs.
Leveraged exchange traded products hold assets of $35 billion, with bearish short and ultra-short products accounting for about $22 billion of the total, according to a recent report from Barclays Capital. There is about $1 trillion invested in all ETFs.
In fact, the largest leveraged ETF in August doesn’t even track stocks. The ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT) bets against U.S. Treasury bonds.
“It doesn’t impact the equity market,” Burns told CNBC.