Meanwhile, ETFs have gathered more than $1 trillion in assets and accounting for around 40% of total trading, according to market analysts.
ETFs have also come under fire during the recent abnormally high market volatility as some critics laid the blame on ETFs for exacerbating volatility, notably leveraged products. Others, though, say the critics are just trying to find a scapegoat. [BlackRock’s Fink Says Worried About Leveraged ETFs]
“There’s always been some sort of culprit out there that we blame,” Richard Keary, principal at Global ETF Advisors LLC, said, “and the easy ones to blame are the inverse and leveraged ETFs.”
According to Bianco Research, heightened macroeconomic uncertainty has brought correlation in U.S. stocks to all time highs. Specifically, 85.9% of U.S. large-caps are moving with the overall market. Since August 1, the S&P 500 has gained or lost 1% or more in two of three trading sessions. [Stock ETFs Move in Unison on Debt Crisis]
“Any heavy activity in ETFs will also have an impact at the sector level and carry through to the broader index,” Lionel Mellul, co-founder of Momentum Trading Partners LLC., said. “Essentially you trigger a shock wave on all the components.”
Max Chen contributed to this article.