Summer is typically a slow time in markets as volume trails off and traders flee their desks for vacation. However, ETFs’ share of overall equity volume has spiked in June with more investors using the financial products to manage risk and trade entire sections of the market.
For example, ETFs have accounted for more than 30% of overall dollar trading volume the past several sessions, according to Chris Hempstead, director of ETF execution services at WallachBeth Capital.
“No doubt about it the June volume trend is bucking upward. Another heavy day of trading and another stellar land grab for ETFs at 35%,” he said in a note Wednesday.
ETFs also accounted for 35% of overall volume on the first trading day of the month, June 3. ETFs traded over a $100 billion of volume during that session alone.
In an email Thursday afternoon, Hempstead noted ETF value volume was running at an elevated 39% for the day. “Volumes are popping in lots of ETFs,” he said.
For example, trading exploded in CurrencyShares Japanese Yen Trust (NYSEArca: FXY), which rallied more than 2% in wild currency market trading. FXY volume was nearly 4.3 million shares at last check, up nearly 600% from the daily average with two and half hours still remaining in the regular U.S. trading session. [WisdomTree Japan ETF Thumped as Yen Surges]
“ETF trading spikes when people think events are highly correlated and macro in nature,” Hempstead said in an interview earlier this year. “When the percentage of ETF trading in markets pops, a lot of it is people putting on trades to hedge bets. It’s not buy-and-hold.”
“In times of distress, investors use ETFs for liquidity and the ability to shift quickly,” said Robert Trumbull, head of institutional ETF sales at State Street Global Advisors.
The dominance of ETF trading was visible Thursday at StockTwits, where most of the trending securities were ETFs, including SPDR S&P 500 (NYSEArca: SPY), PowerShares QQQ (NasdaqGM: QQQ), iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX), Direxion Daily Small Cap Bull 3x Shares (NYSEArca: TNA), CurrencyShares Japanese Yen Trust, SPDR Gold Shares (NYSEArca: GLD), SPDR Dow Jones Industrial Average (NYSEArca: DIA), PowerShares US Dollar Index Bullish (NYSEArca: UUP), WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ), ProShares UltraShort S&P 500 (NYSEArca: SDS), ProShares Ultra VIX Short-Term Futures (NYSEArca: UVXY), Direxion Daily Gold Miners Bull 3x Shares (NYSEArca: NUGT) and Market Vectors Gold Miners (NYSEArca: GDX).
Full disclosure: Tom Lydon’s clients own SPY, GLD, QQQ.