“The point is, both markets have performed well,” Wiedman wrote in the investor letter. “Since May 22, when Federal Reserve announcements first sparked concerns in the markets about rising interest rates, many investors decided to sell a wide range of global financial assets. Many of these investors turned to ETFs to execute their investment views. Even where the underlying markets were thinly traded (like some kinds of bonds) or closed during New York trading hours (as with many international equities), ETFs enabled investors to move quickly and efficiently to execute their views.”
He said the volatile markets the last few weeks have spotlighted an important trend in the business.
“More and more ETFs are becoming the true market, particularly when market sentiment shifts fast. ETFs are increasingly becoming the place where investors of all sizes can see the market price for a given investment exposure, and act on what’s really happening now in the markets,” Wiedman concluded. “In a rapidly moving market, the reported prices of individual underlying assets may become stale. The ETF price can become the true price for that market, and the underlying assets may eventually catch up with any gap between the two (called a ‘premium’ or ‘discount’). This is a main reason that so many investors large and small opted to use ETFs during the last month’s volatility.” [ETFs Face Scrutiny Amid Market Turbulence]
Still, some financial advisors are worried that investors may not understand when or why ETFs may trade at discounts to net asset value, Bloomberg reported Monday. [ETFs Reverse Inflow Trend]
The ETF business should cooperate to boost investor education efforts, Rick Ferri, founder of Portfolio Solutions, told Bloomberg.
““There hasn’t been any real attempt by the industry to get together on this, and there’s been no pressure from the SEC or Finra to make it happen,” he said.