ETF Tacticians Prefer SPY When Volatility and Volume Rise

When the markets are fed heavy servings of volatility, it helps to get tactical when it comes to using exchange-traded funds (ETFs). For the self-styled ETF tactician, one of the favorite tools in their arsenal is the SPDR S&P 500 ETF (NYSEArca: SPY).

It’s a trend that manages to keep persisting, but why the continuous appetite for SPY? ETF mavens cite SPY’s over $265 billion in assets under management as one prime reason.

Being the biggest also allows it to be the most liquid so investors are never hard pressed for volume when looking to buy or sell SPY. For traders, it means they can get in and out with ease.

“When you see that happening, SPY is going to trade at very high volumes,” said Jim Ross, executive vice president of State Street Global Advisors (SSGA) and Chairman of the global SPDR business. “Investors use SPY to get in and out of the markets all day long during volatile markets, and it’s the most heavily-traded equities security in the world–it trades three times more than Apple.”

With trade wars roiling the markets the way they have been, getting in and out of securities is a plus, which is where SPY provides value for traders.

The underlying macro trend in SPY highlights the propensity for ETF investors to remain resilient in the current market landscape. Last year, ETFs received $314 billion worth of inflows despite a challenging 2018–a drop from the $466 billion the previous year, but given the challenges of 2018, an impressive figure nonetheless.

Compare that to mutual funds, which have been trailing ETFs in terms of organic growth rate, the estimated net flow over a period divided by beginning net assets, within the last 10 years according to Morningstar. In fact, the average 10-year growth rate over ETFs is 16 percent versus the paltry 2 percent for mutual funds.

That being said, SPY doesn’t merely lend itself to the fly-by-night trader who feeds off the adrenaline rush of getting in and out of securities with requisite speed. It’s also flush with investors who are in it for the long haul–the buy-and-hold investor who values SPY for its liquidity in the markets, among other things.

“There are long-term buy and hold shareholders in SPY,” added Ross. “They’ve been there for a very long time, they trust the liquidity profile, they trust the market resiliency of SPY, and the consistency of the spread.”

For more market trends, visit ETF Trends.