“You wouldn’t trade IBM the same way you’d trade a basket of bonds,” McPartland said. “It’s not looking at the right market factors, it’s not taking into account the underlying value of the basket of bonds. The market is really starting to accept that fact – that they’re not stocks and should be traded on the fundamentals or makeup of underlying portfolios, and that tools should be developed to do just that.”
It is important for investors to fully understand what they are investing in and look under the hood to get a better picture of an ETF’s characteristics. With volatility elevated and ETFs continuing to attract investors’ attention, it is increasingly important that investors assess how well their ETF investments can hold up during periods of wide market oscillations.
“This will be a good test for a variety of things over the last decade,” McPartland added. “How will they stand up to market shocks? And some of the early trading tools that have been developed, will they perform as expected under tougher market conditions?”
For more information on the ETF industry, visit our ETF performance reports category.