Biggest ETF Casualties of Fed Taper Talk: Gold, Emerging Markets and Bonds

ETF Trends

Federal Reserve Chairman Ben Bernanke’s comments last month that the central bank could soon begin tapering its bond purchases triggered a sea change in financial markets and investor sentiment.

The taper talk also generated a huge shift in ETF flows as investors dashed away from asset classes that have benefited in recent years from Fed quantitative easing and short-term interest rates near zero.

In particular, investors have been fleeing ETFs tracking gold, emerging markets and longer-duration bonds.

“Exchange traded products are a very good indicator of what’s happening in the market,” said Raj Seshadri, BlackRock Head of ETP Insights, in a call with reporters Tuesday.

Since May 22 when Bernanke first indicated the Fed could scale back its bond-buying program, investors have decided to sell a wide range of assets and markets around the world have seen elevated trading volume, she said.

ETFs accounted for 31% of all trading volume in U.S. equity markets in June, up from a range of about 20% to 25% in recent months, according to BlackRock, which manages the iShares ETFs.

With the 24-hour news cycle moving markets, more investors are using ETFs to trade a wide array of sectors, Seshadri noted.

Next page: Investors unwind crowded trades with ETFs

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