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Market Volatility Reveals Popularity of ETF Investment Vehicle

This article was originally published on ETFTrends.com.

With volatility spiking and the markets being thrown into chaos, investors have turned to ETFs as one of their go-to tools to access the markets.

For example, on Tuesday when U.S. Markets were down 3.8% and the CBOE Volatility Index or VIX jumped to a 23 reading from 16, 35% of the total notional market value was attributed to ETF exchanging hands, according to Deutsche Bank data. ETF volumes made up $190 billion, compared to the total market $540 billion.

Furthermore, looking at the outflows in iShares iBoxx $ High Yield Corp Bd ETF (HYG) , SPDR Barclays High Yield Bond ETF (JNK) , iShares Core US Aggregate Bond ETF (NYSEArca: AGG) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) with a combined excess of over $7 billion, it is worth mentioning that there are dozens of ETFs that are built as an alternative to simply holding cash.

Investors who are seeking money fund substitutes may look to actively managed, ultra-short duration bond ETFs that are more free to adapt holdings in a shifting market environment, such as the PIMCO Enhanced Short Maturity ETF (MINT) , Invesco Enhanced Short Duration Bond (GSY) , SPDR SSgA Ultra Short Term Bond ETF (ULST) and iShares Short Maturity Bond ETF(NEAR) . Additionally, investors can look at conservative short-duration Treasury bond ETFs, such as the iShares Short Treasury Bond ETF (SHV) and the SPDR Barclays 1-3 Month T-Bill (BIL) .

As of mid-day Thursday, ETFs commanded a 42% market share of the market's notional volume, Chris Hempstead, Head of ETF Sales for Deutsche Bank Securities, said in a note.

Thursday's action was especially noteworthy as the volume made up about $255 billion as of mid-day. This morning's period activity held up against other highly volatile market conditions including the February 6 vix week of $320 billion exchanging hands, the day after the flash crash at $260 billion and the day after President Donald Trump was elected at $245 billion.

However, "this is VERY different from any of the aforementioned dates as we really do not have that kind of headline to pin it on," Hempstead said. "Despite the futures having stabilized a bit relative to yesterday’s action, the money flowing into and out of the markets via ETFs is most certainly telling us that re-positioning of risk is about as meaningful yesterday and today as we have ever seen."

For more information on the ETF industry, visit our ETF performance reports category.

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