ETFs passing market test

ETFs markets COVID-19

Investor confidence in ETFs improved in February and March when markets were experiencing the most significant COVID-19-driven period of volatility.

Exchange-traded funds (ETFs) have strengthened their standing among investors, despite experiencing significant scrutiny in line with the COVID-19-led volatility in equity markets around the world in February and March, a manager specialising in these instruments has said.

During the two-month period, no ETFs trading on the Australian Securities Exchange (ASX) were either closed or ceased trading even though they experienced a significant amount of volatility associated with their underlying indices.

“The primary task of an index-tracking fund is to basically give investors the fall – and rebound – of their underlying indices, and overall the broad index-based ETFs have done this,” ETF Securities co-head of sales Kanish Chugh said.

Further, investor trading activity involving ETFs over these months reflected a significant increase.

“The ASX ETF sector on average traded about $770 million a day – that’s nearly four times the high of the previous peak. The 748,000 transactions for March was about two-and-a-half times higher than the previous month,” Chugh revealed.

The positive figures for ETFs are an indication investors are beginning to realise the investment vehicles can be used to achieve a number of desirable outcomes.

“We saw a sharp spike in activity as more investors realised that they could use the ETF market in a much more varied way than they may have thought – for buying, selling, hedging and tactically trading, whatever they wanted to do, in a variety of asset classes,” Chugh noted.

“Activity in February and March showed that Australian investors are increasingly comfortable with using ETFs to express their investment views.

“There were a lot more people being more active in the market because the versatility of ETFs allowed them to do what they wanted to do.”

He acknowledged the peak period of volatility in markets due to COVID-19 did cause wider transactional spread among ETFs, but attributed this purely to the extreme price movements experienced by the associated underlying exposures.

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