Investors can buy and sell all types of assets at a low cost thanks to exchange-traded funds, but they can also get caught up in huge intraday market swings that sink their portfolios.
More than 1,200 securities, including many popular ETFs, had their trading halted across the major exchanges as the Dow Jones Industrial Average surrendered more than 1,000 points early in the day on Aug. 24, 2015. As ETFs rise in popularity — now representing more than $2.5 trillion — a fear that haunts ETFs more than any other is performance during future flash crashes.
Some ETFs fell well below their net asset value in the August 2015 flash crash — the value of the underlying stocks that are in their portfolios. ETFs losing more than 40 percent of their value at one point included the First Trust Dow Jones Internet Index, First Trust Consumer Discretionary AlphaDEX, iShares Global Healthcare, PowerShares Global Water Portfolio and iShares Russell Mid-Cap Value.
"ETF investors who traded at that point were impacted. And quite frankly, that is not an acceptable outcome for an ETF sponsor or anyone in the ETF ecosystem," Jim Ross, chairman of the global SPDR business at State Street Global Advisors, told the Inside ETFs conference this week.