ETFs Pass Trading Test Every Day

August 23, 2017

Todd Rosenbluth is director of ETF and mutual fund research at CFRA.

Did you catch Monday’s total solar eclipse? If so, your next opportunity isn’t expected until October 2023, according to NASA. Yet when the sun is shining brightly and unblocked, headlines tend not to be written and people don’t line up staring at the sky with cool glasses.

This reminds us of the rarity of ETF trading on Aug. 24, 2015.  

Unlike mutual fund alternatives, ETFs are bought and sold at a price that can be different than their 4 p.m. market close net asset value (NAV). However, 420 ETFs ranked by CFRA traded within 0.25% of their NAVs in the five-day period ended Aug. 18, 2017.

Among those was the iShares S&P 500 ETF (IVV), which closed on that date at a price of $244.25 and a NAV of $244.31, a 0.02% difference. However, nearly two years before, on Aug. 24, 2015’s “flash crash,” IVV traded at a 22% discount to its NAV within the first three minutes of trading, before reverting to a more normal spread soon after.

More Than 1,000 Trading Halts

On that unusually high-volume August Monday morning two years ago, there were an abnormally high 1,278 trading halts in U.S. securities. Amid concerns about the Chinese economy, extraordinary volatility occurred in a broad swath of stocks due to unclear, inconsistent trading practices across U.S. stock exchanges.

IVV and many other ETFs that typically traded essentially in line with their NAV were negatively impacted as trading in some of their stock holdings were halted. This should be expected, since an equity ETF is a basket of stocks that offers diversification and typically high liquidity.

Since Aug. 24, 2015, the ETF industry has continued to gather significant assets. Investors have come to expect that the trades they are making are occurring at a fair price.

Indeed, despite a variety of articles written in the press and in market commentary from active mutual fund managers, last week’s annual ETF inflows broke the 2016 record of $287.5 billion with four-plus months to spare, according to ETF.com.

As of late August, ETFs managed $3.1 trillion in assets, and IVV alone pulled in $21 billion of net inflows, while trading on average 3.3 million shares on a daily basis in the past six months.

 

Find your next ETF

CLEAR FILTER