Tag Archives: etf volatility

ETF Volatility: The Real Story Behind The [Bloomberg] Story

indexuniverseCourtesy of Dave Nadig’s July 12 column

This morning Bloomberg published a story titled “ETF Simplicity Betrayed by Volatility in Market Selloff.”

In the article, the authors contend that they’ve run the numbers, and that ETFs are just flat-out more volatile than mutual funds. Here’s the lead:

“Share prices for the 10 largest diversified emerging-market ETFs on average were 42.6 percent more volatile than their underlying indexes from May 22 to June 24.”

Let’s break down what they could possibly mean here, and let’s start with a few baselines.

While the article claims it’s not addressing the issue of premiums and discounts—that is, how far off fair value a given ETF closes in market trading versus its underlying index—it’s fairly clear that’s not the case. If it were, then the following chart wouldn’t make sense.

This is a rolling look at the 20-day historical volatility of the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and the actual index it tracks, over the period in question. I’m looking here at the actual NAV, and as you’d expect, they track extremely closely:


The bottom line looks at the difference, and you might ask: “Well, why is there any difference at all?”

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Surge in ETF Trading Foretells Volatile Summer

usatodaylogo  Courtesy of John Spence

A surge in exchange traded fund trading this week signals that investors should buckle up for a volatile summer.

ETF trading soared to about 40% of overall volume on Thursday, one day after Federal Reserve Chairman Ben Bernanke said the Fed may soon begin tapering its purchases of $85 billion a month of Treasury bonds and mortgages. The Dow Jones industrial average plunged 354 points.

“My ETF-monitoring screens were lit up like a Christmas tree,” said Chris Hempstead, director of ETF execution at WallachBeth Capital, in a daily update Thursday. “Almost every ETF on my radar was trading at multiples of a normal day’s volume.”

He said it’s not uncommon to see a few ETFs have trading volume that high on a given day. But Thursday’s action “was something I have never seen before,” he said.

Volume in an unprecedented number of ETFs topped $1 billion for the session, he added.

The largest ETF, SPDR S&P 500, traded about 300 million shares, its highest one-day volume in more than a year.

Trading also surged in volatility-linked ETFs, such as iPath S&P 500 VIX Short-Term Futures ETN, which some traders use as short-term hedges, or to speculate on stock sell-offs. Continue reading