Looking back at the markets in March

Looking back at the markets in March

Michael Cooke

Senior Vice President, Head of ETFs

March 2020 has proven to be among the most challenging periods in the history of capital markets. It featured unprecedented volatility and liquidity disruptions across many asset classes, including U.S. Treasuries, Investment Grade Corporate Bonds and Commodities. In addition to the 2020 crisis, the last thirty years have seen numerous other unstable periods that have tested the structural integrity of the ETF ecosystem. These include the volatility spike in 2018, the taper tantrum of 2013, the financial crisis of 2008, September 11 and the technology bust of 2000.

Detractors have often been quick to blame the ETF industry for amplifying the disruption by distorting markets and fueling bubbles. But market bubbles existed long before ETFs were invented (see the Dutch tulip mania of 1636). The reality is that ETFs have repeatedly offered efficiency, liquidity and price discovery during the most turbulent market environments. In fact, periods of market volatility have accelerated ETF usage by pension funds, asset managers, central banks, financial advisors and private investors. Based on an aggregated view of the global ETF industry, there are over US$5.2 trillion in global assets, with 454 ETF providers offering 7,000 ETFs on 71 exchanges. 

Within economics, the concept of utility is used to model worth or value. In March 2020, the utility of ETFs was evident because they accounted for almost 40% of US exchange trading volume, indicative of their value to institutional and retail investors. In recent months, the ETF ecosystem has performed exactly as expected, easing rather than exacerbating market volatility, while helping investors achieve better portfolio outcomes.

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