Exchange traded funds (ETFs) performed exactly as intended during the recent market volatility, according to State Street Global Advisors (SSgA).
Australia’s flagship ETF, the SPDR® S&P®/ASX 200 Fund (STW), enjoyed high liquidity and tight spreads throughout the recent market turmoil and closely tracked the index net asset value, despite the extreme volatility.
Frank Henze, Asia Pacific Head of ETFs at SSgA said “One of the key benefits of the SPDR S&P/ASX 200 Fund is its liquidity, allowing it to be traded at such a tight bid/ask spread. Last week we saw trading in the fund increase by up to 1000 percent. 4.5 million STW units were traded throughout the week ensuring investors were able to trade when they most wanted to do so.
“As a result of this high liquidity the fund was able to maintain a very tight spread. On Tuesday August 9, one of the most volatile days, the average spread on the fund was just 6bps compared to spreads of between 20bps and 27bps for other similar ETFs.
“The key benefits of ETFs are transparency, simplicity and value for money and the fund exhibited precisely these characteristics during the recent turmoil.”
Mr Henze said despite the concerns in the markets last week the high volumes did not represent investors selling out.
“One might assume that investors were simply getting out of ETFs last week given the fears that were prevalent at the time. However our data shows investors were using ETFs to gain exposure to the equity market in equal measure.
“There were no net redemptions during the week and in fact on one of the most volatile days we saw a significant temporary creation, indicating many investors saw the fund as an efficient way to gain market exposure.”
The SPDR S&P/ASX 200 Fund also gave investors accurate exposure to the Australian benchmark.
“Despite the highest equity market volatility since the GFC the fund accurately mirrored the market ups and downs, with performance of the fund deviating from the index by no more than 0.01 percent,” added Mr Henze.
