As reported by The Wall Street Journal on September 14, 2015, (“The Problem With ETFs”), one of Wall Street’s most popular products –Exchange Traded Funds – faces renewed questions after the wild stock-market gyrations in August exposed cracks that many critics had warned about for months.
Investors have poured hundreds of billions of dollars into ETFs over the past decade, drawn by low fees and the prospect of being able to buy or sell a mutual-fund-like product whenever they want like a stock.
But, according to the article, trading records and conversations with investors show that ETFs couldn’t keep that promise when the Dow Jones Industrial Average dropped more than 1,000 points, in the first minutes of trading on Aug. 24, as “steep share-price declines triggered a slew of trading halts that started in individual stocks and cascaded into ETFs. Dozens of ETFs traded at sharp discounts to the sum of their holdings, worsening losses for many fund holders who sold during the panic. The strange moves highlighted concerns raised by academics and others over the years that ETFs might not be as easy to move in and out of as advertised in times of stress. For investors of all sizes, the problems set off alarms that a core component of their portfolios might not always function as expected.”
This recent market volatility has once again placed a spotlight on the “growing concern about how bond ETFs, a popular niche, will perform if investors rush to the exits, as some predict might happen when U.S. interest rates rise” – what some observers refer to as “a recipe for a breakdown” that could be significant and prolonged.
If you are an individual or institutional investor who has any concerns about ETF investments having been recommended for purchase in either your retirement or non-retirement accounts, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).