VIA says many new ETF launches on hold until volatility calms down
The volatility of recent weeks has hit the number of firms launching ETFs, says Denise Krisko (pictured), president of Vident Investment Advisory (VIA), a firm that offers sub-advisory services to the ETF industry, advising on 35 ETFs with an aggregate total of around USD3 billion in assets under management.
Last year saw the launch rate of new ETFs in the US held up by the SEC’s governmental shutdown, although the passing of the ETF rule in September was expected to set the industry off on an expansionary course again.
The third week in March typically includes rebalances related to the quarterly expiration of a number of futures and options contracts, but index providers including S&P announced that it wouldn’t rebalance with markets proving so volatile.
“The reasons for that are understood and not surprising,” Krisko says. Indices as large as the S&P 500 could be in circuit breaker territory with volatility in recent markets but even smaller indices have experienced slight areas of illiquidity which have been amplified in the current volatile environment.
“I don’t think many people realise that equity ETFs have done what they were designed to do in spite of all the volatility and downward movement in stock markets globally,” Krisko says.
“Across the ETFs on which we sub advise for the most part while we have seen increased volume, we have seen very little redemption activity which tells me that a lot of the illiquidity and volatility is being absorbed by the ETF trading flows.
“We have seen spreads widen a bit,” Krisko says. “Although not egregiously on the ETFs we sub advise. For the most part, spreads have widened less than the underlying securities, due to the creation/redemption process allowing the arbitrage function to stay in place.
“It is a challenging time to launch an ETF now with so much uncertainty. Some of our clients that have been planning are concerned about potential investors losing interest and we did have two funds that have delayed launches which will come in the near future as we don’t know how long this will go on.”