2020 – An unprecedented year

Looking back to last year’s US awards’ report it is almost unbelievable that we had no clue of what turmoil and profound life changes lay ahead of us in 2020.

The year opened with a bang with massive market volatility, and the sort of market movements that many ETF naysayers had previously suggested would cause ETFs to go into a meltdown, unable to price accurately and taking the rest of the market with them.

March saw what ETF Express columnist Algo-Chain’s Allan Lane called ‘the mother of all sell-offs’ with the S&P 500 Index down 12.5 per cent in March in USD term, then rebounding by 12.7 per cent in April. ETF trading as a share of market volume skyrocketed, from a 2019 average of 28 per cent up to over 40 per cent in March.

And ETFs appeared to be well able to keep up with the Bank of England noting: “Price discovery was often occurring via ETFs rather than their underlying assets.” 

And all of this trading and turmoil was largely being conducted from people’s homes as the Covid-19 pandemic swept the world, driving us all into lockdown and the new virtual world, conducted from sitting rooms, kitchens and spare bedrooms across the financial industry.

With this background, our winners in this year’s US ETF awards deserve to be heaped with praise. The industry and its protagonists came through a testing with flying colours, the strength of the ETF wrapper and its ecosystem was proven and assets continue to rise.

Writing now in October, ETF assets have passed through USD7 trillion worldwide and with the arrival of the semi-transparent active ETF structure in the US, there are whole ranges of active funds being converted over to the ETF structure which, in the US particularly, carries its many advantages over the mutual fund.

Speaking at the ETF US Awards ceremony on 1st October, Scott Szever, director, Exchange Traded Products, NYSE said: “So what has kept us busy this year? Active. At the NYSE, we are calling it the year of active.” 

And he followed that up with the data: of the 200 products launched in 2020, 98 were active, and of those 98, 15 were in the new semi-transparent format. Of the USD137 billion dollars in active ETFs, USD550 million sits in the 15 semi-transparent funds, launched in just the last few months.

Looking back over the past year and its special challenges, Szever commented: “The unprecedented market volatility at the beginning of March was interesting as we saw market participants turn to ETFs not only as the investment vehicle but as price discovery mechanisms.

“It was also the first time the NYSE closed its trading floor and shifted to all electronic trading for the first time in our 228 years, not an experiment we would have chosen to run but one that gave us quantifiable insights on the value of our trading floor.”

Those insights meant, Szever said, that ETFs would be moving to the floor of the NYSE in the near future.

“ETFs have played a vital and central role in the equities market and it’s hard to believe that the industry is only three decades old,” he concluded. n

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Beverly Chandler
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