ETF Efficiency During SVB Crash

Impact of SVB Crash on ETFs

While the recent fallout from the banking sector has weighed on the index over the past week, some experts say the volatility reveals the efficiency of the exchange-traded fund market.

“Importantly, despite all the volatility, stocks are suspended and ETFs continue to trade [and] Trading volumes are up,” John Davi, founder and CEO of Astoria Portfolio Advisors, told Bob Pisani On CNBC’s “Advantages of ETFsMonday. “People look at ETFs as a price discovery tool.

Davi explained that ETFs are a bellwether for how the market expects the banking sector to perform in a time when investors are uncertain about the performance of specific financial names that have been suspended. And because most of the underlying stocks in bank ETFs don’t actually trade, investors don’t need to trade individual companies to gain liquidity.

“I think the pipeline always wins over and over again,” David said. “And we’ve found that ETFs are the best place to go to get liquidity and understand market expectations.”

this SPDR S&P Bank ETF (KBE) It has fallen nearly 24% since the start of last week, even though the fund’s trading volumes are among the highest in its 18-year history.The ETF includes holdings of Silicon Valley Bank.

“Despite higher volatility, we’re seeing risk being effectively priced in,” S&P Dow Jones Indices CEO Dan Draper said in the same segment on Monday. “These indices have worked well, especially in equities.”

For investors who anticipate rising interest rates and further market volatility, short-term cash instruments such as SPDR Bloomberg 1-3 Month Treasury Bill ETF (BIL) and iShares Short-Term Treasury Bond ETF (SHV) It has seen massive inflows since the beginning of the month. On Wednesday, SHV hit a new 52-week high.

The larger liquidity story remains strong, and ETFs are a big driver of that story, Draper said.

“Think about exchange-traded derivatives, futures, options,” he said. “People are trying to price risk. They’re trying to find portfolio insurance in a number of ways.”

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