of ETF Trends noted that the industry continues to diversify, and investors have avenues to play current trends. He highlighted some funds that bet against oil or China, or others that are tailored to a rising interest rate environment, adding that some investors are buying into wider index funds on weakness. In fact, the S&P Trust ETF has seen the second-highest inflows among ETFs this month, according to XTF.
“The ETF ecosystem is just a segment of the overall marketplace these days,” Lydon said. “You’re going to see the same ebbs and flows that you have in stocks and mutual funds. Shrewd investors are seeing opportunities in these corrections and hedging their bets with short-term allocations,”
ETFs may become more appealing during periods of dim outlook because of their ease of entry and exit, said Scott Clemons, managing director for private wealth management at Brown Brothers Harriman. The simplicity of trading may have exacerbated the outflows this year, he said.
“The beauty of being able to sell ETFs, as opposed to mutual funds, at a lower cost increases their appeal and liquidity. It increases the ability to act on volatility,” he said.
Clemons argued that ETFs should continue to see inflows for the year as fears about global growth and energy start to subside.
Still, the industry has to deal with questions about how it contributes to market volatility. For example, openings for some ETFs were delayed and trading was halted in others last Aug. 24, when the Dow Jones industrial average fell more than 1,000 points in the first few minutes of trade.
But Monaco of ISE ETF Ventures argued that the funds could “accentuate existing issues” with market structure rather than create them.