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The Great ETF Crash Of 2015

TedTed
in Fund Discussions
FYI: (This is a follow-up article)
There’s no other way around it — on Monday morning, a large portion of the U.S. ETF market experienced a structural crash. How else would you categorize it when an ETF like the S&P 500 equal-weighted “RSP” fell 43% on decent volume and took over 30 minutes to recover? This ETF tracks the 500 stocks in the S&P 500 on an equal-weighted basis instead of on a cap-weighted basis, and its underlying index was down well under 10% at its lows on Monday morning. Other U.S.-index tracking ETFs fell 30%+ as well. The S&P Smallcap 600 “IJR” fell 30% at its lows, while the Smallcap 600 Growth “IJT” fell 34%. Even the Nasdaq 100 ETF “QQQ” was down 17.25% at one point, while its underlying index was down just 9% at its lows.

Regards,
Ted
http://www.bespokepremium.com/think-big/

Comments

  • Lawlar
    Scary.

    One of the big selling points of ETFs was that one could supposedly sell when the market is open, without being locked in until the market close. That advantage now appears to be illusory.

    What will happen if we go into a 2008/2009 crash? If everyone heads for the exists, there may be no market for ETFs for heavens knows how long. The only way out will be to take a large loss from the "true" value of the stocks represented by the ETFs.

    They need to find a solution to this problem
  • Old_JoeOld_Joe
    edited August 2015
    There is no "solution"- the premise of the small investor being able to avoid damage by a quick exit via any trading vehicle is indeed illusory in every sense. It may be possible for some of the high-freq traders to get out quickly when the sky falls because of the computerized sell algorithms, but I bet that even some of those guys will get burnt too. And always remember that in order to sell, someone else must be there wanting to buy.
  • Lawlar
    I would think the sponsors of the ETFs would act as market makers during panics. They have the ability to buy and sell the underlying shares contained in the ETFs, in order to offset imbalances, so they should be able to figure out a way to maintain stability. That is, after all, the purpose of the ETFs: to enable investors to buy an index at the market value of the basket of stocks it represents.

    Look at this weeks' daily charts of the ETFs. The one-day downdrafts are amazing. Maybe the sponsors need faster computers.
  • heezsafe
    Why not come out and accurately describe what really went down on Monday? One of my second cousins uses very colorful language, for which I am one of the few to grant full artistic license. He would describe it so: on Monday, ETFs shit the bed!

    http://www.investmentnews.com/article/20150826/FREE/150829928/wild-market-volatility-puts-fresh-focus-on-workings-of-etfs
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