Like many of you, my daily routine has been upended. Rather than checking the box score from the prior night’s Boston Celtics game, I now search for the latest information on confirmed cases of COVID-19. Rather than commute into the city, I move from room to room while on phone calls trying not to disrupt the homeschooling going on. Nightly conversations about what happened at work have been replaced with what might happen next in the world and how we are going to keep the house “light.”
My typical commentary is filled with pop-culture references to make the financial markets a little more entertaining. Now, however, those references don’t feel appropriate considering the gravity of our situation. Two weeks ago, I made a reference in a blog to the movie “Heat.” That feels like years ago now, based on how quickly and dramatically our lives have changed.
Trying to Ease Nerves
This unprecedented time will no doubt spark furious academic debate, both from a humanitarian as well as a financial markets perspective – akin to the research that followed the great financial crisis and post-dot-com bear markets.
Currently, I find myself cultivating rich data sets to help put market movements in context and chart how ETFs are performing. Of course, showcasing how ETFs are being used in this market will do little to quell the stress in our lives stemming from having our daily routines upended. However, hopefully my observations might ease any anxiety investors may have related to ETFs.
1. Low stock and bond volumes from the ETF primary market activity should not be seen as exacerbating market moves.
Coming out of the crash of 1987, ETFs were created to allow investors to participate in the market, while limiting the impact on the securities held by the funds. Based on these levels, the same market impact holds today.
As shown below, gross primary market activity of US equities, high yield bonds, and investment-grade bonds as a percentage of their underlying market’s trading activity has averaged less than 6% since February 21, 2020. For US equities, I took any ETF with a geographic focus and compared it with the total volume of all Russell 3000 stock volumes. For the fixed income analysis, the underlying market is represented by FINRA TRACE data.
In addition to the average figures, the daily max and min are also placed in the chart. Only for high yield did this metric surpass 10% on a single day.