ETF Volume Down, Fallback in Correlation Blamed
Traders Magazine Online News, April 16, 2012
Leveraged ETFs took off in and around 2008, but Sung doesn’t think they’ll see much more growth as a percentage of volume. Commodity-based ETFs, on the other hand, could continue to gain market share, as they offer investors an easy way to get exposure to commodities.
In spite of ETF volumes seeming to have stagnated, there has been no letup in the number of new funds issuers have rolled out in recent months, Sung said.
“There are a lot of ETFs traded, and very few of them become very liquid,” he said. “The number of ETFs seems to keep growing and growing, but that isn’t necessarily going to result in a significant or even noticeable increase in ETF volume.”
According to data from Birinyi Associates, 85 new ETFs were added in the first quarter of 2012, bringing the total number of funds up to 1,423. The most active ETFs by volume were all index funds or funds tracking broad sectors, Birinyi found.
Scott Freeze, president of Street One Financial, was optimistic on the outlook for ETFs. Even if investors back away somewhat from core ETFs tied to the major indexes, they will still be using sector funds as “satellites” to those core holdings, he said.
And though not all niche ETFs catch on, they do provide investors with a way to profit in a time of falling correlations without having the risk of being exposed to a single stock.
“We have so many more sector products that are out there, and so many different ETFs that are coming out that drill down to minutiae so you can get very specialized exposure,” Freeze said. “People are going to use that instead of going in to buy a single stock.”
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