The world has abruptly moved into emergency mode due to the coronavirus pandemic. The expected fallout of the crisis has triggered a market crash that eclipsed anything we’ve seen in living memory.

One type of investment that has emerged strongly in recent years was put to the test: exchange-traded funds (ETFs). The extraordinary boom in the sales of ETFs has raised frequently led to questions about their sustainability.

Concentration of Ownership

Due to the surge in the volume of ETFs, shares of many companies today are concentrated in the hands of very few fund providers. Analysts worried that this concentration might increase further the herd behavior of investors. Thus, in times of crisis, the entire market risks being dragged down.

In fact, the number of ETF shares that changed hands in the second week of March reached a record in Europe. The volume totaled $120 billion – which compares with an average weekly volume of $44 billion in 2019.

These Times Are Unheard Of

«We have been bowled over by the global impact of the crisis. The volatility on the markets was overwhelming,» said Ed Gordon, who is responsible for the ETF business of Blackrock in Switzerland. «We haven’t been through such times ever before,» the asset management expert added in the interview with finews.com.

Gordon rejected the notion that the enormous transaction volume in the ETF market had dragged down equities that aren’t strongly affected or even stand to profit from the crisis – as may be the case with some drugmakers.

Better Liquidity in ETFs

«There’s more than just the SMI,» he said. The huge diversity of ETFs available gives investors an array of options in any possible situation.

The liquidity of ETFs in times of crisis is better than the liquidity of some titles traded, Gordon said. And while the market for equities of big corporations never dries up, there is a risk for that to happen in the strongly fragmented bond market. Bond-ETFs, a quickly growing segment, may help avoid this trap, Gordon argued.

Intriguing Variety of Corporate Bonds

Companies often have dozens of corporate bonds out with slightly different conditions and durations. This can lead to a situation where it is hard to sell a specific bond quickly.

This is one of the reasons why investors opt for ETFs in times of crises, Blackrock believes. The trading volume in this category in the three weeks leading up to March 16 was treble the average reached in 2019.