ETF stats in action: December 2018 case study
December 2018 was an unusually wild month for investors. Concerns about trade wars, global economic growth, and higher interest rates all contributed to the gyrations.
Five key statistics from December 2018 can help investors understand how exchange traded funds (ETFs) contribute to modern markets.
S&P 500 Index total return
Source: Bloomberg as of January 2019
Index performance is for illustrative purposes only. Index performance does not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
1. ETF flows
The numbers: Investor demand spurred the creation of $53.7 billion in new ETF shares in December, the most since Jan. 2018.1 Money moved into U.S.-equity, non-U.S. equity, bond, and commodities ETFs.
The takeaway: December’s flows demonstrate that ETF investors were buyers amid the volatility.
Monthly net ETF flows
Source: BlackRock as of January 2019; U.S.-listed ETFs excludes exchange traded notes (ETNs) and leveraged and inversed exchange traded products (ETPs).
2. Estimated impact of ETF flows on market prices
The numbers: BlackRock estimates that ETF inflows and outflows resulted in 5.8% of U.S. equity trading in December 2018, slightly above the 4.7% average but less than 6.7% that occurred in December 2017.2
The takeaway: ETF trading in December exerted modest influence on stocks, even in volatile markets.
Estimated impact of flows on U.S. stock prices (Monthly imputed flows)
Source: BlackRock as of January 2019
There can be no assurances that an active trading market for shares of an ETF will develop or be maintained.
3. ETF trading volume
The numbers: ETFs accounted for 37% of total U.S. equity market trading (including single stocks, ETFs, and other exchange traded products) by value in December, the highest monthly reading since 2009.3
The takeaway: Investors targeted ETFs to help rebalance allocations and offset risk. To put December’s ETF trading volume in perspective, $37 of every $100 that changed hands across all U.S. stock venues in December took place with ETFs.
Monthy ETF trading volume as a percentage of total U.S. stock market volume
Source: BlackRock as of January 2019
4. Bid/ask spreads
The numbers: The average bid/ask “spread” of every stock in the Russell 2000 Index was 12.5 basis points (a hundredth of a percentage point) in December.4 At the same time, the bid/ask spread in the iShares Russell 2000 ETF (IWM), which seeks to track the Russell 2000 Index, was 0.86 basis points.
The takeaway: ETF prices, like stock prices, are established by “bid” and “ask” quotations. The difference between the two, the “bid/ask spread,” measures how much it costs to get in and out of each ETF share (wide spreads mean higher costs, narrow spreads mean lower costs). In some cases, the ETF bid/ask spread was more favorable than a comparable basket of constituent stocks during December’s volatility.
Monthly bid/ask spreads in the iShares Russell 2000 ETF (IWM) and Russell 2000 Index stocks
Source: BlackRock as of February 18, 2019
5. Bond ETF trading versus individual bond trading
The numbers: Volume in all U.S.-listed high yield bond ETFs surged to a record $72 billion in December, while volume in individual high yield bonds was $154 billion, the lowest since June 2014.5 Taken together, December’s average daily trading in all U.S. high yield bond ETFs reached 47% of individual high yield bonds traded in the over-the-counter (OTC) market – a record.
The takeaway: Trading in U.S. high yield corporate bond ETFs surged to a record in December at the same time that trading in individual high yield bonds dwindled. These related trends, which took place as the corporate bond markets were under stress, underscore that investors are increasingly turning to on-exchange ETF trading.
High yield corporate bond ETFs volume increased, and individual high yield bond volume decreased, as credit conditions deteriorated
Sources: SIFMA TRACE; BlackRock as of January 3, 2019; Federal Reserve Bank of St. Louis
© 2019 BlackRock, Inc. All rights reserved.
1 BlackRock as of January 2019; U.S.-listed ETFs; excludes exchange traded notes (ETNs) and leveraged and inverse exchange traded products (ETPs)
2 BlackRock as of January 2019; average imputed flow on a monthly basis from 2014 through 2018
3 BlackRock analysis of Bloomberg; Credit Suisse, “Learning to Live With Volatility Again,” January 15, 2018
4 BlackRock as of February 18, 2019
5 SIFMA TRACE; BlackRock as of January 3, 2018
Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares Fund and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.
Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.
Shares of iShares ETFs may be bought and sold throughout the day on the exchange through any brokerage account. Shares are not individually redeemable from the ETF, however, shares may be redeemed directly from an ETF by Authorized Participants, in very large creation/redemption units.
There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.
Transactions in shares of ETFs will result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.
This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
When comparing stocks or bonds and iShares Funds, it should be remembered that management fees associated with fund investments, like iShares Funds, are not borne by investors in individual stocks or bonds.
The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, "BlackRock").
© 2019 BlackRock, Inc. All rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, BUILD ON BLACKROCK, ALADDIN, iSHARES, iBONDS, iSHARES CONNECT, FUND FRENZY, LIFEPATH, SO WHAT DO I DO WITH MY MONEY, INVESTING FOR A NEW WORLD, BUILT FOR THESE TIMES, the iShares Core Graphic, CoRI and the CoRI logo are registered and unregistered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.