ETFs have become increasingly popular with investors over the past decade, and they’ve seen record gains since the 2008 financial crisis. But how are they navigating the current market?

Key Takeaways

  • The ETF market surged to $4 trillion assets under management (AUM) in October of 2019 and has continued to show strong performance despite recent events
  • Experts believe that ETFs can provide a way to minimize portfolio risk while also allowing for increased transparency and liquidity
  • Fixed-income ETFs can boost both risk mitigation and yield

According to Greg Friedman, head of ETF Management and Strategy at Fidelity, ETFs are continuing to show strong performance amid ongoing volatility and he believes that they will emerge just as strong in the years ahead. “It’s been a pretty consistent slope toward where we are now at $5.3 trillion,” he says. “I don’t foresee that this period of time is going to change that slope at all.” 

Steve Sachs, head of capital markets for ETFs at Goldman Sachs Asset Management shares a similar outlook. He believes that products like ETFs are adopted more broadly as a result of how they perform during a crisis and explains that ETFs have shown their staying power through both The Great Recession and the current market downturn. 

“Each crisis, or each bout of volatility, has actually put a little more shine on the ETF wrapper,” he explains, emphasizing that ETFs allow for the type of liquidity and transparency investors are craving at the moment. “They’ve provided all those things that investors look to them for—transparency, liquidity, and price discovery,” he says. The added upside is that they also offer a real-time look at what’s going on in the markets and the world.

The Role of Fixed Income

While ETFs as a whole are continuing to show strong performance in the markets, increased demand for fixed-income ETFs may provide an even better way to mitigate risk. According to Sachs, interest in fixed-income ETFs has grown over the past few months and he believes they could be a great way for advisors to help reposition their clients in the market. “The two reasons you should invest in fixed income are for risk mitigation and yield,” he says. He emphasizes that these types of ETFs can offer clients increased fixed-income exposure while helping advisors rethink portfolio construction on a broader scale. 

Here too, liquidity plays a big part. “The ETF wrapper has shown, in particular in fixed-income markets, that the only place you can get liquidity is the ETF,” Friedman explains. For those with clients who are looking to balance growth with increased liquidity and risk mitigation, fixed-income ETFs could be the right solution.

The Bottom Line

As the markets continue to react to the ongoing COVID-19 pandemic, it’s clear that we’re likely to see more volatility in the weeks and months ahead. Despite those swings, ETFs continue to be a solid option for clients with a range of risk tolerances and financial needs. Friedman is confident in the long-term outlook: “The ETF has once again demonstrated that it’s here to stay, that it’s good for investors, it’s a great tool for people to solve their investment solutions.”