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5 ETF statistics to watch in high-velocity markets

Many investors turn to exchange traded funds (ETFs) as flexible, cost-efficient tools for navigating volatile markets. As such, keeping a close eye on ETF statistics during times of market stress can help investors understand how ETFs operate and trade. iShares identifies five ETF statistics that can help aid the analysis of ETFs in high-velocity markets.

1. ETF flows

Why it matters: People follow aggregate ETF outflows and inflows —net flows—for insights into market sentiment and investor behavior.

What the numbers mean: Net flows represent, in dollar terms, fluctuations in demand. When demand for an ETF exceeds supply, new shares are created (inflow). When demand contracts, shares are redeemed (outflow). Net flows demonstrate how ETF investors allocate, adjust positions and manage risk.

2. Estimated impact of ETF flows on market prices

Why it matters: Questions sometimes arise about whether ETFs influence the prices of their constituent stocks. The estimated impact of net flows on stock trading, or imputed flows, can approximate an answer.

What the numbers mean: Imputed flows are derived from the collective weight of flows into all ETFs holding all U.S. stocks, and demonstrate that most ETF shares trade on exchange -- between buyers and sellers.

The majority of on-exchange trading doesn’t affect the market price of constituent stocks in which ETFs invest. This is because ETF constituent stocks are only affected by ETF trading when ETF shares are created or redeemed.

3. ETF trading volume

Why it matters: More volatility typically means more ETF trading because investors use ETFs to rebalance or hedge in times of uncertainty.

What the numbers mean: Investors can compare the dollar volume of ETF shares that trade on exchange with the dollar volume of individual stocks to gauge the magnitude of ETF trading volume. It’s important to note that ETF trading volume measures only on-exchange transactions between buyers and sellers, and is separate from inflows and outflows.

4. Bid/ask spreads

Why it matters: ETF investors tend to have a laser focus on management fees but it’s important to remember the total cost of ETF ownership also includes transaction costs, largely captured by an ETF’s bid/ask “spread.” For active traders, transaction costs can add up—particularly during times of market volatility when pricing uncertainty can translate to wider bid/ask spreads.

What the numbers mean: ETF prices, like stock prices, are established by “bid” and “ask” quotations. The bid is the highest current price at which investors are willing to buy; the ask is the lowest current price at which investors are willing to sell. The difference between the two, or spread, measures how much it costs to get in and out of each ETF share (wider spreads mean higher costs, narrower spreads mean lower costs).

5. Bond ETF trading versus individual bond trading

Why it matters: Individual bonds trade differently than ETFs and stocks, which are bought and sold on exchanges with transparent bid/ask quotations. In contrast, the bond market is relatively opaque and bid/ask quotations are not readily available. In stressed markets, trading individual corporate bonds can be time-consuming and expensive, which has led investors to increasingly rely on bond ETFs for more transparent, on-exchange pricing and trading.

What the numbers mean: When markets turn volatile, it’s important to compare trading volumes of bond ETFs versus individual bonds. These two statistics tend to diverge during times of volatility: bond ETF volumes rise while individual bond volumes fall.


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