Sell-off Leaves ETF Investors Few Safe Spots
September 22, 2011
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(Updates with closing prices.)
Financial markets were rocked on Thursday as a grim sense set in that perhaps propping up the global economy might be beyond the power of policymakers, as ETFs across virtually all asset classes, save U.S. government debt, tumbled.
Even the SPDR Gold Shares (NYSEArca: GLD), the popular physical ETF that has benefited so much from all the unease in the global economy in the past few years, fell 2.61 percent to $169.05 a share, according to data compiled by IndexUniverse. Its drop in the face of a broad retreat from riskier assets recalled the way it plummeted in the depths of the financial crisis in 2008 and 2009.
Markets are again in the grips of fear that the global economy may be heading back into recession after the Federal Reserve said yesterday after the conclusion of its two-day policy meeting that the global economy faced big downside risks. The Fed’s plan to shift its bond holdings toward longer-dated paper to help the U.S. economy all but fell on deaf ears.
What’s left for the market to think about is a European sovereign debt crisis that won’t go away, a deeply indebted U.S. government that may have used up its array of policy tricks, and a Chinese economy that’s showing signs of slowing as well. With such variables to stew on, investors pushed the Dow Jones Industrial average down, 391.01, or almost 3.51 percent, to 10.733.83 on Thursday.
The good news was that with all the volume, the creation and redemption mechanism at the center of every ETF appeared to be working smoothly.
The First Trust Emerging Markets AlphaDex ETF (NYSEArca: FEM) was the only fund to betray any sort of issue, as the New York Stock Exchange’s electronic trading platform, Arca, briefly halted the stock at 9:50 a.m. Eastern time due to volatility. The ETF resumed trading 5 minutes later, according to Arca.
The selling was focused squarely on equities and junk bonds, with the biggest and most liquid exchange-traded funds in the middle of the action.
First Trust’s FEM was hit particularly hard, closing 8.04 percent lower at $21.15 a share, while the Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO) had lost almost 2.8 percent of its value.
The SPDR S&P 500 ETF (NYSEArca: SPY), the broadest proxy for U.S. stocks, fell $3.77, or 3.23 percent, to $112.86 a share, while the technology-focused PowerShares QQQ Trust (NasdaqGM: QQQ) skidded down 3.25 percent to $53.58 a share.
The small-cap iShares Russell 2000 Index Fund (NYSEArca: IWM) meanwhile lost about 2.8 percent of its value.
International funds canvassing developed-market equities outside the U.S. were catching some of the worst of the downdraft, perhaps because Europe’s debt problems are so central to the worries coursing their way through financial markets at the moment.