Expert perspective

ETFs not only survived—but thrived—one year into pandemic

March 25, 2021

David Sharp's headshot

Senior ETF Capital Markets Specialist

ETFs played a critical role in providing liquidity
ETFs proved to be resilient
This table shows how bid-ask spreads for two of Vanguard's flagship ETFs, Vanguard S&P 500 ETF (VOO) and Vanguard Total Bond Market ETF (BND), remained significantly narrower than the spreads for the underlying securities throughout the pandemic-related volatility.
Industry ETF bid-ask spreads were a fraction of the spreads of their underlying constituents
U.S. equity ETFs, spreads from January 2 to April 17, 2020
The illustration is a line chart showing the average spread of U.S. equity ETFs compared with the average spread of their corresponding baskets of underlying securities for time periods leading up to, during, and after the COVID-19-related market volatility in early 2020. In each time period, the average spread for the baskets of securities was wider than the average spread of the ETFs. The chart shows that spreads for both the baskets and the ETFs widened slightly in March but began narrowing in April.
U.S. fixed income ETFs, spreads from January 2 to April 17, 2020
The illustration is a line chart showing the average spread of U.S. fixed income ETFs compared with the average spread of their corresponding baskets of underlying securities for time periods leading up to, during, and after the COVID-19-related market volatility in early 2020. The chart shows that the U.S. fixed income ETF average spread stayed at a relatively narrow level throughout the volatility in March, while for the average spread of the corresponding baskets of securities widened significantly. Spreads for ETFs remained narrower than spreads for the baskets at all points, and spreads for both began narrowing in April.
COVID-19's impact on ETF premiums and discounts
Average premiums and discounts for bond ETFs, January 2 to April 17, 2020
The illustration shows the average premium or discount for U.S. fixed income ETFs for various time periods in early 2020. At the beginning of the year, the ETFs started with a small premium of 6 basis points, or six-one hundredths of 1%, which became a small discount of 6 basis points in late February and became a larger discount of 172 basis points during the height of market volatility in mid-March. By late March, the discount had decreased to 33 basis points, and the ETFs were back to having a small premium in mid-April of 19 basis points.
Bond ETFs served as shock absorbers
Most trading in fixed income ETFs occurred on the secondary market
The illustration is a vertical bar chart that shows the proportion of secondary-market trading relative to all trading of U.S. fixed income ETFs that occurred from July 2019 to June 2020. The percentage of secondary-market trading in any given period varied from approximately 65% to 95%, with the average being 79% overall.
Looking to the future
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