Institutional ETF trading – ETF traders navigate changing conditions

After years of growth and development, exchange-traded funds (ETFs) have cemented their place as a mainstay in investment portfolios and trading strategies. During a year of exceptional volatility and uncertainty, traders were able to take full advantage of the benefits of ETFs when they were needed the most.

When extreme volatility hit in March, ETFs served as a way to navigate through unfamiliar market conditions. Confronted with sudden global economic stress, investors faced a number of challenges on a compressed timescale, from one-sided markets and market-wide circuit breakers to capital constraints and the need to immediately shift exposures in both local and foreign products.

Against this backdrop, issuers innovated with new environmental, social, and governance ETFs; actively managed ETFs; sector ETFs; and thematic ETFs, and ETF strategies saw widespread inflows as investors integrated these products into their portfolios. Carrying on the lessons learned from March, trading desks leveraged hybrid models that augment algorithmic trading with the flexibility of human judgment, and workflows grew more nimble. ETF derivatives also flourished, as investors used options to hedge broad-market moves, make sectors bets, and trade around election and vaccine news.

This year’s market events, though incredibly challenging, are a testament to the versatility and resilience of ETFs. We are excited to see how trading desks and issuers continue to innovate in their use of ETFs in 2021.

Read the full Jane Street 2020 institutional ETF trading report

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