Did ETFs Pass the 2020 Market Collapse Stress Test?
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 26 August 2020
⏱️ 26 minutes
🧾️ Download transcript
Summary
How did ETFs function during the 2020 market sell-off and did the indexing bubble burst? What ETF structures failed the stress test and which passed.
- Why were some investors, like Michael Burry, concerned about an indexing bubble
- What are ETF risks such as flash crashes
- How did equity ETFs function during the spring 2020 sell-off and how they can act as shock absorbers
- What were some of the challenges that bond ETFs faced in March 2020
- How the rise in bond ETFs is leading to changes in how bonds are traded
- Why leveraged ETFs and oil-linked ETFs failed the stress test
- What caused the dysfunction in the U.S. Treasury market in March 2020
- What are the advantages of ETFs and why they are still a good product for long-term investors
Thanks to The Great Courses Plus and Chili for sponsoring the episode.
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. |
| 0:10.0 | I'm your host David Stein today's episode 311. It's titled, Did ETFs pass the |
| 0:16.0 | 2020 market collapse stress test? Last week, Laperil my daughter and I were in Red Lodge, Montana. We had been camping and we wanted to order some take-out food. |
| 0:28.8 | We found an Italian restaurant, I called to order our meal and the individual that answered ask if he could put me on hold. |
| 0:37.0 | I said, sure, seven minutes later I was still on hold. |
| 0:41.0 | There was no hold music. He had put the phone down and I could hear people in the |
| 0:45.8 | background talking. I finally got so frustrated, I drove to the restaurant still on hold and |
| 0:52.1 | walked in and said, hey, I'm the guy on hold he was |
| 0:56.7 | somewhat apologetic said he had been delivering some food the restaurant was |
| 1:01.5 | empty maybe the receipts out back. So I tried to place my order. I wanted to order some pizza. He said we don't have any pizza today. We're not making it. The last time I was in a pizza restaurant that didn't have pizza was in Cuba, and they |
| 1:15.6 | actually told me why. They said they had no cheese. I tried to order the vegetarian lasagna. |
| 1:20.4 | We're not doing vegetarian lasagna today, he said. At that point I gave up and left. |
| 1:27.0 | It's important that businesses and financial instruments be tested and be given feedback when their processes aren't working well. |
| 1:37.0 | Sometimes it's called a stress test. |
| 1:40.0 | Now in the case of this restaurant, I thought, since I was on hold so long that they were under stress, |
| 1:45.7 | so it would be helpful to provide feedback. |
| 1:48.4 | No, the restaurant was empty. |
| 1:51.1 | This year, we have definitely had some stressed financial markets and there were |
| 1:56.4 | predictions that some financial instruments would not perform well in a |
| 2:01.5 | stressful environment when there are many sellers trying to exit. |
| 2:05.0 | Michael Burry is a hedge fund manager that was featured in the movie and book The Big Short. |
| 2:12.0 | He predicted the subprime crisis of 2008. |
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