Volatility has Vanguard looking to calm ETF clients

The Vanguard Group Inc. is reaching out to placate adviser clients who have been spooked by the recent market volatility.
That volatility initially slammed some of the firm’s exchange traded funds. Indeed, fifteen of the firm’s ETFs fell 60% or more during the unprecedented market plunge on May 6. While many of those funds regained some ground in the market surge yesterday, the uncertainty surrounding the European Union’s attempt to bolster Greece and other cash-strapped countries indicates that volatility will be the norm for a while.
Indeed, Vanguard wants to make sure advisers understand that ETFs, like stocks, are subject to market volatility, Melissa Nassar, principal in the financial adviser service business of Vanguard, said.
On Friday, 32 of Vanguard’s internal wholesalers began calling adviser clients to see if they had questions or concerns about the firm’s ETFs, she said. They will continue to make calls through this week.
“In reality these short-term blips shouldn’t cause strong emotional pulls,” said Ms. Nassar. “The end result you would have had Wednesday was pretty close to what you had at the end of the day Friday.”
Nevertheless, some industry experts are wondering if the market gyrations will have long-term effects on the ETF industry.
“This is definitely a blemish on the face of ETFs,” said Paul Justice, an analyst at Morningstar Inc. “They are always saying that they are efficient, but there were moments that they weren’t trading at fair value.”
ETF officials, however, argue that some of the market volatility — particularly the huge share price plunge on May 6 — had more to do with trading issues at the exchanges and not with the structure of ETFs themselves. “I do think that when a market crisis of this magnitude happens it’s an opportunity to opine on the newer investment products,” said Ms. Nassar. “I don’t think we have any evidence that ETFs traded any differently than we expected them to.”

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