Take a look at what happened to the ArrowShares Dow Jones Global
Yield ETF (NYSEArca:GYLD) yesterday.
GYLD is an interesting, well-run fund from a smart and focused
startup ETF provider. The fund is well established in the market,
with $84 million in assets. It has decent trading volume of nearly
50,000 shares per day; tracks its index well; and provides
interesting, diversified exposure to five high-yielding segments of
- Global sovereign debt
- Global equity
- Global real estate
- Global alternative
- Global corporate debt
Its 30-day SEC yield is a healthy 5.77 percent.
In other words, it's a good ETF.
And yet, for the first 90 minutes of trading on Monday, June 24,
The fund opened down about 2 percent on the day, on par with the
broader market. Then, things went crazy. A handful of market
orders-small lots of 300 shares, 500 shares, 135 shares-walked the
price down to the point where GYLD was off nearly 10 percent. The
S&P 500, at the time, was down "just" over 2 percent.
Did one of GYLD's individual holdings blow up? That couldn't be
the reason. The portfolio is not especially concentrated-it holds
150 securities-so no single blowup could account for the 10 percent
move. Something was up.
At this point, if I were a trader, I would have bought GYLD. The
only rational explanation was irrational pricing. Eventually, the
market woke up to this reality and its price snapped back in
Why did GYLD trade down so far? The truth is, we don't know.
GYLD gets little attention from market makers-occasionally Knight
or UBS shows up on the tape, but for the most part, it's an ETF
that changes hands between traders. Yesterday was no different, and
the markets were volatile. Put them together and you have a bit of
a perfect storm.
What are the takeaways from situations like GYLD?
First, never use market orders; that's what started the mess in
the first place.
Second, before you buy or sell an ETF, check to see if it's
making an outsized move. If it is, it pays to cross-check it
against competing funds to make sure it makes sense.
Third and finally, don't let this scare you.
GYLD is a well-run fund, and if you bought it for the long
haul-and know how to trade-nothing bad is going to come to you.
Consider this:Later in the day, a massive trade for more than
150,000 shares of GYLD priced spot-on in the market; you can't even
see it in the chart. It didn't move the share price up or down.
That was a trader who knew what she was doing.
As always, a little education can go a long way. Without it,
it's a long way down.
At the time this article was written, the author held no
positions in the securities mentioned. Contact Matt Hougan at
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