TD Bank in a report entitled 'The Resilience of Exchange Traded Funds to Recent Financial Market Turmoil' noted they enable investors to trade a broad range of securities with very low transaction costs. On the flip side, the bank noted, ETFs may be vulnerable to risks that only manifest themselves in periods of financial distress.
Among highlights, TD said the dramatic sell-off in March exacerbated a liquidity mismatch between bond ETFs and the underlying assets, resulting in large deviations between the ETF's price and the value of the underlying assets.
It added: "Some have warned that the growing popularity of ETFs might accentuate volatility in underlying asset prices. There is some evidence oil ETF's amplified the decline in world oil prices in April when the WTI futures contract closed at near $37 per barrel. These events serve to highlight the importance of understanding the risks entailed in some ETF products."