ETF Stress Tests: How funds are showing resilience in the face of uncertainty

• Newer, complex ETFs (hedged equity, buffer, defined outcome) lack a proven track record in severe market stress.
• ETFs relying on complex derivatives, private credit, or equity-linked notes pose higher risks due to potential liquidity mismatches and lack of transparency.
• Issuers conduct stress tests, but investors are advised to perform deep due diligence on both the product's portfolio and the issuer's infrastructure, especially regarding liquidity provisions during downturns.

The discussion focuses on the resilience of ETFs during market stress, particularly newer and more complex products. Experts caution about potential vulnerabilities in ETFs holding private credit or equity-linked notes due to liquidity and transparency concerns, emphasizing the importance of thorough stress testing and due diligence by investors.