Sep 9, 2015

…Heading into the opening bell on Monday, Aug. 24, it was clear that U.S. stocks were going to see some heavy selling. The Standard & Poor’s 500 had ended the prior week on a four-day slide, and markets in Europe and Asia were plunging. What no one expected—and what many experts claimed couldn’t happen—was that prices for many of the largest exchange-traded funds fell far more sharply than the stocks they owned.

Chris Dieterich,writing for Barron’s points out that ETFs are supposed to—and generally do—trade in lockstep with the stocks they own, with very little tracking error. Yet when the S&P 500 fell as much as 5.3% in the opening minutes of trading, ETFs like IVV,  fell as much as 26%, some 20 percentage points below its fair value. The $18 billion Vanguard Dividend Appreciation ETF , SYMBOL VIG,  and the $12 billion SPDR S&P Dividend SDY, plunged 38% apiece, while the PowerShares S&P 500 ETF,  SPLV, fell as much as 46% before clawing back an hour after markets opened. Steve and Sinclair dig into what happened and why. Steve then answers questions on how to both protect your capital and grow it, while securing lifetime income that has no correlation to markets falling--at lower cost.