He's not saying ETFs increase volatility. He's saying ETFs are derivatives, and that trading in a derivative is different than trading in an equity. Look at the mechanics of it - Let's pick something heinous like a Direxion (they're always Direxion) 3x bear ETF. How 'bout LACK? LACK's goal is These leveraged ETFs seek a return that is 300% or -300% the return of its benchmark index for a single day. The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day. Okay, so how exactly do they do that? So. To you, it's a 3x bear ETF. You buy it from eTrade. But Direxion is buying and selling a witches' brew of CDOs, swaps, repos, junk bonds and other bits of financial plutionium that have exactly fuckall to do with equities. Which is why nobody will let you play leveraged ETFs in your retirement fund but I mean FFS y'all. And yeah - it's a shitty little million dollar ETF. But that's the point - when you're buying an ETF you aren't buying stocks. You're buying something that's related to stocks, be it closely or loosely. There's $3T worth of ETFs out there right now. There were $2T worth of CDOs in 2008.to seek daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), of the performance of the Consumer Staples Select Sector Index. There is no guarantee the funds will meet their stated investment objective.
The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the Index equal to at least 80% of the Fund’s net assets (plus borrowing for investment purposes). On a day-to-day basis, the Fund is expected to hold money market funds, deposit accounts with institutions with high quality credit ratings, and/or short-term debt instruments that have terms-to-maturity of less than 397 days and exhibit high quality credit profiles, including US government securities and repurchase agreements.