As the dust settled on the market pullback a fortnight back, it became clear that one particular area of the market was being tagged as the prime cause behind the sudden reversal.
In the words of one market commentator last week, as prices have stabilised - and indeed risen - in the days and weeks after the wobble, the dominant narrative on the part of market participants is that it was index-linked volatility products that were behind the wild swing.
If anyone doubted that ETFs would be - at least partly - implicated in any upcoming substantial market crash, then this short episode provides something by way of proof.
And it is fair to say that it was investors that plunged into inverse volatility exchange traded products that bore the brunt of the losses incurred a fortnight back. In seeking to take advantage of what appeared to be becalmed markets, the prospects of being able to 'bet' on this lasting forever - or at least for a while yet - was clearly an opportunity too big to pass up for some.
That they were wrong in this assessment is all too evident in hindsight. Credit Suisse and Nomura both suspended trading on exchange traded notes (ETN) after they both lost 96% of their value within a matter of hours of the day of the market turmoil. The ProShares inverse volatility ETF continuing to be traded but it too lost a substantial percentage of value on the day.
Yet, in seeing the sell-off contained to just one small area of the ETF space, it might be said that ETFs have passed some kind of test.
"After a near record-long bull market run, bears have long waited for a reversal of fortunes to test the resiliencies of passive products in a period of volatility," says Peter Hopkins, chief operating officer at Boston-based ETF and factor specialist investment group Style Research.
"Looking ahead, the true risks of ETF strategies are going to become increasingly apparent."
He echoes a point made this time last year by analysts at Janus Henderson who pointed out that some ETF investors, particularly in the US, might have a false sense of security about the product due to the way they have been sold as 'passive'.
Similar comments have been made in recent days by Larry Fink, chief executive at BlackRock, who noted that inverse volatility products were "not ETFs and they don't perform like ETFs under stress."
As Hopkins says, regardless of the investment vehicle "it remains critical to go beyond its product label, consider every variable, and discover what's truly driving performance. Finding and understanding these hidden or unintended risks will separate leaders from laggards."
One company in the ETF space which will be more than happy, however, about the return of volatility is Amsterdam-based exchange-traded liquidity provider Flow Traders which said in its recent results that the rockier markets in recent weeks had helped push up its earnings after a relatively quiet 2017. (Link to: https://www.etfstream.com/news/2915_flow-traders-rides-new-volatility-wave)
Serge Enneman, who heads up investors relations at the company said it had no opinion with regard to the suitability of these type of products. "Whether this was the right vehicle is not up to us," he says. "It's up to the investors that want to trade these products."
He helps explain why it is that the ProShares ETF has continued to trade while the ETNs from other providers have been closed.
"The difference lies in the fact that ETNs are unsecured, unsubordinated debt security products, issued by banks," he says. "ETFs are not. They are investment vehicles that track an index or a basket of listed securities. In these circumstances, those ETFs are also collateralized. ETNs are not - they are unsecured."
He adds that the lessons to be learned from the past couple of weeks - away from the warnings and prophets of doom - is that the ETF market has actually performed quite well under stress and has given investors the ability to "respond to changing market circumstances."
"If there is anything to 'learn' from the market pullback, it is that it was a good place in the market to anticipate on the movements. The extreme movements were also just visible in two or three products."
In effect, as he concludes, the markets were doing exactly what they are meant to do. Whether this kind of clear-sighted view gets obscured in the smoke and confusion of the next time the market suffers triple-digit point dips losses is a moot point.
What can certainly be said is that, in the US at least, the animal spirits are proving to be more resilient than the commentators. Bloomberg reported late last week that the VelocityShares Daily 2x VIX Short Term ETN (TVIX) took in $20m this week, the first time the $300m note had seen inflows in February. Meanwhile, the ProShares Ultra Vix Short-Term Futures fund (UVXY) gathered in $13.3m.
If volatility is back then so are the investors who want to bet on it.