Volatility is less of an issue for ETFs that track large and liquid markets and whose shares trade during the same hours as the underlying assets. The $143 billion SPDR S&P 500 ETF Trust, which tracks the Standard & Poor’s 500 Index, was 0.18 percent less volatile than its benchmark from May 22 through June 24.

In addition to emerging-market ETFs, certain fixed-income ETFs, such as those that invest in municipal bonds, may also see increased price swings relative to their benchmarks during periods of market stress because it’s too difficult to buy thousands of different bonds and the funds may not track the indexes exactly, Hudachek said.

Both markets experienced declines after Bernanke told Congress on May 22 that the U.S. central bank may start reducing its bond purchases.

Bernanke Warning
The comments spurred a 16 percent decline in the MSCI Emerging Markets Index through June 24, the day the index hit its lowest point since June 4, 2012. Emerging-market equity ETFs had $10.3 billion in redemptions in June, according to EPFR Global, the most since the firm started tracking the data in 2001.

Even without a massive market selloff, ETFs that track emerging stocks tend to suffer bigger price swings than their underlying indexes. In the 12 months ended June 24, the ETFs in the ranking were on average 31.6 percent more volatile than the benchmark. When prices start to fall at a rapid pace, that excess volatility tends to increase.

When the MSCI Emerging Markets Index fell 55 percent in the five months starting May 19, 2008, excess volatility for the $49.4 billion Vanguard FTSE Emerging Markets ETF, the biggest dedicated to developing markets, jumped to 53.9 percent, from 34.9 percent earlier in the year. For the $33.9 billion iShares MSCI Emerging Markets ETF, the number rose to 68.2 percent in those five months in 2008, compared with 41.8 percent before the decline began.

‘Limited Impact’
“The extra daily volatility is a result of the premium or discount on particular products,” said Rodney Comegys, principal in the equity investment group at Valley Forge, Pennsylvania-based Vanguard. “It is important to recognize that these premiums/discounts have limited impact over longer periods since they typically revert to around zero.”

The Vanguard ETF was 60.8 percent more volatile than the benchmark it tracks in the period this year analyzed in the ranking, May 22 through June 24. Its mutual fund counterpart, Vanguard Emerging Markets Stock Index Fund, was 2.3 percent more volatile than its benchmark. The ETF reached a discount of 1.6 percent to its net asset value on June 20, its largest deviation since September 2011.

SPDR ETF
The $789 million SPDR S&P Emerging Markets SmallCap ETF had 68.9 percent more volatility than its benchmark from May 22 to June 24, the highest among the 10 ETFs included in the ranking. The fund, sold by Boston-based State Street, focuses on companies with a market capitalization of less than $2 billion in a float-adjusted market-capitalization weighted index. Its discount hit 4.5 percent on June 20.

“During the month of June, which experienced an increase in U.S.-driven market events, EWX’s price was more volatile than its index because the ETF was incorporating more recent market information than was reflected in the index values,” said David Mazza, head of ETF investment strategy for the Americas within the SPDR ETF sales strategy group at State Street Global Advisors.