There is no denying that the ETF boom is in full swing, as billions of dollars continue to flow into the industry every month despite a difficult economic environment. As individual investors and advisors alike become more informed on the nuances and potential benefits of ETFs, usage has surged. Part of the impressive surge in assets is no doubt attributable to the flexibility of the exchange-traded structure; these securities have found homes in the portfolios of investors across the risk tolerance spectrum. ETFs have been embraced by long-term buy-and-holders because of the extremely competitive expense ratios relative to traditional actively managed mutual funds. They’ve also become quite popular as “replacements” to equities; more active investors who measure holding periods in hours have gravitated towards the exchange-traded structure because it provides exposure to a basket of securities that can be traded throughout the day.

There are other, more creative uses for ETFs as well. These securities can extremely useful for investors looking to implement market neutral pairs trading strategies that generally involve equivalent long and short positions in related (but unique) asset classes. By identifying two securities that are seemingly mispriced relative to one another, investors can capitalize by purchasing the undervalued asset and shorting the overvalued asset. Because the net exposure is zero, these investors don’t really care if broader markets boom or bust; so-called “market neutral” positions can thrive in any environment.