Let's take a closer look at ETFs. Perhaps the main innovation of ETFs is that they are not mutual funds. Mutual funds are defective investments because they can impose a fairly large hidden cost on their investors, and mutual funds can also suffer from tax inefficiencies. ETFs, like mutual funds, are often praised for the diversification they offer investors.
However, it's important to note that just because an ETF contains more than one underlying position doesn't mean that it's immune to volatility. The possibility of large fluctuations will depend mainly on the scope of the fund. An ETF that follows a broad market index, such as the S%26P 500, is likely to be less volatile than an ETF that tracks an industry or a specific sector, such as an oil services ETF.