I don't currently hold any ETFs but I certainly have done in the past, and I almost certainly will do again in the future.  

My thoughts are that open-ended structures like ETFs are prone to exaggerated falls in a significant downturn, paticularly a crash, as they are forced to sell shares as people redeem their units (withdraw their money from the ETF), which exacerbates the general market falls and their own unit prices - which encourages more people to panic and withdraw their money, and so on, like a death spiral.  This is particularly significant now that ETFs have become such a large part of the market, particularly in the US but increasingly so here in Australia also.  As they say, "We're now in unchartered territory"...  However, there's probably much more significanty things to worry about:  Trump, the end of QE, highly indebted countries - and how that plays out, how global markets and individual regions and countries handle shocks to the system when they have zero-to-negative interest rates and far less in the way of levers to pull.

LICs and LITs - on the other hand - are closed-end structures, so people can buy and sell them on-market, and the managers of the LICs/LITs are never forced sellers just because people are selling their shares.  They can choose to ignore their own share price falling and concentrate on managing the fixed pool of capital within the fund.

I hold a number of LICs (such as WQG, TGG, WLE, WGB, WAM, SNC, FGX) and a couple of LITs (MGG, FOR) and I'm less worried about them falling so hard in a significant downturn or bear market.  A number of LICs/LITs whose managers have a strong value-investor mindset (TGG for one) could do quite well in a bear market, particularly at the back-end of a bear market - coming out of one, because they don't tend to hold those high-PE stocks that are priced on hope and promise - that are going to fall the hardest - and they will be prepared to buy strong and profitable companies with rock solid balance sheets and steady earnings growth when the prices of such companies gets seriously smashed.  When things then return to normal, those LICs/LITs should experience a significant (if not massive) NTA/NAV rise. 

The past is no accurate guide to the future, but - generally speaking - bear markets are shorter and sharper than bull markets - so while the pain can be fierce, it may not last as long as people might expect.  Those who hold their nerve and deploy their capital wisely in the depths of a bear market can have phenomenal returns.   LICs with value-investor mindsets are well positioned to be among those who do well. 

Bull markets are generally kinder to growth investors, but bear markets is where true value investors come into their own, and can really shine.  TGG has been a dismal performer through this long bull market, underperforming their own benchmark over all significant timeframes, but they have provided a reasonable dividend yield and they have been available to purchase for around 15% to 20% below their NTA (16% below at the end of August 2019 and that was cum-dividend for a 5c fully-franked dividend - they went ex-div on Thursday 5th September).  I view them as having the potential to outperform many of their peers in a bear market, and a bear market is coming.  All bull markets end, and all of them are followed by bear markets.  I just don't know when this next one will be. 

I think holding a LIC like TGG - while providing a handy income stream via dividends - provides some balance in my portfolio.  I like to hold a variety of different companies, including undervalued growth stocks, gold producers, LICs, LITs, etc. and not all of them perform well at the same time.  While TGG haven't performed well in recent years, they could well do so when some of my usual winners struggle in a significant downturn.  Just some thoughts there.

Rather than go heavily into cash when I think we're likely to have more volatile markets - or could be entering a bear market - or about to, I tend to maintain a good weighting to quality gold producing companies.  The largest two positions in my SMSF are currently Northern Star Resources (NST) and Evolution Mining (EVN) despite trimming them a couple of times.  I bought both at much lower levels.  When the market tanks, quality gold producers usually rise. 

I also have exposure to companies who aren't gold producers but still benefit from a rising gold price.  Such companies include GR Engineering Services (GNG) and Lycopodium (LYL) who both design and build gold processing plants for gold miners.  GNG are more Australian focussed (although they do work elsewhere around the globe on occasion) and LYL are more active in West Africa, but both have superb reputations for on-time and on-budget project delivery.  LYL look fairly fully priced up here, but GNG look cheap because they didn't have much work in FY19 due to a couple of major project deferrals by the project owners, so their FY19 report and dividend disappointed the market.  Despite that, I'm happy to hold GNG through such downturns in work volume because despite their tiny size, they are a high quality outfit with no net debt and very capable and well-incentivised management (who all hold GNG shares).  GNG are currently my largest position in my main income/trading portfolio.  I tend to load up at lower prices (such as where they are now) and trim the holding when they're a lot higher.  That has served me well in the past, so I intend to keep doing it.  With the gold price where it is today, having just set new record highs in A$ terms, a lot of gold projects that were borderline profitable at a much lower gold price will get dusted off and may well now be progressed, which will provide GNG with more work.

I also hold Codan shares (CDA).  Codan's Minelab division design, manufacture and sell the world's best mobile gold detectors (metal detectors) .  They have had a brilliant year on the back of increased gold detector sales globally, particularly in Africa.

That said, I still think adequate cash is very sensible, and it's certainly prudent to have cash available to instantly take advantage of the opportunities that increased price volatility often throws up.  That way you never have to be a forced seller.  The level of cash that is appropriate would depend on the individual and their investing style of course.  I tend to find that 15% to 20% usually works well for me.