Beyond Bulls & Bears


In ETF trading, no news is good news

David Mann, Head of Global Exchange Traded Funds Capital Markets, takes this quiet end-of-summer opportunity to pre-empt any of the typical ETF investor concerns that can pop up during busier times.

I cannot believe that summer is almost over and my kids are already back in school. Time really does fly! One of the summer highlights for all in my household are sleepaway summer camps. The kids have an absolute blast, and we parents get a much-needed break. I remember the first time we sent our oldest away to sports sleepaway camp. Even though we knew he was going to have a blast, I must admit that my wife and I were a bit nervous imagining potential landmines. What if he was homesick or not eating enough or got injured? We desperately wanted daily updates but heard nothing all week. Of course, after seeing him at the end of the week we found out he considered it the best week ever. I guess sometimes no news is good news.

I was thinking about this concept recently in noticing the word “quiet” repeatedly showing up in many of the market recap emails that hit my inbox each morning. I fully realize the “quiet” here typically refers to ETF flows or the number of block trades or even the market itself. From an ETF capital markets perspective, “quiet” can also refer to the number of questions we field from investors with ETF-related concerns.

Looking back over my past posts, I considered some typical ETF investor concerns previously addressed. Sometimes it’s fun to imagine worst-case scenarios even if the truth is far more mundane. The truth is, we have not been getting many calls. But we take this time now to pre-empt any questions that may arise as everyone settles into their new post-summer schedules. A few common ones follow.

Will liquidity be there when it is time to sell?

Investors occasionally wonder if there will be ETF liquidity when it is time to sell, especially in smaller funds. Earlier this year, I discussed this in my post, “Don’t fear the ETF liquidity boogeyman.” I reviewed our entire lineup and found 37 instances in 2022 in which at least $20 million was redeemed from our fund in a single day. Setting aside the fact that I do not love highlighting investors leaving our funds, I can attest that I received zero calls regarding those sales. The ETF liquidity story applies for both buying and selling shares.

Could an ETF capture the imagination of the message board crowd?

At the beginning of 2021, the world watched in awe as stocks such as GameStop and AMC Entertainment Holdings made meteoric moves on the back of their message board popularity. Given that ETFs trade like stocks, there was speculation as to whether ETFs could experience such moves. Not surprisingly, the ETF structure and ecosystem have proven robust, whether or not the ETF showed up on a message board.

Will active funds work as expected as per the “ETF Rule?”

One of the pillars of the “ETF Rule” is that it explicitly states there are no operational differences between index-based and active funds, something I discussed back in 2019. Just because the rule treated active funds no differently than index funds does not mean there was not speculation on whether this would work in practice. Sticking with the “no news is good news” theme, I can tell you that our funds have now had 66 custom basket creation/redemption orders without issue. Industrywide, I do not recall one article highlighting any operational issues with active ETFs.

Hopefully folks reading this post have had some time to relax and enjoy the summer because if history is any guide, ETF volumes and flows should pick up over the final three or four months of the year. On the opposite end of that spectrum, I expect zero increases in the number of headlines questioning the structure or trading of ETFs. When it comes to ETF trading and liquidity, no news is indeed good news.


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