FYI: In his latest memo, Oaktree Capital’s Howard Marks opined about ETFs and their liquidity profile:
If you withdraw from a mutual fund, you’ll get the price at which the underlying stocks or bonds closed that day, the net asset value or NAV. But the price you get when you sell an ETF — like any security on an exchange — will only be what a buyer is willing to pay for it, and I suspect that in chaos, that price could be less than the NAV of the underlying securities. Mechanisms are in place that their designers say should prevent the ETF price from materially diverging from the underlying NAV. But we won’t know if “should” is the same as “will” until the mechanisms are tested in a serious market break.
Worries about ETF liquidity are nothing new. Investors and pundits alike have been discussing the ramifications of this new-ish fund structure for years now.
Regards,
Ted
http://awealthofcommonsense.com/2018/06/the-original-flash-crash-or-why-liquidity-fears-are-nothing-new/
