Debunking Three ETF Myths

WisdomTree’s David Abner discusses misconceptions about ETF product proliferation, liquidity, and the flash crash. David, who is interviewed by Robert Goldsborough of Morningstar, is bullish on the ETF industry and products. The debunking of these myths boils down to product education and common sense. See the full interview below.

David’s take on Saturation? David says, “I’ll start by saying that I don’t think the ETF market is saturated at all, and the most clear comparison I would pull is the mutual fund industry. So, currently there are roughly 10,000 mutual funds in existence, and with only 1,400 ETFs outstanding, I think, we’ve got a lot of room to grow.”

David’s take on liquidity? “The biggest misconception in the ETF market is that volume equals liquidity, and I like to say, and I’m a tremendous proponent of the saying, ETF volume does not equal ETF liquidity. The actual measure of the liquidity of an ETF is a function of the underlying basket primarily. So, the volume that you can trade in the underlying stocks or whatever the underlying asset is will determine both how much ETF volume can potentially be traded and what spreads will also look like in that ETF. Because of the spontaneous creation and redemption process, potential ETF share liquidity is much greater than what you might see in a volume number.”

David’s take on the notorious Flash Crash? “Well, it was clear from the SEC and CFTC report of September 2010 that they exonerated ETFs as the cause of the flash crash. So, we know that they did significant research on the markets and they determined that ETFs did not cause the flash crash.”

See the full “Morningstar” interview below:

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