The liquidity and marketability of exchange-traded funds (ETFs) are still widely misunderstood by professional and individual investors, said Erik Liik, president and CEO of FocusShares LLC, in a statement today.
“Quantitative Update: ETFs and Retail Alternative Products and Services”
A survey conducted for a new Cerulli Associates research report, “Quantitative Update: ETFs and Retail Alternative Products and Services,” highlighted this issue when it found that nearly 70 percent of ETF sponsors said misunderstandings about liquidity and trading volume hindered potential sales.
Liik defined liquidity as the ability to buy or sell an ETF close to its net asset value, which is the value of underlying securities minus fees. Most ETFs – especially domestic equity funds – are highly liquid, Liik said, because each ETF share is invested in liquid securities. It’s relatively easy for investors to know whether they are buying or selling an ETF at or close to net asset value because every 15 seconds the estimated NAV of each ETF is made available to the public.
The Cerulli report notes that investors are “falsely weary” that the association between volume and liquidity “will hinder their ability to move large positions in and out of funds with low volume.”
ETF shares can be created and redeemed instantly, depending on market demand, Liik said. “Filling large orders is easily done with ETFs,” he said.
Liik goes into more detail on liquidity and marketability of ETFs in his latest blog for InvestorUprising.com.
About FocusShares LLC
FocusShares LLC is an affiliate of Scottrade, the St. Louis-based online investing services firm. Online trading of Focus™ Morningstar ETFs is available commission-free to Scottrade brokerage customers and registered investment advisors using Scottrade® Advisor Services as their custodian. Investors not affiliated with Scottrade are subject to commission costs. FocusShares launched 15 Focus™ Morningstar ETFs in March 2011. All funds track domestic equity indexes created by Morningstar. For more information, visit www.focusshares.com.
About Cerulli Associates
Headquartered in Boston with offices in London and Singapore, Cerulli Associates provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments. Cerulli’s research product line includes Thematic Reports, Quantitative Updates, Special Quantitative Updates, and The Cerulli Edge series.
Before investing in any Focus™ Morningstar ETF, you should carefully consider the applicable fund’s investment objectives, risks, charges and expenses. This and other information is in the fund prospectus which can be obtained by visiting www.focusshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, Distributor.
ETFs are subject to commission costs each time a “buy” or “sell” is executed. Depending on the amount of trading activity, the low costs of ETFs may be outweighed by commissions and related trading costs.
An investment in the Funds is subject to risk, including the possible loss of principal amount invested. Sector funds tend to be riskier and more volatile than the broad market because they are less diversified. Investing in mid and small capitalization companies may be more volatile than those of larger companies. Concentrated Fund investments will subject the Fund to a greater risk of loss as a result of adverse economic, business or other developments than if its investments were diversified across different industry sectors.
FocusShares Communications Analyst
Jack Naudi, 314-965-1555 x 1276