Expert ETF Trader: Liquidity Is There; Just Look Beyond the Screens

Other than the ETF market “go-go names”, one of the more commonly-voiced, and according to many, often-misguided observations regarding most ETFs is  “won’t trade it, there’s no liquidity in that name,”  or “the screens are only showing 1000 shares offered and I have to pay up 50 cents to buy a lousy 25,000 shares?!”

As a consequence, any half-smart portfolio manager often quickly (if not wrongly) concludes that the “lack of liquidity cost” is a deterrent to their positioning what is otherwise a very compelling “basket” of underlying securities.

The editors here don’t buy into the lack of liquidity notion, and after getting our hands on desk notes published today by Chris Hempstead, Head ETF Trader for WallachBeth Capital (one of the more prominent players in the ETF space), we couldn’t resist the opportunity to re-publish.

Here’s the opening note to that firm’s clients:

“There is little doubt that you have heard me and countless others talk about “unseen” or “hidden” liquidity in ETF’s.  We regularly bring this up because we continue to see new and innovative products coming to market, yet they are often disregarded due to a low average daily volume or low assets under management. These metrics should not be reason enough for dismissing consideration of an allocation to an ETF. What we try and impress upon our clients is the availability of ‘other’ funds they may not be aware of, how they perform, and whether or not liquidity is available and relevant to the index level.

With this in mind, let’s take a look at the [9] S&P sectors and specific products from various providers that offer exposure to that space.  These are all Equity based ETF’s with deep liquidity, regardless of AUM and/or ADV.”Here’s the entirety of the desk notes–thanks to Chris Hempstead

Chris Hempstead, WallachBeth Capital

for allowing us to republish!