What I Learned This Week

The ETF liquidity question: Can the passive universe hold up in the event of a market crisis?

Speaking at the Lipper conference earlier this month, co-chief executive of HanETF, Hector McNeil, warned the audience about rampant misunderstandings about ETF liquidity in the event of a market crisis: “This is similar to what the big hedge funds thought about products such as collateralized debt obligations before the financial crisis, and that was wrong.” For nearly two years, we have dissected the algorithmic and passive transformation of markets and the systemic vulnerabilities that could manifest as QE transitions to QT. And from the “VIX Tantrum” in February to “Red October” (see WILTWs February 15, 2018, and November 8, 2018), we have seen these vulnerabilities exacerbate market pai…

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