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Liquidity a key selling point for ETFs

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The liquidity of exchange traded funds has become a larger selling point versus traditional bond mutual fund structures, according to a report by Kroll Bond Rating Agency (KBRA).

The report, “ETFs & the Pursuit of Liquidity”, also says investment managers perceive ETFs to be an efficient means to gain exposure quickly for defensive purposes or aggressive and opportunistic reasons.
 
The report points out that liquidity is not free and there is always a cost. The question is whether the investor recognises that cost.
 
The report says: “There seems to be an under-appreciation of just how that liquidity is provided and maintained, and most certainly an incomplete understanding of the underlying costs of that feature.”

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