Just in case you missed it here are the links to our ETF Series …. Part 1 our Pilot and Part 2 ETF V Mutual Fund and Part 3 Structures: NAV and Part 4 Liquidity and Part 5 Tax Efficiency! and Part 6 Leverage and Inverse …
With the series running long, we hope you are still in tune…but assure you we are near the end AND … much like a movie coming to the most important points, observations and conclusions… By design we started explaining, dug deep and now are pointing more deficiencies to watch for… hopefully in a learning, fun manner!
Similar to the last post of exotic additives that need to be on watch for, this post, Fixed Income and Mismatching Liquidity is a soft warning!
One of the great advantages of the ETF is the immediate liquidity. BUT, if you have an asset within the ETF that takes a much longer time to clear, you have a recipe for another mismatch or bad pricing of the underlying asset.
Bonds trade in the most archaic method known in modern day’s fast moving money (Part of the reason for this is tons of issues within the same company aka imagine a stock with five, ten or even twenty different issues as an example) …. literally they are bid and offered by a direct human contact and executed SLOWLY !
During the 2020 time frame, there was a sudden rush for the exits and many saw extreme volatility and pricing problems leading to bad asset value representation, both over and under valued in a very short period of time!
Pricing did calm down and return to normal, however an asset that was thought immediately accessible, was not under these circumstances!
Caution is warranted as just because something CAN be sold quickly does not always mean it will be able to !!
John A. Kvale CFA, CFP
AI Content Authenticity: All of the following text content has been completed by myself and has not been edited or created by AI. Occasionally we do use AI for images and will note when appropriate.
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
