Re:A critique of the claim that passive investing is a bubble
by walshemj on Thursday September 05, 2019 @03:22PM
(#20889917)
Liquidity can be a very serious problem for open ended funds and they have to keep cash on had to meet redemptions unlike closed ended funds like investment trusts.
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Re:A critique of the claim that passive investing is a bubble
by wcoenen on Thursday September 05, 2019 @04:06PM
(#20890229)
Why would cash be involved for an ETF redemption? Doesn't the ETF manager just hand over the underlying securities?
Re:A critique of the claim that passive investing is a bubble
by Expez on Friday September 06, 2019 @02:30AM
(#20893537)
No, it's cash in and cash out. That's the entire point of an ETF, that it's very easy to buy and sell yet still tracking something complex.
Imagine if you'd invested in the Russel 3000 index, which aims at tracking the entire US stock market. If the ETF manager transferred the securities as you exited you'd now have to manually sell 3000 securities across many markets. The ETF has tools and processes for this, you don't. You pay them a fee for the convenience of not having to deal with the underlying assets.
Another example would be something like the iShares gold or iShares silver ETF. They hold precious metals in a secure vault on your behalf, for a fee. You probably don't want a delivery from an armored truck every time you exit the ETF! :)
Re:A critique of the claim that passive investing is a bubble
by wcoenen on Saturday September 07, 2019 @02:07PM
(#20905472)
ETFs are trade on exchanges for cash, but the fund manager is not involved in that. You simply sell your ETF shares to another buyer. Redemptions are something different that only "authorized participants" can do, and as far as I know the ETF share is traded (or actually destroyed) for the underlying securities in that case.
https://www.investopedia.com/terms/r/redemption-mechanism.as...