Hi I'm Aaron Fernstrom,
associate director of the Mayo
Center for Asset Management at
the Darden School of Business.
And we're here live from the
2017 academic and practitioner
symposium on ETFs
and mutual funds.
And we're here with
Dave [INAUDIBLE],,
who's the head of
SPDR ETF Capital
Markets at State Street.
Dave, thank you so
much for being with us.
Thank you for having us.
So Dave, what is the
most common misconception
about ETFs that might hold less
liquid underlying securities?
I think the most common
misconception, honestly,
is that every trade
in an ETF results
in trades of the
underlying constituents,
and that's just not the case.
And even when we're talking
about the most liquid ETFs
in the world, [? SPY ?] for
example, tracking the S&P 500,
the reality is that every
[? trading ?] SPY does not
result in trading in the
underlying cash equities,
albeit cash equities being some
of the most liquid and actively
traded products in
the US equity markets.
When you start
talking about ETFs
that track less liquid
assets, let's say
fixed income instruments
or even high yield,
the same holds true.
And so I think
often times, people
are concerned
about buying an ETF
that may be holding
underlying high yield
or other less actively
traded instruments
because the concern
is that they're not
going to have liquidity
profile in the form of the ETF
because the underlying
constituents are not
that liquid.
The reality is that since
risk transfer can happen
in the form of the
ETF shares, not
every time that an
ETF is traded do
you need to rely on the
underlying liquidity
of those constituents.
So that's the most
common misconception.
Dave, thank you so
much for being with us.
Thanks for having me.
