Useful ETF Tip (seriously)

One of my duties at the Superbowl of Indexing conference was to moderate a panel of ETF heavyweights to discuss the current state of the industry--I've done a lot of conference gigs now and this was by far largest audience for any segment where I was directly involved.

In the preplanning we all had a conversation about what direction we wanted the conversation to take. One item that came up was about one of the quirks about ETFs that Mariana Bush from Wells Fargo described very succinctly.

In thinking about ETFs being access to various spaces we should expect "problems" to arise when the fund is more liquid than the things that the funds own. The context of the conversation was muni bonds and high yield bonds. If the bonds themselves are not that liquid then pricing of the bonds, which is where the IIV (ETF equivalent of NAV) is derived from, may not be the best reflection of price when compared to an ETF that is always being priced in the equity market, so to speak. This can cause discrepancies between the IIV and the market price which can be magnified during certain market conditions as was the case after the Lehman Brothers collapse.

Short post as I had a hectic weekend. I drove to San Diego to see San Diego State hoops beat Wichita State with some college buddies Saturday night, back to Phoenix for the conference yesterday and that drive take you through Gila Bend which is where yesterday's Space Age Lodge photo came from and today's picture of the Gila Bend Municipal Airport.