Liquidity can be difficult to forecast, and while the superficial liquidity of a fixed income ETF can be useful for many investors, it can make it that much harder to know what the real liquidity of the underlying bonds may be. ETFs can’t make the underlying assets any more liquid.
This is true for any asset class, but is particularly relevant as the industry adopts ETFs for less liquid asset classes. This should be a key consideration for anyone thinking of investing in fixed income ETFs – don’t be fooled by the illusion of liquidity.
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Ben Seager-Scott is chief investment strategist for Tilney Group
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