Greenberg: ETFs Pass Chaos Test (So Far)
One big worry about ETFs is the impact of an unusually stressful event.
Would the mechanics of an ETF somehow freeze?
As Nick Colas of ConvergEx points out in a report today (Wednesday), that freeze hasn’t happened — at least so far.
The best example: The iShares MSCI Japan Fund , whose share count remained stable. (That’s important, because ETF portfolios involve a process of share creation and destruction, which involve third parties.)
“That is the most surprising point in the fund data,” Colas says.
“This has been a hot fund in 2011, with over $1.2 billion of new shares issued year-to-date. I thought for sure — and was foolish enough to write just two days ago — that this fund would see massive redemptions on Monday. Wrong. Share count held constant, and industry sources told me late today that Tuesday saw large demand to create new shares.”
My take: This was, indeed, an interesting test. The next test, I suppose, will occur if everybody rushes to the exits at once, with nobody wanting in.
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