ETF…a danger lurking in plain sight?

Posted: January 4, 2016 in ETF, Uncategorized
Tags: ,

Soon the movie “The Big Short” will be released.

It talks about how a few made a great amount of money from the global financial crisis.

There are always “financial gurus” looking for the next Big Short.

I did some research in what they are looking for (in the US naturally) …and I found that they are looking into High Yield US Bond ETF and leveraged ETF.

What is almost as scary is that the SEC (the US regulator) is also looking into it (In December 2015 released an 600pages analysis on the issue dated August 15).

So what is the issue? In US there are now ETFs on everything The everything includes market that are by nature with poor liquidity….and now we have very liquid ETF trading.

The first hiccup appeared the 10 December when a Third Avenue High yield (junk) ETF had to froze redemption. It did not spell disaster as both Blackrock/iShares and Barclays were able to sustain heavy draw-downs…but it was kind of an alarm bell (I still remember the 2 hedge funds closed during the US spring preceding the 2008 collapse).

In simple word the issue is that some  highly liquid ETFs in US are trading in space that have really little liquidity.

There are already funds that exploit this issue and delivered stellar returns (+50%) in the last year.

Not to be scary…but this is a space to watch.


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