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‘The extra flexibility that ETFs offer does not lead by definition to higher returns’“It's undeniably a benefit that ETFs can be bought or sold at any given moment. But this tempts investors into trading even more based on their emotions. This extra flexibility does not lead by definition to higher returns”, states Ferket, with some degree of understatement. More frequent trading and buying or selling at the wrong moments – these elements cause your cost advantage to disappear like snow in summer.
‘The fact that it takes just a second to buy such a position with an ETF is a sign that something's not right under the hood’“That extra liquidity definitely comes at a price”, suggests Ferket. “It takes just a second to buy a position of USD 10 million in both a US Equities ETF and in a US High Yield ETF. But the real underlying liquidity is a very different ball game. You can build that USD 10 million position in US largecaps in just five minutes, but to obtain such a position in high yield could take you two or three days. The fact that it takes just a second to buy such a position with an ETF is a sign that something's not right under the hood, and in times of panic that can become painfully obvious in the price formation of ETFs.”