Asset Managers

Typically, no. In fact, ETFs globally have acted as "shock absorbers" during many volatile trading sessions as buyers and sellers transacted on the exchange, at real-time prices, without having to trade the underlying stocks and bonds.

What's more, since ETF shares are traded directly by buyers and sellers on-exchange, an ETF can circumvent "forced selling", something a mutual fund may need to do when investors want to sell their shares. This means that most ETF trading occurs without transactions taking place in the underlying securities.

Given the size of some of the largest ETFs, one might think that buying and selling within those funds significantly moves market prices. However, it is asset allocation decisions made by asset owners, such as superannuation funds and individuals, that drive flows into different asset classes, sectors, and geographies.

These allocation decisions are generally guided by factors such as macroeconomic developments (like global interest rate policy), risk preferences, and investment horizon.

ETFs are just one way for investors to express their views about the market. If ETFs didn't exist, investors could use other tools, like single stocks, mutual funds, and derivatives.

ETFs are unique; they provide exposure to a diversified collection of assets, like a mutual fund, but trade on exchange, like a stock. This structure makes the liquidity of ETFs unique, too.

Liquidity refers to the ease of buying or selling a security. ETFs have two layers of liquidity: primary market liquidity, which is provided by the underlying securities or instruments of the ETF, and secondary market liquidity, which is provided by the ability to trade ETFs on exchange.

This means that ETFs are net contributors to market liquidity. At a minimum, an ETF will be as liquid as its underlying securities or instruments; however, many ETFs can provide even greater market liquidity than their underlying instruments.

ETFs have grown quickly in both size and scope over the past decade. Despite this, assets under management in ETFs are only a fraction of the global financial market in both equities and fixed income.

Even in the most mature market the US, ETFs only represent 12.6% of equity assets. These numbers are even smaller in other regions at 8.0% in Europe, and 4.2% in Asia-Pacific. Market share is even smaller in fixed income, where ETFs account for 2.7% of fixed income assets in the U.S., 1.8% in Europe, and 0.4% in Asia-Pacific.

In Australia ETFs account for just under 6% of equity assets as of September 2023 and just 0.6% of fixed income assets as of June 2023

While all ETPs share certain characteristics, like the ability to trade shares on exchange, some have more complex risks and structural features. Examples of these products include those that seek to provide a leveraged or inverse return of their benchmark.

As the number of ETPs has increased, so too has the number of more structurally complex products, including ETPs with different risk profiles and more narrowly tailored investment objectives.

BlackRock is supportive of efforts to increase awareness and transparency around the risks and structural features of complex products, and we have long advocated for a clear categorisation of ETPs that may have differing risks and complexities.