[Warning: sarcasm ahead]
Do you know what I’m sick of?
Well, let me tell you.
I’m so sick of hearing about how ETFs are actually derivatives, how there’s an inherent liquidity mismatch problem, how a well-behaved NAV basis in normal market conditions doesn’t really say much because critics are concerned with market conditions that aren’t normal, how the morning of August 24, 2015 clearly showed that the model doesn’t function well when stress tested, and how ETFs are, in general, the latest example of financial weapons of mass destruction.
All of those criticisms are misguided because ETFs are exactly what every retail investor and lazy ass institutional investor on the planet thinks they are: highly liquid instruments that give investors a low-cost, riskless, turnkey solution for expressing directional views on everything from equities to junk bonds.
And in order to demonstrate how inherently simple and not-prone-to-fuck-ups ETF trading truly is, I wanted to highlight a good flowchart.
Now this visual is from a SocGen piece that explores implicit transaction costs (“the ones that are invisible and included in the final transaction price rather than paid separately”) but as noted, this also serves as a fantastic illustration of just how elegant and straightforward the mechanics of ETFs truly are and as such is a really poignant reminder of why critics like Heisenberg are completely wrong about this being a convoluted nightmare: