Is the Fed’s ETF Work Complete?
September 21, 2020 at 12:00 PM EDT
As a matter of course, I’m used to examining flows into ETFs to get some insight into investor sentiment. It’s a far from perfect proxy. After all, when we say “XYZ fund had $1 million in flows” we’re not saying “Bob and Alice bought $1 million! Sentiment!” What we’re saying is that there was enough of a disconnect between the price Bob and Alice were willing to pay and the fair value of XYZ for an Authorized Participant to go through the hassle of making new ETF shares: buying up underlying securities, turning them into the issuer, and getting new shares to sell. That’s the mechanics.