- 25 March 2013
If the assets underlying the ETF are illiquid then there might be a liquidity problem.
VHY, RDV, IHD, STW, VAS, etc will not have this problem and even in the very unlikely scenario that they do, it's only a problem for you if you are trying to sell at that moment. If you're trying to buy in such a scenario you should be able to get a better price than usual, and if you're not in the market to buy or sell then it doesn't matter one bit.
yes in most cases it wont matter one bit if you are long and dont need to sell. The funny thing is when things go bad, the herd wants out and starts selling off the ETF. Hence for Majority of investors it becomes a big liquidity problem. Really depends on the underlying assets the ETF is tracking.
And how can you be certain for example VHY not having problems when **** hits the fan? What happens in a big market crash in an environment of credit crisis? Heaps of investors will need to get out or may suddenly want to get out of stocks or ETFs and start selling en masse. At the same time the underlying stocks start to crash faster than the ETF "market makers" can keep track? thats when things go bad. Hard to envision such a scenario for VHY but hey, nowadays with the central bank money printing experiments and what not, anything is possible.