BlackRock, Inc. (NYSE:BLK) caused quite a stir in the ETF world at the end of June after iShares chief Mark Wiedman questioned the very nature of ETFs in an open letter to ETF investors. According to the Insight column on Euromoney.com, the firm has come out to clarify those comments.
ETFs are a tricky business. The instruments are new and their effects are not fully understood. Comments fawning over the impressive liquidity of the products, and using that characteristic to argue that ETFs do not follow an underlying index, but the underlying index follows them, are too drastic for the market to take at this point.
For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More
The iShares platform is the ETF wing of BlackRock, Inc. (NYSE:BLK), the world’s largest investment firm. The company had to do something to dampen the repercussions of the comment. That response was sought out by the Euromoney columnist.
BlackRock Inc clarifies
Over at Euromoney, the matter was investigated and several explanations for the aberration in pricing were found among BlackRock, Inc. (NYSE:BLK) staff. Wiedman’s argument amounted to the inference that ETFs were the true market and the underlying index followed their lead. Other BlackRock employees were quick to distance themselves from that point of view.
Ursula Marchioni, who is on the iShares EMEA investment strategies and insights team, argues that because of the difference in total assets between ETFs and their underlying indexes, ETF cannot lead the market. Marchioni admits, however, that in cases where the assets are closer in size there may be a more connected and complex relationship between the markets.
ETF charge at BlackRock Inc.
BlackRock, Inc. (NYSE:BLK) is one of the firms most involved in the ETF market. The company’s iShares platform is an innovator in the region, and its leader’s philosophical musings are noted, sometimes to the detriment of the ETF business. As the Euromoney columnist suggests, despite the neat refutation from BlackRock, this is another sign that ETFs may need a more thorough look before they’re given permanent residency.
ETFs are interesting tools and they have several advantages over traditional asset classes. It is these advantages, liquidity chief among them, that have made them so popular so quickly. If they keep expanding the interesting relationship between the ETF and the index it runs may begin to become more apparent. That might be interesting on an academic level, but it leaves markets vulnerable.