State Street refutes ETF criticisms
(NEW YORK CITY) State Street Global Advisors, the world’s second largest ETF manager by assets, has rejected criticisms suggesting that the growing institutional use of exchange traded funds in the high yield bond market could deter retail investors, the FT reports.
Jim Ross, global head of ETFs at SSgA, said he was “surprised” by Moody’s warning on Monday that retail investors and their advisers would be deterred from holding ETFs if they found themselves exposed to increased volatility and execution risks from large block trades done by institutions
The ratings agency’s comments followed a massive redemption order on May 10 for 19.7m shares worth $780m for a junk bond ETF, managed in the US by SSgA and known by its ticker JNK.Mr Ross said client confidentiality protocols prohibited him from discussing any details of the transaction but he said market speculation and media reports that the deal was related to trading activities by JP Morgan was “not accurate”.
Regarding the criticism that the transaction had forced the share price of the ETF to a discount to its net asset value when it had previously traded at a premium to its NAV earlier in 2012, Mr Ross said that it was important to understand the influence of market conditions and flows. JNK had tended to trade at a premium in the early months of 2012 when inflows were high in a period of strong risk appetite. That premium has shrunk more recently amid weaker risk appetite and the ETF has been trading closer to its ask price.
“Exchange traded funds have, without doubt, been a positive factor for the high yield bond market. They have boosted overall liquidity and brought greater involvement by market makers, encouraging them to post prices on bonds that would otherwise have been more difficult to trade. Just as we have seen in the US muni bond market, ETFs have helped to provide greater transparency and to strengthen price discovery in the high yield bond market,” said Mr Ross.
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