VIDEO: How Capital Group Capital Markets helps advisors source ETF liquidity
  • Average daily volume (ADV) is important, but it’s only a part of an ETF’s overall liquidity profile because ETFs are open-ended securities.
  • One benefit of the creation and redemption process is the ability to purchase share amounts greater than an ETF’s published ADV, making ETFs generally more liquid investment vehicles. 
  • ETF Capital Markets works directly with our Portfolio Strategy Management team to help maximize the liquidity of our ETFs’ basket composition.

How do we support the implied liquidity and trading efficiency of our ETFs for advisors? The video below pulls back the curtain. Scott Szever, senior vice president of ETF Capital Markets, and Donald Kernizan, senior ETF Capital Markets manager, joined Douglas Yones from the New York Stock Exchange to discuss how to help financial advisors understand the full liquidity profile of Capital Group’s ETFs. 

Watch the video here, and for more information about Capital Group’s ETFs, contact your Capital Group representative.

Average daily volume (ADV) provides a measure of an ETF’s secondary market activity (but is not the most accurate indicator of the fund’s liquidity).

An authorized participant (AP) is a broker-dealer that has a contracted opportunity with the ETF issuer to create and redeem shares in the primary market to meet market demand.

A basket is a collection of securities that share certain themes or criteria, such as being in the same sector, industry or investment strategy.

The ETF creation and redemption process allows the ETF issuer to work with an AP to create and redeem the ETF’s underlying fund holdings in the primary market to meet investor demand to buy or sell ETF shares in the secondary market. This allows the number of ETF shares to increase or decrease as needed, depending on market demand.

An ETF issuer is a firm that creates, manages and operates an ETF, establishing its strategy and working with regulators and exchanges to obtain permission to offer the fund.

ETF market price is the price at which shares of an ETF can be bought or sold on a secondary exchange, like a stock market.

Implied liquidity is the total amount of shares that you’re able to create and redeem on any given day without having to materially affect the least liquid security in that ETF’s basket.

Intraday liquidity results from ETFs trading like a stock in that they can be bought and sold anytime during the trading day at market price, which may be at a premium or discount to the net asset value (NAV), which can be helpful for investors who want more control over investment timing.

Market makers are firms that help set the market price for the ETF in the secondary market and execute client demand.

Net asset value (NAV) of an ETF is the value of the ETF’s assets, minus its liabilities, then divided by the number of outstanding shares of the ETF.

Open-ended securities are funds, such as ETFs, that do not typically have a limit on the number of shares that can be bought and sold at any time.

A secondary market is where most retail investors buy and sell securities. The most common examples are stock exchanges like the NYSE and NASDAQ but trading in this market can occur across several exchanges and market maker trades.

Scott Szever is a senior manager in ETF Capital Markets at Capital Group, home of American Funds. He has 19 years of industry experience and has been with Capital Group for one year. Prior to joining Capital, Scott worked as a director of exchange-traded products at the New York Stock Exchange. Before that, he spent 14 years at Vanguard leading various teams across the organization including six years within their ETF Capital Markets. He holds a bachelor’s degree in economics and finance from York College of Pennsylvania. Scott is based in New York.

Donald Kernizan is a senior ETF Capital Markets manager at Capital Group, home of American Funds. He has 14 years of industry experience and joined Capital Group in 2021. Prior to joining Capital, Donald worked as a senior ETF capital markets specialist at DWS Asset Management. He holds a bachelor's degree in psychology from Bowdoin College. Donald is based in New York.

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