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The Fed’s Relief Package Brings Some Stability to the ETF Market

Last week, we covered the news that Exchange-Traded Funds (ETFs) experienced significant pricing dislocation resulting from the Covid-19-related market turmoil. During this time, the gap between the closing price of many ETFs and their net asset value (NAV) widened significantly, making it difficult for investment firms to understand their true risk exposure.

Since then, the Federal Reserve announced its unprecedented $2 trillion relief program, and as a result we’re seeing some normalcy return to fixed income ETFs. Indeed, some fixed income ETFs, like BND, started trading at a premium again towards the latter half of the week commencing March 23.

Only time will tell how long this rally will last, but clearly the injection of liquidity into the corporate fixed income market via the Secondary Market Corporate Credit Facility (SMCCF), has helped stabilize bond prices. The SMCCF, part of the Fed’s relied measures, will purchase corporate bonds issued by investment grade US companies and US-listed ETFs on the secondary market.

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Additionally, the Fed’s announcement that it will buy outstanding corporate debt has not only pushed up premiums for these benchmark fixed income ETFs, but has also triggered a record inflow into the massive Investment Grade bond ETF – LQD. Indeed, since March 24 the fund has gained $5.26 billion in assets under management.

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John Lanaro, Global Head of ETFs at RIMES, commented: “The Fed’s stimulus has been a timely and powerful intervention which has done much to stabilize the ETF market. However, we are in unprecedented times and volatility may yet return. Now more than ever investment firms need the granular visibility into their ETFs that managed services like those from RIMES can provide. Only by accessing high-quality holdings-level data can firms mitigate risk and have a true understanding of ETF performance.”

To help firms get a handle on ETF data management in these fast-changing times, RIMES will hold a webinar dedicated to key trends within the ETF space, including recent changes to ETF data and the data implications of Rule 6c-11. Contact RIMES for more information.

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