BlackRock Chairman and CEO Larry Fink issued a retort Friday to critics of exchange-traded funds, making his case for why ETFs present less risk than mutual funds.
“Let me talk about what ETFs did in the periods of real turmoil,” Fink told CNBC’s “Squawk Box.” He cited the performance of BlackRock’siShares iBoxx $ High Yield Corporate Bond ETF during the rough patch for junk bonds.
“Our high-yield ETF during [that] two-week period of time, we had $20 billion worth of buy and sells … [and] we had $1 billion in redemptions,” he said. “What that tells us is that ETFs provide liquidity to the marketplace. They’re replacing what dealers’ balance sheets used to do. Dealers used to provide that liquidity.”
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The lack-of-liquidity argument has been a concern for ETF critics such as Peter Kraus, chairman and CEO of money manager AB, formerly AllianceBernstein.
Earlier in the week, Kraus pointed to the Aug. 24 stock sell-off as an example of when ETFs saw sharp selling, creating a disconnect between the price and the value of the underlying assets.
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Fink on Friday admitted there may be that kind of disconnect at times, but he said ETFs overall are the most liquid part of the capital markets at providing investors exposure to certain markets or as a hedging tool.
ETFs are also safer than mutual funds, he argued. “The ETF throughout the day is matching buy-sells, buy-sells, buy-sells, buy-sells. At the end of the day the mutual fund does, and it’s aggregated all at one time. That presents more risk.”
A key difference that sets ETFs apart is the ability to buy and sell them like a stock on major financial exchanges, with prices fluctuating during the trading day. Mutual funds are priced once the markets close.