Actively managed exchange traded funds (ETFs) have certainly attracted the interest of investors, although they’ve not yet seen huge inflows. Those low volumes don’t necessarily mean they lack liquidity, however.

Actively managed ETFs have received their fair share of attention and make no mistake: they’re being watched. But they may have to wait a little longer for that all-important track record before they get the big inflows. Shishir Nigam for Active ETFs in Focus says that doesn’t mean they lack liquidity. [Actively Managed ETF Facts.]

How’s that? It’s a direct result of the ETF creation/redemption process. While the liquidity of stocks and other securities relies on market supply and demand, this isn’t so with ETFs. All ETFs have market makers who can supply the ETF with liquidity as needed. Larger investors can reach out to ETF providers or alternate liquidity providers for assistance with this. [Active ETFs: Ready to Soar?]

You may see wider spreads on thinly traded ETFs, however, and that’s something to look out for, especially if you’re a small investor. Again, large investors can get assistance by calling a liquidity provider. [How to Trade Large Blocks of ETFs.]

It’s also worth noting that most actively-managed ETFs so far have steered away from investments in markets seen as illiquid ones – often niche or narrow markets. Many active ETFs may also have low trading volumes because those buying them may actually be buying and holding.

For more stories about actively managed ETFs, visit our actively managed ETF category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.