Popular Fallen Angel Bond ETF Tries to Assuage Liquidity Concerns

SEE MORE: Bond ETF Liquidity Concerns May Be Overblown

High-profile market watchers, such as Bill Gross, Howard Marks, Noriel Roubini and Carl Icahn, have voiced concerns over potential liquidity problems between quick ETF trades and difficult-to-price junk bonds, reports Chris Dieterich for Barron’s.

ANGL’s rule change will remove a number of small components that tend to be less liquid and more difficult to trade due to the smaller dollar issues. Smaller debt securities typically trade less frequently than larger junk bonds, especially in the notoriously illiquid speculative-grade debt market.

“This is likely to have two very positive effects,” Larson added. “First, market makers in the ANGL ETF will no longer see bond issues smaller than $250 million in creation and redemption baskets, with positive ramifications for their estimated cost of trading those baskets. Second, eliminating hard-to-trade smaller positions from the underlying Index could help improve ANGL’s tracking error, as the ETF may now be more closely aligned with the Index’s constituency.”

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