Tom Lydon Talks ETF Efficiency In Uncertain Times | ETF Trends

Finding ways to price everything accurately is vital, and CNBC’s Bob Pisani addresses this aspect on “ETF Edge” with ETF Trends CEO Tom Lydon and Andrew McOrmond of WallachBeth.

As Lydon points out, part of the success with ETFs hitting correctly on where individual stocks are headed comes down to proper attention, communication, and the search for minor anomalies in these volatile times.

Lydon states, “It’s down to what people will pay, and there’s not a better vehicle out there than ETFs.”

McOrmand also notes how if there were an excellent opportunity for a great arbitrage to make quick money, then the spreads would have collapsed. It’s because of the attention being paid that people are looking for the opportunity, with the result being fair prices for the businesses that remain open.

As far as what advice to offer, Pisani notes that it’s a matter of sitting tight for many. As far as active traders, McOrmand has a few points to note. He believes options are a great thing, specifically listed options. For ETFs, looking at liquid alternatives like QAI and MNA, which are less correlated to the overall market and can dampen volatility.

When it comes to traders that have to trade, the RIAs and large strategists should do what they can to institutionalize order flow.

“Have out all your options on the table and use professionals. Don’t let multi-million dollar notional orders go into retail pipes to be executed. It’s time to institutionalize, as it would help a lot,” says McOrdmand.

How It All Balances Out

Lydon adds on the thought that it’s only a couple weeks until quarterly rebalancing, so these indexes are going to have to go in and buy more of what went down the most and sell what went up the most, which is good. At the end of the month, it should be interesting to see how all of this rebalancing works itself out.

Pisani then asks what to think people should prepare for, were they to consider what things would look like three months from now. McOrmand believes the main characteristic of importance would be exploring the short kick rule, which could help the spread. In general, though, the best thing investors can do is learn all of their options of execution, and all the routes they can use, as opposed to trading on the open and close.

Lydon’s advice would be cheering on the ETF business, paying attention to those out there putting in the work, and counting on the ETF structure to continue functioning the way it’s supposed to. “If you’re trading, make sure you’re efficient in your trading.”

SPDR S&P 500 ETF Trust (SPY) continues to trade and provide accurate indications of where the market will go. It’s quite remarkable, all things considered. As Lydon adds, it comes down to trading efficiency, once again. Keeping an eye on this aspect means having a good heads up on what to expect to some degree.

McOrmand goes as far as to say that the performance here will do a lot to increase the amount of money thrown from mutual funds into ETFs for the frustrated investors that had to wait around for certain marks. Some investors need that liquidity, which ETFs can provide.

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