Ever wonder what allows ETFs to be liquid? The answer is “creation and redemption,” the process that lets ETFs trade even when volume is low. Using simple illustrations and a metaphor about flowers, this seven-minute animation will change the way you look at ETFs.
And once you hear the story behind ETF liquidity, spread the knowledge – share the video below!
You might have mentioned that the AP is trying to make arbitrage profits when it creates and redeems, and that iShares also receives an asset based fee for facilitating that whole structure… good as the video is, the visual illustration makes it look costless, though I heard a few qualifying words that retail investors might miss.
My main point is that some value leaks out to iShares and the AP, which is reasonable, but should be disclosed prominently. Good video otherwise.
Thank you for watching the video and for your comment. We weren’t trying to explain how the financial transaction occurs. Our objective was to explain the Creation and Redemption process in an accessible and engaging way that any investor could understand.
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Nice video. Could you also have a text summary as an alternative for people with time constraints.
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great video…very helpful…thanks for putting it together…
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It would be helpful if the video also explained the tax benefit of redemption as well [your ishares rep said redemption does not trigger capital gains].
Thanks for the feedback! We’re always looking for ways to give a succinct but comprehensive explanation of the benefits of ETFs. Look for a new series on our blog in the coming weeks, where we’ll break down each benefit including tax efficiency. Meanwhile, you can get more information on the tax efficiency of ETFs here: http://bit.ly/r3Ui6C
Thanks, Mike! Happy you enjoyed the animation!
I was hoping it meant ‘Extra Terrestrial Flowers”…Thanks though
Cute idea! We’ll keep in it mind for future animations.