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ETF Liquidity Provider

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By · 6 Jan 2021
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Tom Wilson
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6 Jan 2021
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time 4mths ago

Question

OK guys i am curious. I have units in IIGF, INES and INIF and whenever i look at the buy/sell window I see (at least in the vast majority of instances) a buyer and a seller for 100,000 units sitting at 2cents apart. This happens with such overwhelming regularity, i am prompted to ask if this is some sort of hedge strategy you are employing to stabilize the price. Cheers, Juliet - Submitted by Juliet

Answer

Great question!

We covered this question during the listing of IIGF onto the ASX.

Frequently asked questions: Intelligent Investor Growth Fund (ASX:IIGF)

How liquid will the fund be? It looks like the other two Intelligent Investor funds do not trade often. 

The daily volume isn't indicative of the funds liquidity. The fund has a market maker that creates and redeems units when required. This is a managed fund, not a closed ended structure like an LIC. 

As an example,login to your share trading account when the market is open and have a look at  the depth on the screen for Intelligent Investor Ethical Share Fund (INES). You will generally see a "buyer" and a "seller" with 100,000 units sitting on the screen a cent or two apart from each other. This is the market maker creating a market around the indicative net asset value (NAV). If someone comes along and tries to buy a parcel of more than 100,000 units it’s the market makers responsibility to create additional liquidity in a timely manner.

When assessing the liquidity of an ETF or actively managed fund on the ASX it is important to look at the liquidity of the underlying stocks the fund holds.

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