In the ever-evolving world of Exchange-Traded Funds (ETFs), investor enthusiasm for those holding private-market exposure can surge rapidly if performance is impressive. However, Strategas ETF strategist Todd Sohn cautions that potential pitfalls may emerge when valuations become unclear or liquidity dwindles. In a conversation on "Bloomberg ETF IQ," Sohn shared his insights with Katie Greifeld and Scarlet Fu.
The private market represents a vast, uncharted territory for many ETF investors. It's a realm where companies are not publicly traded, and their financial information is not readily available. This lack of transparency can create challenges for investors seeking to assess the value of their investments.
According to Sohn, these challenges can be compounded by issues related to liquidity. In a public market, buyers and sellers can easily find each other and transact, making it relatively simple to buy or sell securities. However, in the private market, transactions can be more complex, and finding a counterparty to buy or sell may not be as straightforward.
Despite these potential hurdles, the allure of private-market exposure can be strong. As more investors seek to diversify their portfolios and gain access to non-traditional assets, the demand for ETFs holding private-market exposure is likely to grow.
Sohn's comments come as ETF issuers continue to launch new funds focused on private markets. For instance, BlackRock recently announced plans to launch its first private-market real estate ETF, while Goldman Sachs Asset Management has introduced a private-market infrastructure equity ETF.
The success of these funds will depend, in part, on their ability to address the transparency and liquidity concerns that Sohn raises. To that end, issuers may need to provide investors with detailed information about the underlying assets, as well as mechanisms to facilitate trading in the secondary market.
In the broader context, the evolution of the ETF industry is a testament to the adaptability and innovation of financial markets. As investors seek new ways to diversify and gain exposure to a range of asset classes, ETFs have emerged as a powerful tool. However, as with any investment vehicle, it's crucial that investors remain informed and diligent in their pursuit of returns.
Sources:
- Bloomberg. (2023, February 13). Transparency Matters In The ETF World: Sohn. [https://www.bloomberg.com/news/articles/2023-02-13/transparency-matters-in-the-etf-world-sohn]