3 Myths About ETF Liquidity
Glossary of Terms
Liquidity is the ability to buy or sell a security quickly, easily and with reasonable transaction costs
Bid is the price a buyer or market maker is willing to pay to buy a security
Ask is the price a seller or market maker is willing to accept to sell a security
Bid-ask spread is one way a market maker is compensated for quoting and being active in a security
Lead market maker is a securities dealer that facilitates the trading of a security by agreeing to both buy and sell each security in which the firm is assigned during normal trading hours
Authorized participant (AP) is a large financial institution tasked with creating or redeeming ETF shares based on supply and demand
Open-end investment company is a company such as a mutual fund company or ETF issuer that distributes and redeems the securities it issues
Net asset value (NAV) is the value per share of an ETF or mutual fund on a specific date or time
1 ETFs and mutual funds have other differences as well: Unlike traditional open-ended mutual funds, ETF shares are often bought and sold in the secondary market through a financial advisor and brokerage commissions may apply. ETFs trade on the major stock exchanges and their prices will fluctuate throughout the day. When buying or selling an ETF, an investor will pay or receive the current market price, which may be more or less than net asset value. Mutual fund investors buy and sell directly with the mutual fund issuer and mutual fund shares are priced once a day after the markets close. Both mutual funds and ETFs are subject to risk and volatility.
2 A market order is an order to buy or sell a security at the best price available at that instant. A limit order is an order to buy a security at no more (or to sell it at no less) than a specific price.
3 Dow Jones futures and S&P futures are futures contracts on the Dow Jones Industrial Average (an unmanaged, price-weighted index of 30 of the largest, most widely held stocks traded on the NYSE) and S&P 500 (a market capitalization-weighted price index composed of 500 widely held common stocks) Indices, respectively. The quoted price movements of these futures contracts in early trading is used by some investors as a gauge for how the overall exchanges will perform when the market opens and throughout the trading day. Indices are unmanaged and not available for direct investment.
All investments are subject to risk, including the possible loss of principal. Foreign investing can be riskier and more volatile than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as political and economic developments in foreign countries and regions (e.g., “Brexit”). These risks are generally greater for investments in emerging markets. Small-cap securities can have greater risk and volatility than large-cap securities. The main risk of real estate related securities is that the value of the underlying real estate may decrease in value. A non-diversified fund may be more exposed to the risks associated with individual issuers than a diversified fund. There is no assurance that the investment process will consistently lead to successful investing. Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. Municipal securities may be adversely impacted by state/local, political, economic, or market conditions. Investors may be subject to the federal Alternative Minimum Tax as well as state and local income taxes. Capital gains, if any, are taxable. The Hartford Multifactor Low Volatility International Equity ETF and Hartford Multifactor Low Volatility US Equity ETF may experience more than a minimum level of volatility as there is no guarantee that the underlying index’s strategy of seeking to lower volatility will be successful. Diversification does not eliminate the risk of experiencing investment losses. Ordinary brokerage commissions apply. RORE is new and has a limited operating history.
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