Damon Walvoord, head of ETF capital markets for Susquehanna, said if financial advisors are concerned about liquidity, they should understand the characteristics of the underlying market. A high-yield ETF may normally only have spreads as wide as 10 basis points in normal trading times, but that spread could widen out as far as 100 basis points if the fund's prospectus highlights that as a possibility.
"You can be assured you will get liquidity that’s reflective of the underlying [market] and many times it can be better,” he said, but advisors also need to know what can happen in times of market stress.
"But that’s the case for all ETFs and not just fixed income ETFs. Know what’s under the hood and the market you’re getting in," Walvoord said.