Is the investor base of an OEF (mutual fund) inherently more stable than that of an ETF?

hank

Not much on this that I can dig up. Perhaps ETFs are too new to have much of a track record.

Question: Under market stress (2008 / 2020 / 2022) are ETFs more likely to see large and rapid outflows? If yes, than that puts added pressure on management and might lead to more pronounced distressed selling of assets, thereby detracting from long term performance disproportionally compared to similarly invested mutual funds. Obviously, there are more restrictions on buying and selling traditional open end mutual funds than there are regarding ETFs - and the reason I’m prompted to ask.

Not merely academic. In choosing between a managed ETF and a managed mutual fund the stability of investor base might be an important consideration for long term investors.

BaluBalu

ETF share redemption does not generally have to effect portfolio selling as the manager can redeem in kind. While many OEF prospectus reserve the right to redeem in kind, it is not common for OEFs to redeem in kind and generally results in selling of portfolio constituents to satisfy redemptions. So, I would ascribe distress selling to OEFs more than ETFs. ETFs are good for both managers (allows them to hang on to the AUM) and shareholders (allows them to sell shares on the open market, without going through redemptions unless there is not enough float).

FD1000

As usual, it depends. ETFs could have higher volatility during the day based on real time event and back to "normal" when it's over while OEFs didn't experience it because the event happened between 10 to 11 AM.
Generally in time of stress, well known indexes such as SPY behave better than tiny ETFs.
Real observation: I have seen HYD(HY muni) close down 0.5% or more while the OEF was flat.

yogibearbull

In stable markets, OEFs vs ETFs is a wash and only the reinvestment convenience of OEFs matter (automatic on the ex-div date). There are some behavioral aspects too because of OEF pricing only at 4pm Eastern market close and other OEF trading restrictions.

When markets are unstable, the ETFs can suffer as other trading stocks, and may be prone to mini/maxi-flash-crashes. This is because we now have market-makers who are only "expected" to provide liquidity but are not "bound" to provide liquidity (as the old NYSE Specialists did). Regulators think that they have the issue licked due to circuit-breakers in place and cross-market coordination (a problem in the past was that when trading was halted on the primary exchange, secondary trading continued in options and futures markets) but a new crisis may reveal more problems.

As noted already, most of the retail trading in ETFs is among the retail investors and doesn't affect the ETF AUM. Only the in-kind creation/redemption mechanism by authorized participants can affect the ETF AUM. But that is only a tax-efficiency angle. In very fast-moving markets, even creation/redemption mechanism becomes a money losing proposition, and the market makers/authorized participants tend to withdraw.

So, the thing to remember with ETFs is - in crisis, don't act, but just go watch a movie instead.

hank

”So, the thing to remember with ETFs is - in crisis, don't act, but just go watch a movie instead.”

Oppenheimer sounds good. Everything so far makes good sense. Thanks everyone.