The Wall Street Journal is reporting this morning that some 25% of ETFs are hitting shareholders with higher trading costs, with out many of the investors noticing. The article blames low trading volume and limited liquidity. The rapid development of new products with less cash available to seed these products are contributing to these increased trading costs.
The WSJ reports, “Consider the “bid-ask spread,” or the gap between the price where the ETF shares can be bought and the price where they can be sold. Thirteen ETFs have more than $10 billion in assets. All have small spreads, amounting to less than .09% of the price that is midway between the bid and ask price, according to New York Stock Exchange data for the first seven months of this year. By contrast, nearly 200 ETFs have spreads over the 0.5% mark. A spread that wide is “not acceptable,” said IndexUniverse’s Mr. Hougan. It means an investor who buys and sells the fund will lose at least 1% of his investment to the spread, which is more than most ETFs’ expense ratios.”
For the full story click: HERE