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I have read that it's important to check the bid ask spread and the ETF volume to determine its liquidity.

As a case of study, let's take the Vanguard S&P 500 ETF in the UK (VUSA).

I have searched it in morningstar: https://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000WAHG

and I have read the ETF's prospectus

https://www.vanguardinvestor.co.uk/investments/vanguard-s-and-p-500-ucits-etf-usd-distributing

but I have found nothing about the above mentioned parameters.

Moreover, I don't even know what would be good quantities for them (what concerns me is being able to sell the ETF as close to its NAV as possible).

Where can I find these parameters, and how can I judge them (what would be good quantities for the above concern)?

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Bid/Ask Spread and NAV Premium/Discount are two different things.

An ETF could have a 1 cent Bid/Ask Spread but trading at over 1% premium/discount.

Furthermore, websites such as https://www.bloomberg.com/quote/VUSA:LN display "Average 52-week Premium 0.02%". But that does not mean that on all 250 trading days of the year, the Premium is exactly 0.02%. Sometimes it could be +1%, sometimes it could be -0.98%, these statistics is just an average.

Furthermore, retail investors almost don't have to worry about the Volume (aka number of shares traded per day), as they they are not doing block trades (e.g. 10000 shares at a time).

Thanks for efficient market and the Authorised Participants and Market Makers, popular ETFs (sorted by Asset Under Management) will mostly have the Price extremely close to NAV.

The Bid/Ask spread should be listed in your Brokerage interface. However, having a small Bid/Ask spread today does not mean that it will still be small in times of extreme volatility.

The Intra-Day NAV (iNAV) is tricky for European based ETF because the not all underlying US Stocks are traded 24 hours (outside of Pre-Market, Intraday, and After-Hours), and is approximated by Derivatives (e.g. CFD, Futures). iNAV is usually only available on Bloomberg Terminals.

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Because markets are somewhat efficient, the ETF will always be traded somewhat close to its NAV. But that is difficult for you to determine, since official NAV is usually only calculated after the trading day closes.

The spread on an ETF price is not an inherent characteristic of the ETF, so you won't find any information on this in the prospectus or from rating agencies. The spread only indicates how it's currently being traded on a stock exchange. The exchange will not typically make this information available for free, but your broker might (real time or with some delay).

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  • so you need to invest in the ETF without knowing the bid ask spread? Doesn't this add an extra high risk to the investment (a risk that funds don't have)? What about the ETF volume? Is that information available for free? – Martel Apr 23 '20 at 21:32
  • @Martel there's some "risk" because the spread is effectively a hidden fee on top of the NAV. Mutual funds might have explicit fees instead. But the spread is typically very small compared to other risks, in particular compared to daily volatility. Do check the spread in your trading interface, and do always place limit orders, not market orders. Don't worry about volume for reasonably popular ETFs. Market makers ensure liquidity, but they make money via the spread. – amon Apr 24 '20 at 5:57

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