Wednesday, February 04, 2009

Beware The Bid-Ask Spread in ETFs

When the average Joe (or Jane) looks at transactions costs from trading, they typically focus on the commission charged by the broker. But in the case of some thinly-traded ETFs (exchange-traded funds), the bid-ask spread can add significantly to that cost. Here's a good piece on the topic from Morningstar:
No one has a very precise definition of liquidity, but it roughly boils down to how easy it is to buy or sell a particular security and how much agreement there is in the marketplace upon the security's fair value. The most liquid funds or stocks have miniscule bid-ask spreads, where the prices differ by only a penny. On the other side, a brand new ETF tracking a selection of more thinly traded mortgage-backed securities has a bid-ask spread near 0.80% as I write this. That means that buying and selling the fund at market prices, even without any commissions charges or price changes, would result in a 0.80% loss. Not exactly a terrifying loss, especially compared with what we all saw in 2008, but still an unwelcome drag on portfolio returns if it can be avoided.

Read the whole thing here

4 comments:

Unknown said...

christian louboutin outlet, prada handbags, air jordan pas cher, louis vuitton outlet, uggs on sale, nike free, chanel handbags, ugg boots, prada outlet, longchamp outlet, replica watches, nike air max, ugg boots, tory burch outlet, longchamp, louboutin pas cher, tiffany jewelry, ralph lauren pas cher, gucci outlet, air max, louis vuitton outlet, polo ralph lauren outlet, nike air max, nike outlet, louis vuitton, longchamp outlet, jordan shoes, oakley sunglasses, burberry, oakley sunglasses, ray ban sunglasses, cheap oakley sunglasses, replica watches, louboutin, longchamp pas cher, ray ban sunglasses, nike free, michael kors, tiffany and co, louboutin outlet, ray ban sunglasses, nike roshe run, louis vuitton, oakley sunglasses, kate spade outlet, polo ralph lauren outlet, louboutin shoes, sac longchamp, louis vuitton, oakley sunglasses

Unknown said...

nike roshe, ray ban pas cher, michael kors outlet, north face, ralph lauren uk, timberland, burberry outlet online, mulberry, true religion outlet, lacoste pas cher, michael kors, kate spade handbags, true religion jeans, nike free run uk, air force, tn pas cher, new balance pas cher, nike blazer, michael kors outlet, vanessa bruno, sac guess, oakley pas cher, coach purses, coach outlet, ray ban uk, nike air max, michael kors outlet, vans pas cher, lululemon, michael kors, hollister pas cher, hogan, converse pas cher, hollister, true religion jeans, abercrombie and fitch, coach outlet, ugg boots, true religion jeans, replica handbags, nike air max, michael kors, michael kors, burberry, nike air max, north face, michael kors outlet, hermes, michael kors outlet, ugg boots

Unknown said...

vans, mcm handbags, asics running shoes, ferragamo shoes, iphone cases, lululemon, timberland boots, longchamp, converse, mont blanc, abercrombie and fitch, gucci, chi flat iron, converse outlet, nike roshe, ralph lauren, oakley, soccer jerseys, north face outlet, p90x workout, baseball bats, nike air max, reebok shoes, nike trainers, bottega veneta, valentino shoes, birkin bag, instyler, beats by dre, herve leger, giuseppe zanotti, jimmy choo shoes, nike huarache, nike air max, soccer shoes, babyliss, nfl jerseys, hollister, louboutin, hollister, north face outlet, ghd, vans shoes, hollister, wedding dresses, celine handbags, mac cosmetics, new balance, insanity workout, ray ban

Unknown said...

thomas sabo, louis vuitton, wedding dresses, swarovski crystal, pandora jewelry, moncler, canada goose uk, louis vuitton, moncler, moncler, canada goose, hollister, lancel, moncler, replica watches, supra shoes, canada goose, canada goose outlet, juicy couture outlet, coach outlet, bottes ugg, marc jacobs, ugg,uggs,uggs canada, montre pas cher, canada goose, pandora charms, links of london, pandora charms, toms shoes, sac louis vuitton pas cher, louis vuitton, doudoune canada goose, barbour jackets, karen millen, juicy couture outlet, moncler, pandora jewelry, moncler, ugg boots uk, barbour, swarovski, canada goose outlet, ugg pas cher, louis vuitton, moncler outlet, canada goose, moncler, ugg,ugg australia,ugg italia