State Street Global Advisors, the asset management business of State Street Corporation (NYSE: STT) and creator of the worlds first ETFs,1 launched a new initiative aimed at educating investors about the importance of ETF liquidity. The integrated program, which will include thought leadership, social media promotion and advertising, launched across the US today and is expected to run through the fourth quarter.
We want investors to understand that liquidity attributes can have a significant impact on the total cost of ownership, even though expense ratio is frequently emphasized, said Sue Thompson, head of SPDR Americas Distribution for State Street Global Advisors.
The first phase of the initiative called Its Liquidity Time will focus on generating greater awareness of the importance of liquidity and the impact it can have on trading costs.
As a leader in ETF liquidity, our strategy is to help investors make more informed investment decisions based on our deep expertise, said Stephen Tisdalle, chief marketing officer of State Street Global Advisors. This initiative will educate investors on how their actual portfolio costs can shift during periods of volatility and feature the ways investors are incorporating liquidity analysis into their strategies.
State Street Global Advisors SPDR family of ETFs, like the SPDR S&P 500 ETF (SPY) and the SPDR Dow Jones Industrial Average ETF (DIA), are among the most liquid in the industry comprising nearly half of all US-listed ETF trading volume2 and include 7 out of the 10 most liquid ETFs invested in US equities.3
Liquiditys impact on total ETF costs
Depending on your rebalancing frequency, trading costs can significantly accumulate and have a larger impact on the total cost of ownership than any expense ratio difference between two ETFs. This underscores why liquidity analysis has to be a part of any due diligence process prior to implementation, said Matthew Bartolini, CFA, head of SPDR Americas Research for State Street Global Advisors.
As an example, for sector rotation strategies with a monthly rebalance, the liquidity profile of the sector ETF used can dramatically affect the total cost of the strategy over a one-year period. The table below illustrates how an ETF with a higher expense ratio can be the more cost effective option after accounting for trading costs. The less liquid, lower fee fund actually ends up being 73 percent more expensive than the more liquid, higher expense ratio sector ETF after a full year.
|
ETF Type |
Average Gross Expense Ratio % |
Average Bid/Ask Spread % |
Trading costs for two trades a month |
Total Cost Average over One Year |
||||
|
More liquid |
0.13 |
0.02 |
0.04 |
0.59 |
||||
|
Less liquid |
0.10 |
0.04 |
0.08 |
1.02 |
Source: Bloomberg Finance, L.P., SPDR Americas Research, as of March 31, 2019. For illustrative purposes only. The information above does not reflect individual purchases and sales of funds.
For more information on the different use cases that are additive to an ETFs liquidity profile, including options and short-selling, please visit spdrs.com/liquidity. State Street Global Advisors is uniquely adept at understanding liquidity given SPDR ETFs make up nearly half of all US-listed ETF trading volume, have the most options open interest, and are the most heavily shorted suite.4
