RT Journal Article
SR Electronic
T1 ETF Transaction Costs Are Often Higher Than Investors Realize
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 65
OP 75
DO 10.3905/jpm.2016.42.3.065
VO 42
IS 3
A1 James J. Angel
A1 Todd J. Broms
A1 Gary L. Gastineau
YR 2016
UL https://pm-research.com/content/42/3/65.abstract
AB Exchange-traded funds (ETFs) and other exchange-traded products (ETPs) provide simple and efficient diversification and exposure to a wide range of investment asset classes. However, the apparently small bid–ask spreads for many ETFs can mask much higher transaction costs when ETF market prices deviate significantly from contemporaneous net asset values (NAVs). The deviations from NAV are often much greater than the bid–ask spreads suggest. The authors report that ETF closing prices are more than 90 basis points away from the NAV approximately 10% of the time. Investors’ market-on-close (MOC) orders are likely to be executed at prices below the NAV.TOPICS: Exchange-traded funds and applications, exchanges/markets/clearinghouses, derivatives