With all the chatter about ETF’s I thought I would generate a dodgy collection of ETF’s and then look at their current market capitalisation. When I started the exercise I was interested to see where the liquidity risk might lie within the spectrum of the ETF’s I was looking at. When looking at an instrument I tend not to focus on how magical it may initially appear but on what can go wrong. ETF’s can present a liquidity risk to traders – it is all too easy to get in but it may be impossible to get out.
What did surprise me about the list below is the enormous disparity in size – I was prepared for there to be a sizeable spread in the distribution, but the actual size of the spread surprised me. In my list the smallest ETF (UBP) has a market cap of $950,000, and is minuscule compared than BlackRocks behemoth iShares MSCI EAFE (IVE) which has a cap of around $83B. However, this figure whilst impressive doesn’t convey the entire picture since IVE’s average daily volume is only around 10,000 shares, whereas STW has a market cap of about $3 billion but an average daily volume of around 175,000 shares. Sheer mass is impressive and is to be expected from the likes of BlackRocks offerings. However, liquidity in the form of turnover is more important to the trader and when I get time I will try and generate a list of ETF with average daily turnover figures.