We often look for unusual trading volume or trends that are potentially developing in exchange traded funds that tend to fly under the radar due to lower assets under management levels, or infrequency of activity within these funds. One extreme example occurred on Wednesday of this week in little known EUSA (iShares MSCI USA Index).
This ETF typically trades around 8,400 shares on a daily basis, and had a paltry $2.5 million in assets under management before Wednesday’s trading activity, having debuted in May of 2010. EUSA tracks the MSCI USA Index, which is a market capitalization weighted methodology that measures the performance of equities listed on U.S. stock exchanges that are in the top 85% ranked by market capitalization.
Thus, EUSA fits in the “all cap” category, and some common peers would include IWV (iShares Russell 3000), SCHB (Schwab U.S. Broad Market Index), VTI (Vanguard Total Stock Market) and IYY (iShares D.J. U.S. Index) to name a few.
Being market cap weighted, it is no surprise that the largest holdings in EUSA are large cap names including the top five weightings, XOM, AAPL, IBM, CVX, and MSFT. Collectively, these top five names compose about 12% of the overall portfolio.
In all, the index holds 588 equity names, and EUSA is a classic example of a thinly traded ETF that has a great deal of underlying liquidity present, and thus it can be traded efficiently, and in great size, irrespective of the average daily volume totals in the ETF.
On Wednesday, more than 4 million shares were purchased, compared to an average daily trading volume of 8,400 shares, and conceptually, even an ETF novice should be able to see why the purchase (approximately $115 million notional) of this many shares is feasible in an ETF that has an index makeup as described above.
Just a handful of the top weightings in EUSA collectively trade a few hundred million shares daily from an equity standpoint in their own rights, and these names have combined market caps that would weigh in the billions of dollars. This said, if a portfolio manager dismisses the false notion of “volume equals liquidity”, the $115 million share trade that occurred in buying this open ended fund, really looks like a drop in a bucket compared to the liquidity present in EUSA.
While we cannot be sure, this large inflow trade could be the result of tax swap related activity heading into year’s end, either at the expense of a similar all cap Equity ETF, or perhaps a large institution is migrating away from an all cap mutual fund manager bench-marked to a similar index as the MSCI USA Index, or even out of an index mutual fund and into this diversified all cap ETF because of the tax benefits and low costs that ETFs deliver to retail and institutional investors alike.
Schwab U.S. Broad Market Index
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