Moreover, investors should get in the habit of comparing the ETF’s price to its net asset value as big price deviations would translate to indirect costs. Freeze suggests looking at the indicative value, or IIV, which is regularly updated to check on U.S. domestic equity related funds. However, the IIV on commodity, fixed-income or foreign ETFs could be a little stale as these funds track international markets on different timezones. Consequently, these ETFs could see a premium or discount to the NAV. [True Liquidity]
If an advisor wants to fill a large bulk order, he or she should remain patient and fill out the order over a period in a way that would create minimal price impact, especially in a thinly traded ETF. [Creation & Redemptions]
“You can buy your entire chunk at one time, but you’re going to need to go through the creation and redemption process … where you are going to have to work with the trading firm to be able to do that,” Freeze said.
For more information on trading ETFs, visit our ETF 101 category.
Max Chen contributed to this article.