“ETFs…are really a wrapper of some other investment,” Chris Hempstead, director of ETF execution services at WallachBeth Capital, said in the article. ETF trading volume and assets under management “are two of the more irrelevant metrics when it comes to defining [ETF] liquidity.”
For instance, the First Trust ISE Cloud Computing Index ETF (NYSEArca: SKYY) has an average daily trading volume of 43,000 and $77 million in assets. Still, of its top 10 holdings, eight are actively traded stocks with average daily volumes upward of one million shares.
Looking at the ETF universe, investors are ignoring a potentially large number of lucrative investment strategies – only around 25% of all ETFs in the market trade with over 100,000 shares per day.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.