For instance, the Guggenheim Russell Top 50 Mega Cap ETF (NYSEArca: XLG), which has $526.4 million in assets under management and trades with an average daily volume of about 19,500 shares, may not seem very liquid to a seasoned stock trader. However, one is only accounting for the perceived overall liquidity of the ETF.
The hidden liquidity, or true liquidity, of an ETF is in its holdings. Specifically, among XLG’s top holdings, Apple (NasdaqGS: AAPL) has a daily average volume of 58.3 million shares per day, Exxon Mobil Corp (NYSE: XOM) shows an average 9.2 million shares per day and Microsoft (NasdaqGS: MSFT) has an average 28.6 million shares per day. The top ten holdings have an average market-cap of $160 billion, and total holdings account for a market-cap of over $8 trillion.
Consequently, for those who are interested in executing large block trades, the brokerage desk can readily provide a “quote in size” for trades in more thinly traded ETFs with exposure to a deep market. The quote will generally hover around the “iNAV” as long as the underlying market is accessible. [The Underlying Value of an ETF’s Portfolio]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.