Slippage in Small Cap ETF Fund (PZJ)

Roger Nusbaum submits: A reader asked about slippage and trading the PowerShares Small Cap ETF (PZJ). He notes that the bid/ask spread is quite wide, is concerned about the spread getting wider and the discount to NAV being big (relative to ETFs) in the face of some sort of panic induced mass exodus.

The potential for this is far down on my list of things to worry about. Although you may get different opinions elsewhere, this is a small cap product and is easily hedged by any specialist (or market maker, depending on where your broker sends its order flow) on the other side of the trade.

All investment products have pros and cons. The reader isolates an issue that may be a con for him. If I thought this was the best possible way to reduce cap size for a portfolio, this issue would not deter me from buying. To be clear though, I don't own PZJ and have no plans to buy it, but the slippage issue has nothing to do with not owning the fund.