The Wall Street Journal’s Diya Gullapalli discovers...shock, horror...that “smaller, less widely traded ETFs” have wide bid-ask spreads that can...shock, horror...“eat into an investment.”
“Spreads on regular stocks can vary widely”—exactly—“and ETFs reveal a similarly wide range.” Probably not.
The single example Gullapulli cites of the alarmingly wide spreads? “The tiny $3 million HealthShares Infectious Disease ETF (HHG) had a 1.6% average spread from May to July.”
And the average spread on an ordinary stock with a $3 million market cap and trading an average 77 (not a typo) shares over the last 10 days, and 584 (not a typo) shares over the last 90 days? Gullapalli fails to share, but NakedShorts would hazard a guess at a number rather higher than 1.6 percent.
In related breaking news, “some of the biggest, most heavily traded ETFs...had an average spread of 0.02% of their market price or less from July to late last month.”
Challenge for ETF Trading: Bumpy Markets Gum It Up [$$]
by Diya Gullapalli
The Wall Street Journal Sep. 4 2007