tilt ETFs: liquidity low / too thinly traded?

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tilt ETFs: liquidity low / too thinly traded?

Postby learning_head » Fri May 10, 2013 3:07 pm

I've been looking for some tilt with ETFs often mentioned around here, and I wonder how folks actually make use of these. For example, looking at VBR today, according to Vanguard site it traded only ~9k shares today (it's around 3pm now) but it says average volume is ~150,000 shares. Yahoo indicates 68k (not 9k) have been traded today. Also with 150k daily shares on average. I don't understand where 150k averages are coming from - perhaps there is a lot of behind the scenes trading going before 9:30 or after 4pm, but I don't see much going on throughout the day. Looking at the charts, the price is very choppy with long periods of no movements. Further, while spread is ~0.1% on VBR, it's the spread on very small transaction sizes (of say 100 shares). So, if you are trying to do anything with larger transaction size, I assume your effective spread will be larger (or put another way, you'd move the market against you!). This is what I observed in real practice as well... So, couple questions for crowd that uses ETFs like VBR...

(1) Do you find you have to keep your transaction size smaller due to this? (e.g. moving around $50k-100k, i.e. 600-1200 shares, seems like a large chunk to move for these in 1 or even few shots)

(2) Are you concerned at all that if liquidity becomes worse than it is today, unloading the position (e.g. for rebalancing) will be even harder; i.e. you will meaningfully move the price against yourself?

(3) Are you doing anything else to mitigate above mentioned issues / concerns?

For someone without Vanguard account, ETFs seemingly represent the "cheaper" way to maintain such positions, but perhaps low liquidity makes it not so.... ?
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Re: tilt ETFs: liquidity low / too thinly traded?

Postby livesoft » Fri May 10, 2013 3:38 pm

Volume of VBR today is > 75,000 shares so far.

1. I would not trade more than 5,000 shares at a time. Less than that has been OK for me, but sometimes I break that into smaller orders. I use real-time Level II quotes to see the order book and make a decision based on the number of shares offered for the top 2 to 10 bids or asks.

2. For VBR, VSS, VNQ, VCSH, BIV, VTI, VEU, VWO ... I am not concerned about liquidity.

3. I have written other posts which show how I submit ETF orders. Also, I stopped using VBS as a broker since they are deficient.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: tilt ETFs: liquidity low / too thinly traded?

Postby learning_head » Fri May 10, 2013 4:01 pm

livesoft wrote:Volume of VBR today is > 75,000 shares so far.

1. I would not trade more than 5,000 shares at a time. Less than that has been OK for me, but sometimes I break that into smaller orders. I use real-time Level II quotes to see the order book and make a decision based on the number of shares offered for the top 2 to 10 bids or asks.

2. For VBR, VSS, VNQ, VCSH, BIV, VTI, VEU, VWO ... I am not concerned about liquidity.

3. I have written other posts which show how I submit ETF orders. Also, I stopped using VBS as a broker since they are deficient.


Thanks livesoft (I was hoping to get a reply from you too!)

Looking at Yahoo chart for today which groups trades (per minute?), I see 0 times when an order would be 5k shares or larger and only few cases where number of shares sold was near 1k. (If you happen to have pointers to your best other post(s) in how you place those orders, that would be great...)

Also, I see that volume was much lower in 2011/2012 than it is these days (according to google finance site)

Thanks again.
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Re: tilt ETFs: liquidity low / too thinly traded?

Postby livesoft » Fri May 10, 2013 4:04 pm

See links at the bottom of the Wiki page:

Wiki article link: Orders
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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