Doc wrote: ↑
Sat Sep 15, 2018 5:19 pm
Look at the sales chart for the lase few days:
Those little red dots are the VIOV trades.
Go to Yahoo finance and chart VIOV by itself. There is ten, twenty, thirty minutes between trades.
No one disputes that. We're saying that that doesn't tell you how much hidden liquidity there is. There's a reason that VIOV has essentially the same average spread as IJS (9 bp vs 8 bp). If you need to buy or sell $1,000,000 of VIOV in a day, Vanguard's market makers will make sure that you can do it without moving the price away from NAV.
According to ETF.com, the creation unit cost for VIOV is 1 bp. A creation unit is 25,000 shares, currently worth about $3.67 MM. A market maker can easily create or destroy shares and make a profit within the 9 bp median spread. That is what they are there to do.
And the only reason the spread is 9 bp is because there are relatively high costs in assembling the basket of small-cap stocks. Take a look at an ETF like VONE (Vanguard Russell 1000 ETF). It has $981 MM in assets, but only trades $2.36 MM or about 17,700 shares per day. But because it holds large-cap and mid-cap stocks, its average spread is only 2 bp. The stocks are so liquid that a market maker can make money inside a 2 bp spread.
As I've said, at this point there is no reason for you to pick VIOV over IJS. We're just making a theoretical argument about ETF liquidity. There are funds, like Vanguard's new factor ETFs, for which there is no equivalent.