$860 Million ETF Trade

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SlowMovingInvestor
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$860 Million ETF Trade

Post by SlowMovingInvestor » Tue Jul 10, 2018 4:07 pm

https://www.bloomberg.com/news/articles ... or-559-000


One investor sold more than $860 million of shares in State Street Corp.’s SPDR S&P 500 ETF Trust, ticker SPY, data compiled by Bloomberg show. Almost simultaneously, an investor bought a similar amount of Charles Schwab Corp.’s U.S. Large-Cap ETF, ticker SCHX.

The likely reason? Cost. At just 3 basis points, the fee on Schwab’s fund is 6.5 basis points cheaper than State Street’s. While that might not sound like much, on $860 million the shift saves $559,000 a year.


The article doesn't say whether it was bought in one chunk or broken up -- in any case, it seems like a largely amount even for widely traded ETFs and likely to move the market. Unless it's a pension fund, there may also be some taxes due.

alex_686
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Re: $860 Million ETF Trade

Post by alex_686 » Tue Jul 10, 2018 4:16 pm

I don't think it would move the market.

At this scale I don't think the owner would put in a market order. They would go to SPY and swap ETF shares for the underlying shares. They would then take the underlying shares and deposited them with SCHX, to create new SCHX. Done this way it would not even touch the market.

SlowMovingInvestor
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Re: $860 Million ETF Trade

Post by SlowMovingInvestor » Tue Jul 10, 2018 4:20 pm

alex_686 wrote:
Tue Jul 10, 2018 4:16 pm
I don't think it would move the market.

At this scale I don't think the owner would put in a market order. They would go to SPY and swap ETF shares for the underlying shares. They would then take the underlying shares and deposited them with SCHX, to create new SCHX. Done this way it would not even touch the market.
That makes a lot of sense, actually. But that's not how Bloomberg described it unless the reporter was simplifying and using 'sold' and 'bought' terms to cover redemption and creation

I also wonder what happens when you do redemption -- are there taxes due on the difference between NAV and market value of ETF maybe ?

deltaneutral83
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Re: $860 Million ETF Trade

Post by deltaneutral83 » Tue Jul 10, 2018 4:22 pm

Why is SPY ER 9 bps? Aren't most others in this category 3/4??

jacoavlu
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Re: $860 Million ETF Trade

Post by jacoavlu » Tue Jul 10, 2018 4:24 pm

bit of an odd transaction, SPY to SCHX, which are likely to track one another very closely, the type of transaction I might do if I wanted to harvest a loss in SPY and find something almost but not substantially identical

alex_686
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Re: $860 Million ETF Trade

Post by alex_686 » Tue Jul 10, 2018 4:26 pm

SlowMovingInvestor wrote:
Tue Jul 10, 2018 4:20 pm
That makes a lot of sense, actually. But that's not how Bloomberg described it unless the reporter was simplifying and using 'sold' and 'bought' terms to cover redemption and creation

I also wonder what happens when you do redemption -- are there taxes due on the difference between NAV and market value of ETF maybe ?
I did a bit of further reading and I see that the indexes are not exactly the same, so maybe not. Or maybe there was an arbiter sitting in the wings to make sure the trade went smoothly - this is fairly common.

I can see how the difference between the NAV and the market value would come into play. Actually, the whole point of ETFs and their tax advantage is that swapping assets - or the conversion process - is not a taxable event.

jminv
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Re: $860 Million ETF Trade

Post by jminv » Tue Jul 10, 2018 4:28 pm

3,175,581 shares of SPY were sold at 11:57am. The next trade was up so no market effect.

12,965,237 shares of SCHX were bought at 11:57am. The trade moved the ETF by two cents or so.

Probably a pension fund, something like that.

Agree that this was not a market order as given normal volume of SCHX it would have moved it too much and more than likely not have been filled.
Last edited by jminv on Tue Jul 10, 2018 4:35 pm, edited 2 times in total.

jminv
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Re: $860 Million ETF Trade

Post by jminv » Tue Jul 10, 2018 4:31 pm

deltaneutral83 wrote:
Tue Jul 10, 2018 4:22 pm
Why is SPY ER 9 bps? Aren't most others in this category 3/4??
Lack of inertia on the part of some of their investors. It is one of the older ETFs so although they've decreased the ER significantly they can still charge a small premium and it's apparently worth their while.

acanthurus
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Re: $860 Million ETF Trade

Post by acanthurus » Tue Jul 10, 2018 4:34 pm

jminv wrote:
Tue Jul 10, 2018 4:31 pm
deltaneutral83 wrote:
Tue Jul 10, 2018 4:22 pm
Why is SPY ER 9 bps? Aren't most others in this category 3/4??
Lack of inertia on the part of some of their investors. It is one of the older ETFs so although they've decreased the ER significantly they can still charge a small premium and it's apparently worth their while.
It's also structured as a unit investment trust, so they don't make any money on securities lending. Or such is my understanding, someone may come along and correct me.

gclancer
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Re: $860 Million ETF Trade

Post by gclancer » Tue Jul 10, 2018 8:29 pm

jminv wrote:
Tue Jul 10, 2018 4:31 pm
It is one of the older ETFs
I always assumed the reason they charge 9 bps is due to the fact that as a former standard bearer it’s big, liquid and has a bunch of investors with built in gains that would have to pay tax upon sale. A better example is EFA which is honestly a terrible ETF but is also a former standard bearer and has remained large for (presumably) the same reasons. iShares is making money had over fist at 33 bps on EFA.

carguyny
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Re: $860 Million ETF Trade

Post by carguyny » Tue Jul 10, 2018 8:55 pm

SPY is the gold standard in liquidity, the 9 bps as includes a liquidity premium. If you're using an option strategy on the US market, SPY is the most liquid and best for that given the very frequent expiry dates. This year there has been days with single fund flows of $7bn+. 90-day avg vol on SPY is 86mm shares vs 2.5mm on VOO and 3.8mm in IVV.

AlohaJoe
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Re: $860 Million ETF Trade

Post by AlohaJoe » Tue Jul 10, 2018 9:21 pm

jminv wrote:
Tue Jul 10, 2018 4:28 pm
Agree that this was not a market order as given normal volume of SCHX it would have moved it too much and more than likely not have been filled.
I'm not sure about that. It is only 17x daily volume. A little while back an Emerging Markets bond ETF had 13x daily volume with no impact. I think our intuitions about what market liquidity can and cannot handle are often wrong.

foo.c
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Re: $860 Million ETF Trade

Post by foo.c » Wed Jul 11, 2018 2:01 am

With that much, why not just redeem for shares of the companies and save all the basis points?

deltaneutral83
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Re: $860 Million ETF Trade

Post by deltaneutral83 » Wed Jul 11, 2018 8:23 am

foo.c wrote:
Wed Jul 11, 2018 2:01 am
With that much, why not just redeem for shares of the companies and save all the basis points?
That's an awful lot of work to save 3/4 bps

Jack FFR1846
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Re: $860 Million ETF Trade

Post by Jack FFR1846 » Wed Jul 11, 2018 8:37 am

deltaneutral83 wrote:
Wed Jul 11, 2018 8:23 am
foo.c wrote:
Wed Jul 11, 2018 2:01 am
With that much, why not just redeem for shares of the companies and save all the basis points?
That's an awful lot of work to save 3/4 bps
$500k.....

My first thought was that they had high bias in SPY and wanted to tax loss harvest. I don't know enough to know if this is done at an institutional level.

From memory, SPY is the largest ETF in the world. SCHX by comparison is a guppy. The lack of SPY movement and some SCHX movement seem reasonable.
Bogle: Smart Beta is stupid

deltaneutral83
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Re: $860 Million ETF Trade

Post by deltaneutral83 » Wed Jul 11, 2018 9:09 am

Jack FFR1846 wrote:
Wed Jul 11, 2018 8:37 am
deltaneutral83 wrote:
Wed Jul 11, 2018 8:23 am
foo.c wrote:
Wed Jul 11, 2018 2:01 am
With that much, why not just redeem for shares of the companies and save all the basis points?
That's an awful lot of work to save 3/4 bps
$500k.....
I wouldn't be in SPY anyway, but yes, for 9 bps, it starts to be a question. 3/4 not as much, in my opinion anyway.

foo.c
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Re: $860 Million ETF Trade

Post by foo.c » Wed Jul 11, 2018 9:19 am

deltaneutral83 wrote:
Wed Jul 11, 2018 8:23 am
foo.c wrote:
Wed Jul 11, 2018 2:01 am
With that much, why not just redeem for shares of the companies and save all the basis points?
That's an awful lot of work to save 3/4 bps
Is it? I assume it's all done by computer anyways.

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