Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

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occambogle
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Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

Hi,

Following on from this thread I'm somewhat decided on the following combination for world/emerging markets UCITS ETFs for my wife, who would like a diversified world portfolio but with some green/ESG aspects...

70% - iShares MSCI World ESG Screened UCITS ETF USD Accumulating (SAWD)
10% - iShares MSCI EM IMI ESG Screened UCITS ETF USD Accumulating (SAEM)
10% - iShares Global Clean Energy UCITS ETF USD Distributing (INRG/DNRG, there is no accumulating version)
10% to be decided, maybe some kind of Tech fund.

SAWD/SAEM are relatively lightly ESG-screened versions of SWDA/IWDA + EIMI with the same expense ratio. Comparison here:

https://www.ishares.com/uk/individual/e ... ksMzA1Mzk3

I had considered the more heavily-screened/weighted "Sustainable SRI" versions but (a) I feel they are not sufficiently diversified and (b) there is no USD accumulating version of the World fund. I had considered Vanguard optionss such as VWRA or VHVE+VFEA but there's no ESG-screened options.

I am comfortable with the AUMs of these funds (650-900 million each) but the volume of SAWD/SAEM is understandably a fair bit less than the "normal" world/emerging funds, and the bid/ask spread higher.

What is the best strategy for buying ETFs that have a lower volume and bid/ask spread? Set a limit order to someway between the bid/ask? Set a mid-price order? I understand that even if volume is low that market-makers should be able to create units at the right price, but am trying to work out how best to do that and price accordingly. She is using Interactive Brokers and will be eventually investing around $200k but probably dollar-cost averaged over a couple months, starting with $60k initially.
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Schlabba
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by Schlabba »

occambogle wrote: Sun Nov 22, 2020 3:06 am Hi,

Following on from this thread I'm somewhat decided on the following combination for world/emerging markets UCITS ETFs for my wife, who would like a diversified world portfolio but with some green/ESG aspects...

70% - iShares MSCI World ESG Screened UCITS ETF USD Accumulating (SAWD)
10% - iShares MSCI EM IMI ESG Screened UCITS ETF USD Accumulating (SAEM)
10% - iShares Global Clean Energy UCITS ETF USD Distributing (INRG/DNRG, there is no accumulating version)
10% to be decided, maybe some kind of Tech fund.

SAWD/SAEM are relatively lightly ESG-screened versions of SWDA/IWDA + EIMI with the same expense ratio. Comparison here:

https://www.ishares.com/uk/individual/e ... ksMzA1Mzk3

I had considered the more heavily-screened/weighted "Sustainable SRI" versions but (a) I feel they are not sufficiently diversified and (b) there is no USD accumulating version of the World fund. I had considered Vanguard optionss such as VWRA or VHVE+VFEA but there's no ESG-screened options.

I am comfortable with the AUMs of these funds (650-900 million each) but the volume of SAWD/SAEM is understandably a fair bit less than the "normal" world/emerging funds, and the bid/ask spread higher.

What is the best strategy for buying ETFs that have a lower volume and bid/ask spread? Set a limit order to someway between the bid/ask? Set a mid-price order? I understand that even if volume is low that market-makers should be able to create units at the right price, but am trying to work out how best to do that and price accordingly. She is using Interactive Brokers and will be eventually investing around $200k but probably dollar-cost averaged over a couple months, starting with $60k initially.
Instead of investing green/ESG-screened you could consider investing in the total stock market, and simply donating a little to the cause of your choice. This avoids the bid/ask spread and other issues with those indices such as:
1. does ESG align exactly with your values?
2. Bid-ask spread
3. reduced diversification?

I know I didn’t answer your question but I thought it would be worth pointing it out :happy
TedSwippet
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by TedSwippet »

occambogle wrote: Sun Nov 22, 2020 3:06 am What is the best strategy for buying ETFs that have a lower volume and bid/ask spread? Set a limit order to someway between the bid/ask?
That's what I've done in the past. Sometimes the price moves up slightly so that order doesn't fill, and you then have to re-enter it a while later. It's mostly worked for me though, with a bit of patience. And it completely avoids the odd price spikes you sometimes see in prices, particularly around market open and close.

One thing my broker has started offering -- not sure if IB does this -- is to show you a guaranteed price for an ETF with 15 seconds to accept or else it times out. Whenever I've used this, it nearly always comes up with a price that is a tiny margin from the current (that is, last trade) price, and that's fine. This is a handy way to avoid limit orders, since you can very quickly see whether this price is acceptable relative to the limit you were going to set. And because you personally never enter a price, it avoids all danger of fat-fingering.
Topic Author
occambogle
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

Schlabba wrote: Sun Nov 22, 2020 3:55 am Instead of investing green/ESG-screened you could consider investing in the total stock market, and simply donating a little to the cause of your choice. This avoids the bid/ask spread and other issues with those indices such as:
1. does ESG align exactly with your values?
2. Bid-ask spread
3. reduced diversification?
I know I didn’t answer your question but I thought it would be worth pointing it out :happy
These are totally fair questions and I have also gone back and forth on them. There is also an argument that it is better to buy TSM because then the ETF issuer owns the "bad" company stocks and can use those voting rights to influence the direction of the company at annual general meetings, and I have read Blackrock has some ESG type commitments in that regard. Some recent discussions here:

viewtopic.php?t=325696
viewtopic.php?t=329845

There's a good chart showing the different ESG type options here, my choices above would be the "MSCI ESG screened" option

There was also an interesting discussion on Reddit here

I discussed all this with my wife and she doesn't have super-strong feelings but on balance she would prefer to feel that she isn't personally profiting from "bad" companies, even if the various criteria are not perfect. The AUM of these funds is still decent in my opinion, diversification of the funds not too bad, the performance over the last few years has actually been marginally better than their TSM equivalents, and if held long-term I presume the bid-ask spread doesn't make a huge difference.... but I am more than happy to be convinced otherwise and/or discuss ESG type options generally.
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occambogle
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

TedSwippet wrote: Sun Nov 22, 2020 4:00 am That's what I've done in the past. Sometimes the price moves up slightly so that order doesn't fill, and you then have to re-enter it a while later. It's mostly worked for me though, with a bit of patience. And it completely avoids the odd price spikes you sometimes see in prices, particularly around market open and close.
Thanks, I think I will try that - choose something halfway between bid/ask when the market is in full session and see how it goes. Do you think it's the market makers filling this order or secondary market?
TedSwippet wrote: Sun Nov 22, 2020 4:00 am One thing my broker has started offering -- not sure if IB does this -- is to show you a guaranteed price for an ETF with 15 seconds to accept or else it times out. Whenever I've used this, it nearly always comes up with a price that is a tiny margin from the current (that is, last trade) price, and that's fine. This is a handy way to avoid limit orders, since you can very quickly see whether this price is acceptable relative to the limit you were going to set. And because you personally never enter a price, it avoids all danger of fat-fingering.
That sounds really useful indeed. I'm not sure if IB does that but I haven't seen it.
Topic Author
occambogle
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

Here were the different volumes on Friday, the market is closed now so I can't show the bid/ask spreads....

https://imgur.com/8klvyGZ
glorat
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by glorat »

occambogle wrote: Sun Nov 22, 2020 4:13 am
TedSwippet wrote: Sun Nov 22, 2020 4:00 am One thing my broker has started offering -- not sure if IB does this -- is to show you a guaranteed price for an ETF with 15 seconds to accept or else it times out. Whenever I've used this, it nearly always comes up with a price that is a tiny margin from the current (that is, last trade) price, and that's fine. This is a handy way to avoid limit orders, since you can very quickly see whether this price is acceptable relative to the limit you were going to set. And because you personally never enter a price, it avoids all danger of fat-fingering.
That sounds really useful indeed. I'm not sure if IB does that but I haven't seen it.
I don't think IB offers this particular feature (HSBC does...) but IB does a Market IBALGO feature that does the automatic inside bid/ask spread thing by starting at bid and slowly moving towards ask over a period of time (depending on urgent/normal/patient). I stopped trying it a long time ago because it is only available on its TWS desktop app rather than mobile.
seoulmac
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by seoulmac »

I actually started to move fund bit by bit to SAWD and SAEM this month. I did have the difficult experience of getting the right price between bid/ask spread. So far I have only tried the limit order usually set mid point between bid and ask, while have not tried the market order (since the volume I am switching to was not small). There have been times I was not able to close an order during the day as I was reluctant to pay more and the price went up. Need some advice too ...

I also studied all the same materials that op posted and got the same opinion. One issue is the ESG screened or enhanced etfs are young so we cannot really judge.
Topic Author
occambogle
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

seoulmac wrote: Sun Nov 22, 2020 6:52 am I actually started to move fund bit by bit to SAWD and SAEM this month.
Nice, am glad to find someone else interested in these!
seoulmac wrote: Sun Nov 22, 2020 6:52 am I also studied all the same materials that op posted and got the same opinion. One issue is the ESG screened or enhanced etfs are young so we cannot really judge.
That's true the ETFs are new, but the indexes they are based on have been around longer (5-10 years) and you can compare between them:

MSCI World ESG-Screened: https://www.msci.com/documents/10199/86 ... b33275ef7c
MSCI World ESG-Enhanced: https://www.msci.com/documents/10199/f3 ... 0fa950ab02
MSCI World SRI: https://www.msci.com/documents/10199/48 ... fb018b7fe7

MSCI Emerging Markets IMI ESG-Screened: https://www.msci.com/documents/10199/b7 ... 4d81025e17
MSCI Emerging Markets ESG-Enhanced Focus: https://www.msci.com/documents/10199/2d ... 9536b3a566
MSCI Emerging Markets SRI: https://www.msci.com/documents/10199/99 ... 5b8ec1552d

They are very hard to find on the MSCI site but if you google something like "MSCI world enhanced factsheet usd net" and change the type or region you should be able to find others.
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occambogle
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

glorat wrote: Sun Nov 22, 2020 5:38 am I don't think IB offers this particular feature (HSBC does...) but IB does a Market IBALGO feature that does the automatic inside bid/ask spread thing by starting at bid and slowly moving towards ask over a period of time (depending on urgent/normal/patient). I stopped trying it a long time ago because it is only available on its TWS desktop app rather than mobile.
I think you are referring to IB Adaptive algo: https://www.interactivebrokers.com/en/index.php?f=19091
...and yes I just had a look and it seems like it would be quite useful. But like you I am not keen at all to use TWS and I prefer Client Portal or IOS app where it doesn't seem like that algo is an option.

They do have something in Client Portal for limit orders called Price Management Algo but I think that is different.
https://www.interactivebrokers.com/en/index.php?f=43423

Mid-Price order type looks like it could be useful, but seems not to be available for non-US products:
https://www.interactivebrokers.com/en/index.php?f=36735
Topic Author
occambogle
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

Just to update... I purchased a bunch of SAWD & SAEM yesterday. It was certainly a bit more difficult than buying something highly traded, but not too bad. The difficult part was getting the data right in terms of checking and double-checking current bid/ask prices, and not getting confused by "last prices" given that they barely change price throughout the day. I ended up placing limit orders about 3/4 up within the spread of the current bid and ask prices, and they filled within 10-15mins (although the overrall prices happened to drop slightly during that time).
seoulmac
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by seoulmac »

occambogle wrote: Tue Nov 24, 2020 1:39 am Just to update... I purchased a bunch of SAWD & SAEM yesterday. It was certainly a bit more difficult than buying something highly traded, but not too bad. The difficult part was getting the data right in terms of checking and double-checking current bid/ask prices, and not getting confused by "last prices" given that they barely change price throughout the day. I ended up placing limit orders about 3/4 up within the spread of the current bid and ask prices, and they filled within 10-15mins (although the overrall prices happened to drop slightly during that time).
Ah! I did the same. How do you get the data right?? I was only looking to IWDA and the US market live to make a guess.
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occambogle
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

seoulmac wrote: Tue Nov 24, 2020 1:51 am Ah! I did the same. How do you get the data right?? I was only looking to IWDA and the US market live to make a guess.
I was trying to compare to IWDA and more-heavily-traded World ETFs. But you can't really make a direct comparison given the slightly different holdings. And they were quite different, it did get confusing and I gave up trying to compare. There was reasonable amount of bid and ask orders so in the end I just had to trust that those indicated a reasonable price somewhere inbetween.
My main point is not to get confused by the "last price" i.e. the price it was last actually traded at, because that can be seriously out of date. It's practically like a mutual fund that prices once a day! Ok, that's an exaggeration....
I'm on Interactive Brokers and haven't subscribed to realtime streaming data for LSE yet, so just used their "snapshot" button to get a snapshot of the current bid/ask prices before placing the order.
The other thing I'd say is it probably would make sense to trade SAWD when both the European (LSE) and US markets are open as I think there would be higher volume during this time and better reflection of current prices. Also I would imagine (is this correct?) that given around 60% of a World ETF is US stocks, it would make it more easy for the market-maker to create units at a fair price during this time as they would know accurate, current prices of the US stocks held in SAWD.
seoulmac
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by seoulmac »

occambogle wrote: Tue Nov 24, 2020 2:04 am
seoulmac wrote: Tue Nov 24, 2020 1:51 am Ah! I did the same. How do you get the data right?? I was only looking to IWDA and the US market live to make a guess.
I was trying to compare to IWDA and more-heavily-traded World ETFs. But you can't really make a direct comparison given the slightly different holdings. And they were quite different, it did get confusing and I gave up trying to compare. There was reasonable amount of bid and ask orders so in the end I just had to trust that those indicated a reasonable price somewhere inbetween.
My main point is not to get confused by the "last price" i.e. the price it was last actually traded at, because that can be seriously out of date. It's practically like a mutual fund that prices once a day! Ok, that's an exaggeration....
I'm on Interactive Brokers and haven't subscribed to realtime streaming data for LSE yet, so just used their "snapshot" button to get a snapshot of the current bid/ask prices before placing the order.
The other thing I'd say is it probably would make sense to trade SAWD when both the European (LSE) and US markets are open as I think there would be higher volume during this time and better reflection of current prices. Also I would imagine (is this correct?) that given around 60% of a World ETF is US stocks, it would make it more easy for the market-maker to create units at a fair price during this time as they would know accurate, current prices of the US stocks held in SAWD.
I think currently realtime streaming data for LSE is free at IB as I subscribed that. Do check it out. My trades are based on the realtime data.

Actually I mostly bought when both US and UK market were open, since I am quite busy during the Asia day time. Any thoughts on SAEM (more than half holdings are in China and Asia that the market is at a total different time zone than UK)?
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occambogle
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

seoulmac wrote: Tue Nov 24, 2020 4:17 am I think currently realtime streaming data for LSE is free at IB as I subscribed that. Do check it out. My trades are based on the realtime data.
I am not getting real-time streaming for LSE, the prices are always in yellow, and I am having to use snapshot function. I wonder if it makes a difference where your IB account is located, mine is US. Could you check which market data subscriptions you have active? When I look at market data subscription choices (which I am not currently subscribed to) I see these options:

UK LSE (IOB) Equities
London Stock Exchange International Order Book, top of book data.
GBP 4.25 /Month

UK LSE Equities
Provides market data plus enhanced best prices for securities on the LSE exchange.
GBP 5.00 /Month

seoulmac wrote: Tue Nov 24, 2020 4:17 am Actually I mostly bought when both US and UK market were open, since I am quite busy during the Asia day time. Any thoughts on SAEM (more than half holdings are in China and Asia that the market is at a total different time zone than UK)?
I was also wondering that, whether better to buy that when UK and Asia markets are open... is there a time both are open?
seoulmac
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by seoulmac »

I am originally from Macau when I registered it is also IB LLC. When I log in I am first directed to the Australian site. I remembered some point ago I got informed if I answer the questionnaire to confirm I am non-professional investor, I got waived of the following to some time next year:
  • US mutual funds
  • LSE Group Data Bundle
  • IDEAL FX
  • US and EU Bond Quotes
I can't find where I got the information now. :(

Also I think there is zero overlap of UK and China/Korea markets especially now we are in winter time without the daylight saving times ...
Topic Author
occambogle
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Re: Strategy for buying lower volume UCITS ETFs with higher bid/ask spread

Post by occambogle »

seoulmac wrote: Tue Nov 24, 2020 6:25 am
  • LSE Group Data Bundle
I did some googling and it seems this is may be a special free option that is only for residents of selected Asian countries, see the comments here. You're lucky :-)
https://www.reddit.com/r/singaporefi/co ... ta_on_lse/
seoulmac wrote: Tue Nov 24, 2020 6:25 am Also I think there is zero overlap of UK and China/Korea markets especially now we are in winter time without the daylight saving times ...
I guess no choice on SAEM then, you just have to do during UK hours.
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