A reader asked about slippage and trading the PowerShares Small Cap ETF (PZJ). He notes that the bid ask spread is quite wide, is concerned about the spread getting wider and a discount to NAV being big (relative to ETFs) in the face of some sort of panic induced mass exodus.
The potential for this is far down on my list of things to worry about. Although you may get different opinions elsewhere, this is a small cap product and is easily hedged by any specialist (or market maker, depending on where your broker sends its order flow) on the other side of the trade.
All investment products have pros and cons. The reader isolates an issue that may be a con for him. If I thought this was the best possible way to reduce cap size for a portfolio, this issue would not deter me from buying. To be clear though I don't own PZJ and have no plans to buy but the slippage issue has nothing to do with not owning the fund.
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6 comments:
I wonder how big is big to him? In a mass exodus? HUH! In a mass exodus I will be happy if there is a bid.
I guess he was not around in '87 when KO fell in half.
The spread? Who is he kidding?
g
Roger,
This is off topic but are you and the Walker FD working on the Lynx Lake Fire? As I write this it has grown to about 45 acres. I know this isn't too far from Walker where you live.
I looked at the spread for PZJ, it was quite small even though the volume is comparatively low. I know that Barclay's liquidated a few of its less popular etf's. Does anybody know if investors got the full value of the underlying securities in this situation? Since the likelihood of an etf being liquidated is apparently very small, and I think you do get most of the value of underlying securities even if liquidation occurs, I think I'm going to buy some of the PZJ. I really like the earnings surprise strategy that they use (apparently, academics have proven that it beats straight indexing, at least over the 10 or 15 yr period of time they backtested it).
yes I was working on the fire for about five hours. I was there with a brush truck and two firefighters, we also had two water trucks there each with two people.
it burned hotter than most fires and was very smokey. because of the exposure to the forest there were a lot of crews dispatched. it got very scary for a while but then air support was able to start hitting the fire.
thanks for the note.
tom,
that Barclays closed some ETFs is news to me or I am not remembering. Do you know what ETFs they shut down?
This does not ring a bell at all. I know some CEFs have been liquidated in the past.
Hi Roger,
Here's excerpt:
Barclays Global Investors said it would close three iShares exchange-traded funds on December 5, 2002: iShares Dow Jones U.S. Chemicals Index Fund (IYD), iShares Dow Jones US Internet Index Fund (IYV), and iShares S&P/TSE 60 Index Fund (IKC). The funds will be liquidated December 6 through 13, according to BGI. Shareholders remaining on December 13 will receive the net asset value (NAV) of their shares as of December 13, and any capital gains and dividends. BGI said the iShares Board of Trustees decided to close the funds "as investors seek broader exposure in the markets represented by other funds."
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