The liquidity of the SPDR® S&P 500® ETF (SPY) sets the benchmark of implementation flexibility for a wide array of trading strategies. Trading less liquid ETFs efficiently often requires more attention to the details.
Exchange traded funds (ETFs) are known for their tradability. With just over $9.6 trillion in secondary market notional volume in the second quarter of 2024 — more than the next five most actively traded ETFs combined — the robust liquidity of the SPDR® S&P 500 ETF (SPY) sets the benchmark of implementation flexibility for a wide array of trading strategies.1
Yet with 89.3% of all US-listed ETFs trading less than $25M per day, on average during Q2 of 2024,2 we’re mindful that trading the vast majority of less liquid ETFs efficiently can take a little more attention. We’re here to help.
As a liquidity leader, SPDR ETFs accounted for 32.8% of all notional trading volume of US-listed ETFs in Q2 of 2024.3 The SPDR Sales Execution and Institutional Strategy Team is a dedicated group of capital markets professionals focused on providing resources to help assess ETF liquidity and evaluate different execution strategies for the entire range of SPDR ETFs.
As the number of ETFs in the marketplace has grown, investors have increasingly dedicated resources to evaluating ETF liquidity as a key component of their total cost of ownership (TCO). For all SPDR ETFs, our Sales Execution and Institutional Strategy Team can help you evaluate different execution strategies with the goal of optimizing investment objectives and TCO. The SPDR team can help assess:
Execution priorities
Trade considerations
Market environment
ETF secondary trading volume is often the first measure of ETF liquidity. However, investors with larger order sizes can source liquidity not displayed on the screen from liquidity providers. ETFs are at least as liquid as their underlying constituents at any given point in time. With ETFs representing a multitude of asset classes, geographies, sectors, and styles, the SPDR team is available to navigate different market environments and volatility regimes to properly evaluate execution strategies and meet your objectives.
Execution Strategy |
Description |
High Urgency |
Market Impact Sensitivity |
Time Risk |
Anonymity |
Risk Trade |
Client received price for the entire trade at once, and the liquidity provider takes on the risk of managing the result position. Liquidity providers can be put in competition for the trade, allowing for a clear measure of best execution. Client generally benchmarks vs. the quoted NBBO. |
Yes |
|
|
|
NAV Trade |
Trade executed by buying or selling the underlying basket of securities and subsequently creating/redeeming ETF shares. The client typically receives a price reflective of executions for the underlying basket of securities plus or minus creation/redemption costs. Client generally benchmarks vs. end of day NAV. |
|
Yes |
Yes |
|
Worked Order |
Electronic order types using automated preprogrammed trading instructions. Orders can be measured relative to execution benchmarks based on volume, time or other metrics. Can be applied to both trading in the secondary market or trading the basket. |
|
Yes |
Yes |
Yes |
The SPDR® MSCI USA StrategicFactors℠ ETF (QUS) seeks to track the MSCI USA Factor Mix A-Series Capped Index, a Smart Beta index that blends low volatility, quality, and value exposures together in a single strategy and bridges the gap between active and passive management. As a result, QUS provides an opportunity for investors to rethink exposures and potentially maximize risk-adjusted returns more efficiently. The fund averaged roughly $3.5M in secondary notional value over the last 30 days, as of June 30, 2024.4
Investors seeking to trade orders of $15M–30M would represent a significant portion of the secondary volume but may consider trading the ETF on risk with a liquidity provider.
Let’s walk through execution considerations:
We can see in the chart below that risk trades in the $10M–40M range have occurred in QUS as investors have sourced liquidity from providers. Each example should be evaluated independently, as time of day and market environment can impact relative pricing. However, these block trades should serve as helpful historical examples of risk trades executed during different market environments.
On January 7, 2022, a client bought approximately $31.4M of QUS. At the time that the trade took place, the market was 128.29/128.33. For reference, the VIX Index was priced 18.8 at the time of the trade.
QUS: Secondary Market Block Trades
Date | Time | Size (shares) | Value ($M) | Trade Price | Bid | Ask | Impact % | Impact $ | VIX Index |
---|---|---|---|---|---|---|---|---|---|
1/7/2022 | 15:30:51 | 245,000 | $31,426,150 | 128.27 | 128.29 | 128.33 | 0.02% | $0.02 | 18.8 |
5/9/2024 | 13:31:24 | 187,338 | $26,914,850 | 143.67 | 143.67 | 143.73 | 0.00% | $- | 12.7 |
1/21/2022 | 12:20:11 | 223,118 | $27,363,192 | 122.64 | 122.53 | 122.62 | 0.02% | $0.02 | 28.9 |
2/25/2022 | 12:30:30 | 192,554 | $23,143,065 | 120.19 | 120.19 | 120.25 | 0.00% | $- | 27.6 |
2/1/2022 | 13:27:59 | 186,567 | $23,095,129 | 123.79 | 123.74 | 123.79 | 0.00% | $- | 22 |
Source: Virtu/ITG, as of June 30, 2024.
The above is provided for illustrative purposes only. Each client’s circumstances differ and this client’s experience may not be representative of every client’s experience.
QUS: Secondary Market Information
Timeframe | 5 Day | 30 Day | Year-to-Date |
---|---|---|---|
Spreads ($) | 0.10 | 0.08 | 0.07 |
Spreads (%) | 0.07% | 0.06% | 0.06% |
Volume ($) | 3,115,414 | 3,560,553 | 3,700,584 |
Volume (Shares) | 21,097 | 24,334 | 29,272 |
Performance (%) | -0.47% | 1.34% | 36.89% |
Fund Flows ($) | - | (2,350,900) | 82,752,700 |
Secondary-Primary Ratio | 5:1 | 2.6:1 | 3:1 |
Average Premium/Discount (%) | 0.07% | 0.06% | 0.06% |
Source: Bloomberg Finance, L.P., as of June 30, 2024. Past performance is not a reliable indicator of future performance.
Standard Performance Information
Fund Before Tax | As Of |
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Fund Before Tax | As Of |
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With decades of trading experience and a wide variety of pre-trade liquidity analytics tools, the SPDR Sales Execution and Institutional Strategy Team is dedicated to working closely with clients to evaluate ETF liquidity and provide product and trading support.