Five Most Liquid ETFs of 2014


Though ETFs have been gaining immense popularity in recent years courtesy of their cost effectiveness, transparency, flexibility and tax efficiency, there are still a few misconceptions about the liquidity of the products. Generally, investors seek to trade in liquid ETFs that can easily be purchased and sold on the market without affecting their market price.

Volume, or the number of shares traded in a particular period, is definitely the most important consideration for determining the liquidity of a particular fund. Higher number of shares trading in a particular fund provides easy access to move in and out of that product, keeping bid/ask spreads tight.

However, this is not the only case for the ETF. ETF volume is also dependent on its underlying holdings for its actual liquidity. This is especially true as authorized participants (AP) have the ability to step in and create new baskets of ETF shares or trade in ETF shares for underlying securities when required. This phenomenon allows ETFs to often trade quite close to their net asset value (NAV).

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Thus, when ETF prices are too high compared to the NAV, AP creates more ETF baskets. On the other hand, when the ETF prices are below NAV, the shares are traded by AP for the underlying securities (see: all the Category ETFs here).

Given these two factors, we have highlighted five ETFs that could be excellent choices in the liquid ETF world. These funds not only saw the highest trading but also are the top five volume leaders from the year-to-date look as per the


This is the most popular and highly traded ETF with AUM of about $157.1 billion and average daily volume of $20.48 billion. In fact, SPY is leading the space with the highest trading volume of $954.7 billion so far this year. This is the low cost choice, charging just 9 bps in annual fees.

The fund tracks the S&P 500 index, holding 503 stocks in its basket. It is widely spread across a number of securities as none holds more than 2.9% of total assets. Sector wise, the product is widely spread out as well with information technology, financials, health care, consumer discretionary, industrials and energy accounting for double-digit allocation (read: 3 Pharma ETFs Beating the Market).

The ETF added nearly 1.5% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with ‘Medium’ risk outlook.

iShares Russell 2000 ETF (IWM)

The second largest volume leader is IWM, which exchanged $206.8 billion in total shares year-to-date. This is the largest and most popular in the small cap space having nearly $26.9 billion in its asset base and $4.3 billion in average daily volume. The fund follows the Russell 2000 Index and charges 25 bps in annual fees and expenses.

Holding 1,989 stocks, the product is well diversified across each security as none holds more than 0.44% of total assets. However, it is slightly tilted toward financials with nearly one-fourth share while technology, healthcare and producer durables round off to the top four.

The ETF is up nearly 4% so far this year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with ‘Low’ risk outlook.

PowerShares QQQ (QQQ)

This product provides exposure to 100 largest domestic and international companies excluding financial stocks by tracking the Nasdaq-100 Index. The top three holdings – Apple (AAPL), Google (GOOG) and Microsoft (MSFT) – make up for a combined 27.3% of total assets (read: 3 ETFs in Focus on Apple Earnings Results).

Nearly three-fifths of the portfolio is dominated by information technology while consumer discretionary and healthcare round off to the top three. QQQ trades in average daily volume of $2.77 billion shares, making year-to-date volume of $142.51 billion shares. The fund has amassed $47.2 billion in its asset base and charges 0.20% in annual fees.

The fund added 3.5% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with ‘High’ risk outlook.

iShares MSCI Emerging Markets ETF (EEM)

This fund targets emerging markets and follows the MSCI Emerging Markets Index. The ETF has managed assets over $30.2 billion and trades in average volume of $2.82 billion per day. So far this year, the product has exchanged a total of $135.1 billion shares. Expense ratio came in at 0.67%.

The fund holds 825 securities in its basket that are widely spread out across each component. None of these accounts for more than 3.71%. Financials takes the top spot in terms of sector, followed by information technology and energy. The ETF lost nearly 5.6% year-to-date and has a Zacks ETF Rank of 3 or ‘Hold’ rating (read: Emerging Market ETFs: Any Bright Spots?).

iPath S&P 500 VIX Short-Term Futures ETN (VXX)

This is the popular ETN providing exposure to short-term equity market volatility by following the S&P 500 VIX Short-Term Futures Index Total Return with the help of the CBOE Volatility Index futures contracts. This product has nearly $980.6 million in assets under management and it sees an average daily volume of over 1.13 billion shares. Year-to-date volume comes in at impressive $71 billion while expense ratio is little higher at 0.89%. The ETN is up 1.53% year-to-date.

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ISHARS-R 2000 (IWM): ETF Research Reports

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