The case for some low volume
was bolstered a bit on Friday when the
the Wall Street Journal examined the debate
. As has been previously noted,
investors, both professional and retail
, have been reluctant to embrace those ETFs with low average daily
volume numbers due to perceived liquidity risks.
Citing ETF issuer Guggenheim, the Journal only a quarter of the
ETFs on the market today trade over 100,000 per shares today. So
for every SPDR S&P 500 (NYSE:
), PowerShares QQQ (NASDAQ:
) and Vanguard MSCI Emerging Markets ETF (NYSE:
), there are a slew of funds seeing paltry volume on a daily
Of course, and
this point has been previously noted as well
, an ETF's volume is not indicative of its ability to generate
positive returns for investors. Here is just one prime example:
Over the past year, the EGShares India Consumer ETF (NYSE:
) has surged more than 56 percent. INCO's average daily turnover is
just 8,550 shares for the past three months.
Not all ETFs, low volume or otherwise, can be INCO in terms of
performance, but the following group of lightly traded funds have
considerable upside potential for 2013.
Market Vectors Russia Small-Cap ETF (NYSE:
) The Market Vectors Russia Small-Cap ETF trades just about 9,500
shares per day, a far cry from the 4.1 million average for its
large-cap cousin, the Market Vectors Russia ETF (NYSE:
). At this writing late in Friday's trading session, the bid/ask
spread on RSXJ was just three cents, according to Bloomberg data,
and that was with volume in RSXJ below the daily average.
It is possible that is an indication that investors,
particularly those that use limit orders, will not be subjective to
punitively wide bid/ask spreads with RSXJ. As for why RSXJ can move
higher in 2013, there are at least two big reasons. First,
Russian stocks are cheap even by their
of trading at discounts to the broader emerging markets universe.
However, at the end of November, RSXJ had a P/E ratio of 3.4 and a
price-to-book ratio of just 0.8, making the ETF even less expensive
Second, the Russian government is taking steps to open its
economy in a bid to attract more foreign investment. Should those
efforts prove helpful, RSXJ stands to benefit because it offers a
less energy heavy approach to Russia than its large-cap
First Trust US IPO Index Fund (NYSE:
) Apparently, folks prefer trading individual stock IPOs over an
ETF that holds a basket of such stocks because FPX's average daily
turnover is just over 6,900 shares. That has not stopped the fund
from soaring 30.4 percent in the past year.
Investors should note that all not new IPOs, no matter how hot,
find their way into FPX. FPX's "index is a rules based
value-weighted index measuring the average performance of U.S. IPOs
during the first 1000 trading days. Index constituents are selected
based on quantitative initial screens,"
according to First Trust
Home to 100 stocks, including familiar names such as Facebook
), Michael Kors (NYSE:
) and Phillips 66 (NYSE:
), FPX's volume belies its liquidity. The ETF's top-10 holdings
account for about half of the fund's weight and not one of those
names has average daily volume below 1 million shares.
iShares S&P Global Financials Sector Index Fund (NYSE:
) If 100,000 shares is the watermark for what is and is not thinly
traded, than IXG barely qualifies as the latter with average
turnover of almost 96,000 shares per day. If that is enough to
assuage volume fanatics, then IXG's lineup should be. The ETF's
top-10 lineup includes heavily traded fare such as Bank of America
), Citigroup (NYSE:
) and Banco Santander (NYSE:
), indicating that creating and redeeming shares in this ETF is not
a high-risk endeavor.
Even when moving further down IXG's 217-stock lineup, it becomes
clear that essentially all of the ETF's U.S.-listed issues are
heavily traded while the vast majority of the fund's holdings that
are listed in foreign markets also see robust turnover.
With U.S. banks accounting for just 38.5 percent of IXG's
weight, the ETF's ability to repeat or top its 26.5 gain over the
past year will come to just how much help the fund gets from its
Australian, Japanese and European constituents. A spate of dividend
increases and/or share buyback announcements from IXG's Canadian
and U.S. money center bank holdings would constructive as well.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment advice.
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