The trading "side" of ETPs (an acronym that encompasses the different types of listed replicants) is increasingly popular with investors, especially the British, Germans and Italians. According to iShares statistics, in 2012 average daily volumes were $731 million in London, $714,1 million in Frankfurt and $306,2 million in Milan.
The data, explains Leland Clemons, head of Capital markets at iShares, reflect the growing appetite for these instruments by managers in particular, including hedge funds, financial advisors, particularly in the United Kingdom, and individuals.
Portfolio tactics
ETPs are increasingly used for the "tactical" part of the portfolio, ie for the component that is most active with the aim of capturing certain market situations and having exposure to specific asset classes such as emerging countries. As Morningstar analyst Gordon Rose explains, when trading it is important to understand the costs, including the hidden ones, and get the best possible transaction.
In fact, costs are not only influenced by the prices of the underlying assets, but also by other factors such as expenses and taxes on securities, the mechanism for creating and redeeming units and market activity. For Clemons, it is important that the issuer works to minimize these costs and helps the investor understand how best to transact.
One way are the so-called "limit orders", which consist in indicating a precise price at which you want to sell or buy an ETF. They are especially useful when trading instruments with little liquidity or with wide spreads (difference between the purchase and sale price).
National barriers
The "fee war" being waged in the industry, then, is only part of the ETF cost problem. Narrowing spreads, tax and transaction efficiency are other important aspects of lowering the overall burden of owning a replicant. A big step forward would be the possibility for investors to buy ETFs in the market where they are more liquid, but in Europe the obstacles are still too many. In particular, the barriers of national borders are practically insurmountable for private individuals, to whom Clemons suggests, however, to pay attention to how the order is entered in order to minimize transaction costs. A great help comes from the reporting of issuers on volumes and spreads available on most institutional sites.
