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As shown in the table below, 22% of all funds have spreads of below 0.2%; nearly 70% have spreads below 0.5%; and 93% have spreads below 1%. We can make an immediate comparison with Hougan's figures for the U.S. market, which showed that half of U.S. ETFs had spreads below 0.2%, and over 90% had spreads below 0.5%.
| Cost |
% of ETFs |
| spread <0.1% |
10.16% |
| spread <0.2% |
21.90% |
| spread <0.3% |
37.78% |
| spread <0.4% |
58.41% |
| spread <0.5% |
68.89% |
| spread <0.6% |
78.73% |
| spread <0.7% |
83.17% |
| spread <0.8% |
88.57% |
| spread <0.9% |
91.75% |
| spread <1.0% |
92.70% |
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Clearly, on this basis, trading European ETFs is a more costly exercise than trading U.S. funds.
The discrepancy could be explained to some extent by the relative immaturity of the European market, the prevalence of off-exchange trading (and at tighter spreads?) for institutions and maybe by a greater proportion of nonequity and less plain-vanilla funds in Europe that carry higher fees and trading costs.
But even if European dealing spreads are not that high in absolute terms, there is some room for improvement here if retail investors are to get as good a deal as they have in the U.S. market.
To give a bit more flavour to this analysis, let's look at 10 European ETFs with the lowest secondary market spreads and the 10 with the highest spreads, again, using the figures provided by the XTF exchange for Q1 2008.
| Fund |
Spread |
| Lyxor ETF Euro Cash |
0.01% |
| db x-trackers II EONIA TR Index ETF |
0.02% |
| db x-trackers II iBoxx € Sovereigns Eurozone 1-3 TR Index ETF |
0.03% |
| EasyETF S&P GSCI Light Energy Dynamic TR |
0.04% |
| db x-trackers II iBoxx € Sovereigns Eurozone 3-5 TR Index ETF |
0.05% |
| iShares € Government Bond 1-3 |
0.06% |
| iShares € Government Bond 3-5 |
0.06% |
| iShares DAX (DE) |
0.06% |
| Lyxor ETF EuroMTS 1-3Y |
0.06% |
| db x-trackers II iBoxx € Sovereigns Eurozone 5-7 TR Index ETF |
0.07% |
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| Fund |
Spread |
| Market Access DAXglobal Russia Index Fund |
2.63% |
| Market Access DAXglobal Asia Index Fund |
2.43% |
| ETFS Physical Platinum |
2.26% |
| ETFS Cotton |
2.24% |
| ETFS Forward Agriculture DJ-AIGCI-F3 |
2.10% |
| db x-trackers FTSE Vietnam ETF |
1.88% |
| ETFS Forward Softs DJ-AIGCI-F3 |
1.84% |
| ETFS Corn |
1.82% |
| ETFS Forward Grains DJ-AIGCI-F3 |
1.63% |
| iShares DJ China Offshore 50 (DE) |
1.59% |
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With the exception of the iShares DAX ETF, whose dealing spread averages 6 basis points, and one EasyETF commodity fund (an anomalous result?), all of the top 10 cheapest-to-trade European ETFs are fixed-income funds, with two Euro cash ETFs at the top of the list at 1 and 2 basis points between bid and offer, on average.
The top 10 most-expensive-to-trade funds include three emerging market equity ETFs and six ETF securities exchange-traded commodities. Given the relative illiquidity of some of the frontier equity markets and certain commodities, this is unsurprising, but the size of these spreads would make frequent trading punitive.
What about of the most popular ETFs by trading volume? Using the XTF data for Q1 2008, the 10 most actively traded ETFs (average spreads given in parentheses) were: four funds tracking the EURO STOXX 50 index (8, 8, 9 and 11 basis points, respectively); three tracking the German DAX (6, 8 and 10 basis points); one inverse DAX fund (12 basis points); an MDAX ETF (23 basis points); and one ETF tracking the EONIA cash deposit index (2 basis points). So we see, for the most popular funds, bid/offer spreads are minimal indeed.
When it comes to less-traded, and more niche areas of the financial markets, spreads can vary substantially, so it pays to check before choosing an ETF. To take Russian equities as an example, the three different Russian country ETFs listed on the XTF had spreads varying from 46 to 263 basis points, a significant difference indeed.
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