Big Trade On iShares ETF Proves Liquidity

June 10, 2014

How did such a massive block of HEWG trade without a hitch?

A few months ago, I blogged about the unique structure behind iShares’ new suite of currency-hedged ETFs, which is designed to boost liquidity and to lower overall costs.

In short, the new products use other blockbuster iShares ETFs as their sole holding, with a simple forward currency contract overlay to neutralize currency exposure.

It looks like the iShares Currency Hedged MSCI Germany ETF (HEWG) just pulled off a massive trade that pretty much sums up just how efficient this structure is.

On May 22, HEWG traded 1.88 million shares, amounting to roughly $46.6 million. Prior to that day, HEWG averaged only 383 shares traded a day. To put the large trade into perspective relative to average volume before the trade, the big trade amounted to roughly 4,900 percent of the fund’s average daily volume up to that point!

In fact, since its launch on Jan. 31, 2014, HEWG has seen more days with zero trading activity than not. According to our Analytics data, even after this monster trade, HEWG’s median daily dollar volume still remains zero. This means that on more than half of the past 45 trading days, HEWG had no trade executions.

Normally for a fund this “illiquid,” you wouldn’t only expect massively wide spreads, but also complexities around executing such a large order without impacting the market and incurring costs.

Yet if you look at the tape, what’s remarkable is that a massive block of shares (1.585 million) was executed at the offer (3 cent spreads) with no market impact.

HEWG Quote Recap

Source: Bloomberg

Based on our Fund Flows tool, you can see a massive inflow of $48 million on May 27 (remember T+3 trade settlement). So, clearly, this trade was a buy order, likely from one or a select few institutions.


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