Top ETF Gainers And Losers? Not So Fast

August 27, 2014

Apples And Oranges

While the time difference may seem like a small thing, consider that more liquid ETFs on the top-gainers and -losers lists really do reflect moves in overnight prices, since their last price is likely set at the market close. That means the price comparison isn't an apples-to-apples measurement when less liquid ETFs are in the mix.

This phenomenon isn't confined to a one-day lag. Some ETFs go for days without trading, and their last prices can get extremely stale and misleading.

Lastly, performance snapshots for any time period—a month, a year or more—that rely on last price can capture this unwanted effect.

What To Do

The most foolproof way to check for a stale price is to look for the time of the trade on the previous day—or at the start of whatever period you need to accurately establish its changing value.

Those without access to a Bloomberg machine or similar providers can still get a feel for the ETF's liquidity from free sources. An ETF that trades $10 million a day won't have this problem, but one that trades $10,000 a day might.

Typical daily volume for every ETF can be found on Sites like Yahoo Finance list the trading volume day by day. A fund with 100 shares traded for the whole day offers small likelihood that the transaction occurred at 4 p.m. Eastern. Other red flags: extremely wide spreads—as in greater than 1.00 percent or very low assets under management: say, less than $10 million.

Alternatively, you can ignore price altogether and measure performance with the fund's fair value or its net asset value (NAV). Many ETF issuers publish daily NAV series.

Bottom Line

The irony here is that funds flagged as the day's biggest movers are often the sleepiest traders in the ETF realm.

ETFs are great, but savvy investors arm themselves with basic tools on how trading impacts both realized and reported performance.

At the time this article was written, the author held no positions in the security mentioned. Contact Paul Britt at [email protected] or follow him on Twitter @PaulBritt_ETF.


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