Why Did Your ETF Reverse Split?

November 14, 2014

Share Price $11.77 $54.36
Number of Shares/$1M 84,962 18,396
Round-trip Commissions $850 $184
Round-trip Spreads $1,699 $368
Total Cost $2,549 $552
… as % of trade 0.25% 0.06%






You can argue with my assumptions all you like—you can argue that you should only be a tenth of a penny a share, or that you can negotiate under a penny on the spreads. Whichever numbers you crunch, the math ends up being the same: DXJ ends up looking a lot less expensive to trade.

There are some other ETF nuances here too: DXJ has a creation-basket size of 50,000 shares, or $2.7 million. EWJ has a 600,000-share creation basket, or $7 million. In a less liquid ETF, those might make these two funds have significantly different premiums and discounts during volatile periods. In this case, both funds trade like water, so it’s less relevant.

Handle Is A Choice

The takeaway here is that ETF issuers get to choose how they want their ETFs to trade:

  • You want tight trading to adhere to fair value? Keep your basket size low.
  • You want to attract daily volume from institutions? Keep your handle size high.
  • You want a lot of allocations from mom-and-pop investors? Maybe the lower handle will net you a bit more marginal flow.

There’s no magically correct answer here. It’s a choice. Luckily, there are so many ETFs covering every corner of the market, chances are you get to make a choice too.

At the time this article was written, the author held no positions in the securities mentioned. You can reach Dave Nadig at [email protected], or on Twitter @DaveNadig.

Find your next ETF

Reset All