Want To Grow? Keep ETF Share Price Low

July 15, 2015

It’s not unheard of to see ETF issuers forward-split shares of their ETFs in an effort to increase the number of shares outstanding and lower the price-per-share of their funds.

In fact, just last May, ProShares did that to 12 of its ETFs, cutting the price tag on those strategies by half and doubling the number of shares in the market.

 

But a look at recent asset flows would suggest that perhaps ETF issuers ought to be doing more share splits if they want their businesses to keep growing. Investors apparently like to buy ETFs with lower strike prices if they have that option.

Share Prices Can Matter

Consider that, year-to-date, the 10 ETFs with the largest net inflows by and large have lower share prices than the largest ETFs in the market today, Nick Colas, chief market strategist at Convergex, a global brokerage company based in New York, said in a commentary.

 

These funds cost on average half the share price of the 10 largest ETFs by assets—$65 a share versus $120 a share—and they have attracted some $56.7 billion, or 47 percent of all fresh cash into U.S.-listed ETFs this year, he says.

 

“Looking through the two ‘Top 10’ lists, it is easy to see why,” Colas said, noting that among the largest ETFs by total assets, two funds—the SPDR S&P 500 (SPY | A-99) and the iShares Core S&P 500 ETF (IVV | A-99)—cost more than $200 a share, and five of them cost more than $100 a share.

 

“ETF sponsors should consider stock splits, as some individual companies are now doing,” he added. “Want to grow? Keep your prices low. Many retail investors do still like the notion of buying a round lot of a 100 shares, and the ETFs, with lower prices do seem to have gathered more in new assets this year than the largest funds.”

 

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