Splitting Image

June 12, 2005

A baker’s dozen of ETFs have split their stocks in recent days.

In a sign of the growing maturity of the exchange-traded fund (ETF) industry, thirteen funds have announced "share splits" designed to lower the dollar cost of buying shares in recent weeks.

ETF-leader Barclays Global Investors (BGI) got things kicked off in late May by announcing plans to split the shares of twelve of its popular ETFs.  For the most part, these twelve funds have been around for a few years, and the strong bull market since 2002 has raised the dollar cost of each ETF share to between $130 and $210.

BGI was mum on the reason for the share split, but one can assume that they made the change for the same reason individual companies split there shares: To lower the price point to a more appetizing level and make it easier for individual investors to buy round lots (100 shares) of each fund [1].  With share prices ranging up to $210+/share, a round lot of these iShares would cost an investor as much as $21,000+.  By splitting shares so that the price falls into $40-$70 range, that cost is reduced to a more manageable $4,000-$7,000.  It may also "feel" better for investors to pay less on a per share, and brokers working on a per share commission basis benefit as well.

State Street Global Advisors (SSgA) joined BGI on June 1 by announcing a three-for-one split of its SPDR O-Strip ETF.  That fund tracks the S&P O-Strip Index, which holds all of the stocks in the S&P 500 that are listed on the Nasdaq Stock Exchange.  The fund is used (and targeted) primarily at institutional investors looking to quickly buy all of the companies in the S&P 500.  NYSE-listed stocks can be bought via program trading, but previously, Nasdaq-listed stock had to be bought one at a time; with the O-Strip, all of the stocks can be bought with two clicks of the mouse.

What's odd about the O-Strip split is that, unlike the iShares, the O-Strip ETF is a relatively new product, launched in September of last year.  The share price of the ETF hasn't really moved, either - it's crept up from about $145/share to about $155/share.

So why does SSgA want to split the stock?  It's not immediately clear.  Targeted at the institutional marketplace, it's not clear why the dollar count should be a big question.  One possible reason is that the split will immediately triple the volume for the fund, which currently averages just 25,000 shares/day: Extra volume means extra attention, and in a sense, extra liquidity.  It also means, as mentioned above, greated commissions for per-share commission brokers.

Most ETF providers target the $40 range as the "perfect" trading range for their products. Expect more share splits in the future as the share price of others ETFs continue to climb.

iShares Splits, Effective June 8, 2005



Split Ratio

MSCI Emerging Markets Index Fund



Russell 2000 Value Index Fund



S&P SmallCap 600 Index Fund



MSCI EAFE Index Fund



Goldman Sachs Natural Resources Index Fund



S&P MidCap 400/Barra Growth Index Fund



S&P MidCap 400 Index Fund



S&P MidCap 400/Barra Value Index Fund



Russell 2000 Index Fund



Cohen & Steers Realty Majors Index Fund



S&P SmallCap 600/Barra Value Index Fund



Dow Jones U.S. Real Estate Index Fund





[1] .  For a variety of reasons, orders for "round lots" of shares used to be cheaper to execute than orders for "odd lots," although today's computer-based trading has largely solved the problem. Still, the vestige of this historical anomoly lingers today, and many traders are uncomfortable ordering fewer than 100 shares.

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