In a recent post, Thicken My Wallet argued that even though some ETFs may be cheaper, they are thinly traded which means that investors are taking on liquidity risk — the risk that a security cannot be quickly converted to cash. Here are the trading volumes of the Canadian dividend ETFs that were examined in the post:
iShares Dow Jones Canada Select Dividend Index ETF (TSX: XDV): 52,719
Claymore S&P/TSX Canadian Dividend ETF (TSX: CDZ): 56,752
iShares S&P/TSX Equity Income Index ETF (TSX: XEI): 8,234
BMO Canadian Dividend ETF (TSX: ZDV): 1,200
PowerShares Canadian Dividend Index ETF (TSX: PDC): 6,100
Investors should note that unlike a stock, the trading volume an ETF is not a good indication of its liquidity. Instead the liquidity of an ETF depends on the liquidity of the securities that make up an ETF. In Thicken My Wallet’s example of Canadian Dividend ETFs, the underlying securities — dividend paying Canadian stocks — are very liquid securities and the spread and bid/ask sizes reflect this. Here are the bid/asks and sizes of the same Canadian dividend ETFs that I looked up on November 18, 2011:
XDV Bid/Ask 19.63/19.64
Bid Size/Ask Size 1/377
CDZ Bid/Ask 20.91/20.95
Bid Size/Ask Size 233/2
XEI Bid/Ask 18.54/18.56
Bid Size/Ask Size 1/298
ZDV Bid/Ask 14.92/14.95
Bid Size/Ask Size 100/199
PDC Bid/Ask 18.19/18.23
Bid Size/Ask Size 5/105
Though the volume of ZDV is quite low, investors should have no trouble buying or selling the ETF. The bid size is 100, which means that an investor will be able to sell 10,000 shares at $14.92 even though the total volume of ZDV on the same day was only 3,295. Also, an investor will be able to buy 19,900 shares at $14.95.
