'Poor execution strategies' cost ETFs $1.7bn in rebalancing costs

56% of US ETFs

James Baxter-Derrington
clock • 2 min read

Predictable rebalancing strategies that can be front run by informed traders are costing ETFs $1.7bn, an issue that can be tempered with “not-so-complex execution strategies”.

According to academic research by Sida Li, ‘sunshine ETFs', those which make no attempt to hide either when or what they trade, pay 67 basis points in execution costs, compared with those that mask either the trading dates or targets, which pay 33-37bps per trade. For a $2m retirement account that accrues over the course of 30 years, these inefficiencies would cost the individual $29,000 at the point of retirement. The research analysed US ETFs tracking US equity indices and found that a majority of these (56%) fall under the sunshine banner, which allows traders to take advantage of ...

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