Why don't ETFs adjust their prices when the ASX200 is down?

[Dpkmelb]

Hi, I am trying to buy trade ETFs from past 2 weeks, but even though shares of Asx 200 are prices are down, ETFs not adjusting their prices accordingly. I kind of got a feeling their market prices are not true but made up numbers. And there are not enough etfs with very low volume. The most I saw in market depth are 6 to 8 buyers or sellers at the max. Also I noticed the order I have put in doesn't show up in Market Depth of an etf. Why? To get the false sense of security with the overrated ETFs by paying their fees and commissions, they take all the benefit and pass on the lose change. Is it not better off buying the reliable shares and getting all the good things.

 

[Smurf1976]

Firstly, welcome to ASF!

In answering the question, are you referring to a specific ETF?

An ETF should be following the price of some underlying asset be that a particular group of shares (eg the ASX 200 or the US S&P 500 or some other specified group), gold or whatever so to the extent that the ETF is faulty in some way, it would be if it didn't really follow the price of that underlying asset. Hence the question about specifics.

The one that has come to most attention as being problematic is OOO which is supposed to follow the price of crude oil but hasn't done so too well in recent times.

 

[cutz]

Hi, I am trying to buy trade ETFs from past 2 weeks, but even though shares of Asx 200 are prices are down, ETFs not adjusting their prices accordingly. I kind of got a feeling their market prices are not true but made up numbers. And there are not enough etfs with very low volume. The most I saw in market depth are 6 to 8 buyers or sellers at the max. Also I noticed the order I have put in doesn't show up in Market Depth of an etf. Why? To get the false sense of security with the overrated ETFs by paying their fees and commissions, they take all the benefit and pass on the lose change. Is it not better off buying the reliable shares and getting all the good things.

Hello,

Which ETF's are you referring to ?

Here's a bit of reading explaining the creation / redemption process for equity ETF's.

https://www.etf.com/etf-education-c...s-the-creationredemption-mechanism?nopaging=1

 

[Dpkmelb]

Thanks for the reply Smurf1976, My question was generic, most of the etfs like VHY, RDV, IHD etc are mostly invest in top 20 ASX, As the prices for the banks were down today, i expected that ETF prices will go down accordingly but they were not.

 

[Dpkmelb]

Hello,

Which ETF's are you referring to ?

Here's a bit of reading explaining the creation / redemption process for equity ETF's.

https://www.etf.com/etf-education-c...s-the-creationredemption-mechanism?nopaging=1

Thanks for the link cutz, link doesn't answer my question

 

[cutz]

Thanks for the link cutz, link doesn't answer my question

OK, I can check it out when the market is open.

I'm not familiar with the ETF's you mentioned.

I plugged RDV into my platform, very low volume, I can see how this fund will incur tracking error. I don't think the numbers are made up. I'm no expert on ETF's but I believe you need good liquidity to allow arbitrageurs to drive the ETF price to somewhere near NAV using the creation / redemption process.

Maybe someone could correct me on this.

 

[Dpkmelb]

OK, I can check it out when the market is open.

I'm not familiar with the ETF's you mentioned.

I plugged RDV into my platform, very low volume, I can see how this fund will incur tracking error. I don't think the numbers are made up. I'm no expert on ETF's but I believe you need good liquidity to allow arbitrageurs to drive the ETF price to somewhere near NAV using the creation / redemption process.

Maybe someone could correct me on this.

Thanks Cutz

 

[cutz]

With those exotic ETF's I don't think there's an easy way of comparing the performance to an index, unlike STW which I can easily bring up a chart with a comparison to the ASX 200.

 

[Dpkmelb]

With those exotic ETF's I don't think there's an easy way of comparing the performance to an index, unlike STW which I can easily bring up a chart with a comparison to the ASX 200.

I did not short list STW as after the fee dividends are 5.68%, VAS 5.32%, VHY is 6.82%, IHD is 7.43%, RDV is 8.77% and actively managed. Market Cap for all of them are over 200 million

 

[Dpkmelb]

GEAR 14.26, HVST 11.25 (High dividend ones they don't have capital growth, funds remain the same mostly), May be higher risk.

 

[bluekelah]

Hi, I am trying to buy trade ETFs from past 2 weeks, but even though shares of Asx 200 are prices are down, ETFs not adjusting their prices accordingly. I kind of got a feeling their market prices are not true but made up numbers. And there are not enough etfs with very low volume. The most I saw in market depth are 6 to 8 buyers or sellers at the max. Also I noticed the order I have put in doesn't show up in Market Depth of an etf. Why? To get the false sense of security with the overrated ETFs by paying their fees and commissions, they take all the benefit and pass on the lose change. Is it not better off buying the reliable shares and getting all the good things.

u answered your own question. For ETFs they help the average investor "diversify" easily. However the catch is that during volatile times, u can find that there might be a liquidity problem, as you are now starting to be aware of. Always better off buying the individual stocks if you have enough money and can buy enough volume so commissions make sense.

 

[Garpal Gumnut]

Hello,

Which ETF's are you referring to ?

Here's a bit of reading explaining the creation / redemption process for equity ETF's.

https://www.etf.com/etf-education-c...s-the-creationredemption-mechanism?nopaging=1

After one reads that link one should add one word. "Unless".

gg

 

[InsvestoBoy]

Thanks for the reply Smurf1976, My question was generic, most of the etfs like VHY, RDV, IHD etc are mostly invest in top 20 ASX, As the prices for the banks were down today, i expected that ETF prices will go down accordingly but they were not.

They absolutely were.

Here's the 5 day intraday data of XJO (gray), VHY (blue), RDV (orange), IHD (purple) using 5 min closing prices:

as you can see, VHY which is the most actively traded, tracks XJO pretty much tick for tick.

RDV and IHD are over the shop because the price chart is measuring ticks, i.e. they were not traded actively on those days so the jumps in the lines you see are caused by that. BUT that doesn't mean market makers weren't in the book offering prices that would be equivalent at other times, in fact they were and they are. The chart simply doesn't show the auction book (potential prices) only actual ticks.

The most I saw in market depth are 6 to 8 buyers or sellers at the max.

Market makers offer blocks that would be quickly replenished if anyone took them.

Also I noticed the order I have put in doesn't show up in Market Depth of an etf. Why?

Talk to your broker? Maybe they didn't pass it through?

To get the false sense of security with the overrated ETFs by paying their fees and commissions, they take all the benefit and pass on the lose change.

No.

Is it not better off buying the reliable shares and getting all the good things.

VHY holds 62 different stocks. Unless you are trading very big bucks, the cost of brokerage alone to buy all 62 names is going to probably cost more than you are investing.

 

[InsvestoBoy]

u answered your own question. For ETFs they help the average investor "diversify" easily. However the catch is that during volatile times, u can find that there might be a liquidity problem, as you are now starting to be aware of. Always better off buying the individual stocks if you have enough money and can buy enough volume so commissions make sense.

If the assets underlying the ETF are illiquid then there might be a liquidity problem.

VHY, RDV, IHD, STW, VAS, etc will not have this problem and even in the very unlikely scenario that they do, it's only a problem for you if you are trying to sell at that moment. If you're trying to buy in such a scenario you should be able to get a better price than usual, and if you're not in the market to buy or sell then it doesn't matter one bit.

 

[InsvestoBoy]

I plugged RDV into my platform, very low volume, I can see how this fund will incur tracking error.

There is only tracking error if you count ticks as the only thing that matters. There is no tracking error if you look at the order book.

I'm no expert on ETF's but I believe you need good liquidity to allow arbitrageurs to drive the ETF price to somewhere near NAV using the creation / redemption process.

Maybe someone could correct me on this.

The ETF doesn't need good liquidity. Market makers offer blocks of the ETF at a spread over what they could create or redeem a basket of the underlying shares at. If you go and buy out of their offer they will immediately go bid the underlying to pocket the spread.

 

[cutz]

@InsvestoBoy

Thanks mate, I wasn't quite sure about the finer details.

 

[Dpkmelb]

Thanks InvestoBoy for the detailed reply
Market makers offer blocks that would be quickly replenished if anyone took them.

There are 6 buyers and 6 sellers currently with VHY, Maximum units available to buy 784. What are the Market Makers doing (Online Social Distancing)? Is it possible to buy more than 784 units now. Please check teh attachment

Talk to your broker? Maybe they didn't pass it through?
I am with SelfWealth so can't call them, i can see my orders displayed for other shares, but for some reason they didn't show up for the ETF, i tried it for HVST, but cancelled the order now.

 

[Dpkmelb]

They absolutely were.

Market makers offer blocks that would be quickly replenished if anyone took them.

Is there any Pattern on when these Market makers put the stock to buy.

Is there any Pattern on when these Market makers put the stock to buy.

Talk


OTE]

There is only tracking error if you count ticks as the only thing that matters. There is no tracking error if you look at the order book.



The ETF doesn't need good liquidity. Market makers offer blocks of the ETF at a spread over what they could create or redeem a basket of the underlying shares at. If you go and buy out of their offer they will immediately go bid the underlying to pocket the spread.

Is there any Pattern on when these Market makers put the stock to buy.

 

[InsvestoBoy]

There are 6 buyers and 6 sellers currently with VHY, Maximum units available to buy 784. What are the Market Makers doing (Online Social Distancing)? Is it possible to buy more than 784 units now. Please check teh attachment

You can take the block on offer and buy more when more is offered, or place your own bid for whatever you think is a fair price at whatever size you want. If it's reasonable someone will definitely come along and sell to you.

Talk to your broker? Maybe they didn't pass it through?
I am with SelfWealth so can't call them, i can see my orders displayed for other shares, but for some reason they didn't show up for the ETF, i tried it for HVST, but cancelled the order now.

They might be matching the order internally against one of their other customers without routing it to the exchange? This is nothing to do with the ETF and everything to do with your broker.

Is there any Pattern on when these Market makers put the stock to buy.

They're tracking the auction for all the underlying stocks and bidding/offering based on what they think they can get in the underlying plus a spread.

 

[Dpkmelb]

You can take the block on offer and buy more when more is offered, or place your own bid for whatever you think is a fair price at whatever size you want. If it's reasonable someone will definitely come along and sell to you.



They might be matching the order internally against one of their other customers without routing it to the exchange? This is nothing to do with the ETF and everything to do with your broker.



They're tracking the auction for all the underlying stocks and bidding/offering based on what they think they can get in the underlying plus a spread.

Thanks InsvestoBoy for your valuable information