State Street Global Advisors (SSGA), the asset management firm behind the SPDR range of ETFs, has launched a new initiative aimed at educating investors about the importance of ETF liquidity.

SSGA has launched an initiative aimed at educating investors about the importance of ETF liquidity.

The program includes thought leadership, social media promotion, and advertising, and is expected to run across the US through the fourth quarter of 2019.

The first phase of the initiative will focus on generating greater awareness of the importance of liquidity and the impact it can have on trading costs.

“We want investors to understand that liquidity attributes can have a significant impact on the total cost of ownership, even though expense ratio is frequently emphasized,” said Sue Thompson, Head of SPDR Americas Distribution for State Street Global Advisors.

“As a leader in ETF liquidity, our strategy is to help investors make more informed investment decisions based on our deep expertise,” added Stephen Tisdalle, Chief Marketing Officer of State Street Global Advisors. “This initiative will educate investors on how their actual portfolio costs can shift during periods of volatility and feature the ways investors are incorporating liquidity analysis into their strategies.”

Liquidity’s impact on total ETF costs

SSGA provides an example that demonstrates how the liquidity profile of an ETF can dramatically affect the total cost of an investment strategy over a one-year period.

The table below refers to a sector rotation strategy and illustrates how an ETF with a higher expense ratio can be a more cost-effective option after accounting for trading costs. The less liquid, lower fee fund actually ends up being 73% more expensive than the more liquid, higher expense ratio sector ETF after a full year.

Source: SSGA.

Matthew Bartolini, Head of SPDR Americas Research for State Street Global Advisors, said, “Depending on your rebalancing frequency, trading costs can significantly accumulate and have a larger impact on the total cost of ownership than any expense ratio difference between two ETFs. This underscores why liquidity analysis has to be a part of any due diligence process prior to implementation.”