A common myth is that small ETFs, or those with low trading volume are, by definition, illiquid. While the intricacies of true ETF liquidity entails a deeper dive into the underlying securities, the purpose of this post is to simply provide a look at the where some of the most traded ETFs lie. Its important to keep in mind that this data is looking at the past 3 months so some of the trading seen could be a byproduct of what is happening in the broader capital markets.
The reality is that the majority of ETFs on the market are thinly trade and many investors may be restricting themselves and their available options by relying solely on trading volume. If we look the distribution breakdown by average number of shares traded, less than 50% of U.S. listed ETFs trade more than 50,000 shares a day. Many investors may use the 500,000 share threshold as a screen for potential ETFs, but as you can see, that narrows the universe down to only about 13% of the market.
Below is a closer look at the most traded ETF by asset class. Overall, SPY is king but investors (or in this case traders ) sure do love those gold miner ETFs, as 4 of them make the top 15. Notice in fixed income that high yield bond ETFs are at the top, clearly sending a message that investors value the daily liquidity benefits of ETFs for assets classes that may be more difficult to access.