How to tell liquidity and dividend yield of ETFs?

[OpenMind]

Hi everyone

With the GFC in the mirror and not taking advantage of it and now a recent dip,
I've finally got some moolah and education to get exposed to share market

being a conservative, approach was to invest into an ETF or 2 long-term (20+ years)and take direct holdings in shares if see opportunities

I've researched index funds vs ETFs
and I'm leaning towards ETFs now

Just have 2 questions which I tried to find online but to no avail:

Any help / references would be much appreciated

Q1:
How to tell the liquidity of an ETF?
ie if have to sell for whatever reason, don't want to be left on stranded
is there a place on ASX where can tell or is there a number/ratio?

I know I can look up the ASX code (eg. STW)
and it gives me the volume

Just not sure what the volume means in the scheme of things

Q2:
Where can we find the dividend yield of the EFT?

Your help/guidance is much appreciated

 

[Julia]

The following is simply copied from the Etrade website for STW:

Income Company Market Sector
Dividend 3.4% 5.7% 6.4%
Franking 64.9%
Tax adj 2.4% 4.3% 5.1%
Stability 91.1% 0.0% 92.7%

 

[skc]

Q1:
How to tell the liquidity of an ETF?
ie if have to sell for whatever reason, don't want to be left on stranded
is there a place on ASX where can tell or is there a number/ratio?

I know I can look up the ASX code (eg. STW)
and it gives me the volume

Just not sure what the volume means in the scheme of things

Volume means how many shares of the ETF went through in that day. A small volume means low liquidity. You want big volume so you can easily sell your holding at a time of your own choosing.

You might be able to get some data and work out the average daily volume over a month etc.

Some people suggest minimum daily volume to be say 10x your holding size. You might choose a bigger and smaller number to suit your own requirement.

Another thing to appreciate is the spread - has STW got a wide or narrow spread? If you don't understand what bid/ask spread is then look it up.

Lastly, the benefits of an index ETF (as opposed to traditional index fund) is that you can trade anytime during the day while the downside is that you pay brokerage commission every time you buy and sell. If you are doing so in small parcels the commission costs can be significant.

Good luck.

 

[craft]

How to tell the liquidity of an ETF

There are authorised market makers for STW (similar for most ETF’s) who arbitrage the difference between the price and the underlying NAV. Push the spread a little and you should find unlimited liquidity. How robust the process is during turmoil is potentially another question, I suspect attracting the liquidity may require transactions a little further from the NAV.

 

[Bill M]

Q1:
How to tell the liquidity of an ETF?
ie if have to sell for whatever reason, don't want to be left on stranded
is there a place on ASX where can tell or is there a number/ratio?

Hi and welcome to the forum OpenMind. I am an investor of ETF's. You should read the individual ETF's suppliers guide first. What I look for is a 'Market Maker" facility. A Market Maker is usually a bank and their job is to supply a sell parcel and a buy parcel. For example, when no punters are buying or selling you will usually see a parcel for sale of say 5,000 shares and a parcel to buy of 5,000 shares. The spread is about 10c apart give or take. Those parcels are offered by the Market Maker and the spreads are where they make their money. They are suppose to supply the market so you can sell if need be. So make sure there is a market maker facility with your ETF.

Q2:
Where can we find the dividend yield of the EFT

?

Sometimes with some brokers they do not state the dividend, in this case I work it out myself. It is a simple calculation. Easiest way I do it is divide $10,000 by the price of the ETF. That will give you the amount of shares you can buy for 10k in that ETF. Then go to Comsec or your brokers site and add up all the dividends for the last 12 Months. Then times that amount by the amount of shares in your first calculation and that will give you a percentage as the dividend (just adjust the decimal point). Make sure the ETF has a 12 Month history and count only the dividends for that 12 Month period. Past dividends do not necessarily mean future dividends will be the same either. In a bad deteriorating economy dividends can go down, in a booming economy with higher profits dividends might go up. Hope that helps a bit.

 

[davede]

Good to hear you're taking a long term investment view.

Have traded in and out of STW for years and never faced any liquidity problems.

It is one of the largest ETFs and most actively traded securities on the ASX.

Just to clarify about market makers. The ASX rules state that there must be a market maker for ETFs (and other securities) trading on the ASX. So I wouldn't necessarily worry about reading the ETF providers PDS to solely check for market maker facilities.

I would however read their PDS to get a better understanding of their product.

 

[OpenMind]

The following is simply copied from the Etrade website for STW:

Thanks Julia

I need to read up on what the Tax Adj & Stability figures mean

 

[OpenMind]

You might be able to get some data and work out the average daily volume over a month etc.

Some people suggest minimum daily volume to be say 10x your holding size. You might choose a bigger and smaller number to suit your own requirement.

Thanks for that SKC

I needed that ballrange figure of eg. 10x holding size to put the numbers into perpsective and understand what they mean

 

[OpenMind]

Hi and welcome to the forum OpenMind. I am an investor of ETF's. You should read the individual ETF's suppliers guide first. What I look for is a 'Market Maker" facility. A Market Maker is usually a bank and their job is to supply a sell parcel and a buy parcel. For example, when no punters are buying or selling you will usually see a parcel for sale of say 5,000 shares and a parcel to buy of 5,000 shares. The spread is about 10c apart give or take. Those parcels are offered by the Market Maker and the spreads are where they make their money. They are suppose to supply the market so you can sell if need be. So make sure there is a market maker facility with your ETF.

?

Sometimes with some brokers they do not state the dividend, in this case I work it out myself. It is a simple calculation. Easiest way I do it is divide $10,000 by the price of the ETF. That will give you the amount of shares you can buy for 10k in that ETF. Then go to Comsec or your brokers site and add up all the dividends for the last 12 Months. Then times that amount by the amount of shares in your first calculation and that will give you a percentage as the dividend (just adjust the decimal point). Make sure the ETF has a 12 Month history and count only the dividends for that 12 Month period. Past dividends do not necessarily mean future dividends will be the same either. In a bad deteriorating economy dividends can go down, in a booming economy with higher profits dividends might go up. Hope that helps a bit.

Thanks for the welcome Bill M

I really appreciate the feedeback from you and everyone else giving pointers

Q: so with the Market Makers, does that mean an ETF would definitely be liquid?

It's just boils down to how much the Market Makers make on the spread difference then correct?

Re Dividends, if I understand you correctly
all up all the interim dividends and final dividend to give TOTAL dividend for year, yes?

Many thanks again

 

[OpenMind]

Good to hear you're taking a long term investment view.

Have traded in and out of STW for years and never faced any liquidity problems.

It is one of the largest ETFs and most actively traded securities on the ASX.

Just to clarify about market makers. The ASX rules state that there must be a market maker for ETFs (and other securities) trading on the ASX. So I wouldn't necessarily worry about reading the ETF providers PDS to solely check for market maker facilities.

I would however read their PDS to get a better understanding of their product.

Thanks for the reassurance Davede

I guess I've learnt all the "Get rich quick" schemes aren't for me.

I'm not detailed enough to do intrinsic valuation etc like Buffet
and
don't have the confidence (read balls) to trade with shares and derivatives

Thought I'd best stick to what I enjoy most which is marketing and business

and just invest passively in companies (or sectors) which add value to people's lives


Re: ETF size and activeness of trading, how does one tell?
I looked at the ASX listing of available ETFs (30+) and wasn't sure which was reliable or not...

I would however read their PDS to get a better understanding of their product.

I'm a little unclear - what should I be looking for through the PDS specifically aside from percentage of share holdings in X,Y, Z companies?

Thanks again

 

[So_Cynical]

Q: so with the Market Makers, does that mean an ETF would definitely be liquid?

100% liquid if your selling at market.

Re Dividends, if I understand you correctly
all up all the interim dividends and final dividend to give TOTAL dividend for year, yes

Correct...then just calculate what percentage of the current SP the dividend makes up to get your yield.

 

[davede]

I'm a little unclear - what should I be looking for through the PDS specifically aside from percentage of share holdings in X,Y, Z companies?

Thanks again

No worries.

I don't look for anything specific. There are just details I learn about how the product operates e.g. the market maker rule. I've looked more closely at the PDS' for Gold ETFs as there was a new entrant in the Gold ETF market this year which provided a hedge against AUD/USD movements, so I was curious to understand a little more about that before putting my money in.