Insights

Optimizing Trade Execution for ETFs of All Levels of Liquidity

The liquidity of the SPDR® S&P 500® ETF (SPY) sets the benchmark of implementation flexibility for a wide array of trading strategies. Trading less liquid ETFs efficiently often requires more attention to the details.

January 28, 2025 6 min read

Bradley E Kotler

Fixed Income ETF Sales and Analytics

Antonio Avila

Exchange traded funds (ETFs) are known for their tradability. With more than $1.7T in secondary market notional volume in the fourth quarter of 2024 — more than the next five most actively traded ETFs combined — the robust liquidity of the SPDR® S&P 500 ETF (SPY) sets the benchmark of implementation flexibility for a wide array of trading strategies.¹

Yet with 89% of all US-listed ETFs trading less than $25M per day, on average during Q4 of 2024,² we’re mindful that trading the vast majority of less liquid ETFs efficiently can take a little more attention. We’re here to help.

As a liquidity leader, SPDR ETFs accounted for 28.8% of all notional trading volume of US-listed ETFs in Q4 of 2024.³ The SPDR Execution Strategy and Analytics team is a dedicated group of capital markets professionals focused on providing resources to help assess ETF liquidity and evaluate different execution strategies for the entire range of SPDR ETFs.

Determining Execution Objectives — One Size Does Not Fit All

As the number of ETFs in the marketplace has grown, investors have increasingly dedicated resources to evaluating ETF liquidity as a key component of their total cost of ownership (TCO). For all SPDR ETFs, our SPDR Execution Strategy and Analytics team can help you evaluate different execution strategies with the goal of optimizing investment objectives and TCO. The SPDR Execution Strategy and Analytics Team can help assess:

Execution priorities

How does the client define best execution?
How does the client benchmark their execution quality and costs?
What is the timeframe/urgency for execution?
What order types are available to the person executing the trade?

Trade considerations

Is the creation/redemption window open?
Based on trade details and objectives, which is the correct type of order to use?
Is the trade of a social size, or is it outsized in comparison with the ETF’s historical average volumes?
What is the trade size relative to the underlying market?
Are the underlying constituents open to trade due to local market hours or holidays?

Market environment

Is the market trading in an orderly fashion (i.e., volatility halts)?
Is the average daily volume (ADV) drastically higher/lower than normal?
Is the ETF’s bid/ask wider than usual?
Is there currently an outsized premium/discount?

Match Execution Strategies with Portfolio Objectives

ETF secondary trading volume is often the first measure of ETF liquidity. However, investors with larger order sizes can source liquidity not displayed on the screen from liquidity providers. ETFs are at least as liquid as their underlying constituents at any given point in time. With ETFs representing a multitude of asset classes, geographies, sectors, and styles, the SPDR team is available to navigate different market environments and volatility regimes to properly evaluate execution strategies and meet your objectives.

Execution Strategy	Description	High Urgency	Market Impact Sensitivity	Time Risk	Anonymity
Risk Trade	Client received price for the entire trade at once, and the liquidity provider takes on the risk of managing the result position. Liquidity providers can be put in competition for the trade, allowing for a clear measure of best execution. Client generally benchmarks vs. the quoted NBBO.	Yes
NAV Trade	Trade executed by buying or selling the underlying basket of securities and subsequently creating/redeeming ETF shares. The client typically receives a price reflective of executions for the underlying basket of securities plus or minus creation/redemption costs. Client generally benchmarks vs. end of day NAV.		Yes	Yes
Worked Order	Electronic order types using automated preprogrammed trading instructions. Orders can be measured relative to execution benchmarks based on volume, time or other metrics. Can be applied to both trading in the secondary market or trading the basket.		Yes	Yes	Yes

Trading the SPDR® MSCI USA StrategicFactors℠ ETF (QUS)

The SPDR® MSCI USA StrategicFactors℠ ETF (QUS) seeks to track the MSCI USA Factor Mix A-Series Capped Index, a Smart Beta index that blends low volatility, quality, and value exposures together in a single strategy and bridges the gap between active and passive management. As a result, QUS provides an opportunity for investors to rethink exposures and potentially maximize risk-adjusted returns more efficiently. The fund averaged roughly $3.4M in secondary notional value over the last 30 days, as of December 31, 2024.⁴

Investors seeking to trade orders of $15M–30M would represent a significant portion of the secondary volume but may consider trading the ETF on risk with a liquidity provider.

Let’s walk through execution considerations:

Execution Priority Trade Strategies: Can be developed to best align with the client’s execution priorities including cost, immediacy of trade, and anonymity.
Trade Considerations: The order size represents a large percentage of QUS’s secondary trading volume, but a small percentage of the underlying basket volumes. The 30-day average daily aggregate volume of QUS’s underlying securities was more than $374B.⁵
Market Environment: Is there news or are there macro-related headlines that may impact market volatility or cause uncertainty for liquidity providers? The chart below shows the impact volatility had on QUS’s bid/ask spread.

Secondary Market Block Trades:

We can see in the chart below that risk trades in the $10M–40M range have occurred in QUS as investors have sourced liquidity from providers. Each example should be evaluated independently, as time of day and market environment can impact relative pricing. However, these block trades should serve as helpful historical examples of risk trades executed during different market environments.

On January 7, 2022, a client bought approximately $31.4M of QUS. At the time that the trade took place, the market was 128.29/128.33. For reference, the VIX Index was priced 18.8 at the time of the trade.

The client received an execution price equal to the national best bid/offer (NBBO) on the trade, implying 1.6bps of impact.
This trade was 3.7 times the fund’s Q1 2022 average value traded.

Figure 3: QUS's Secondary Market Block Trades

Date	Time	Size (shares)	Value ($M)	Trade Price	Bid	Ask	Impact %	Impact $	VIX Index
1/7/2022	15:30:51	245,000	$31,426,150	128.27	128.29	128.33	0.02%	$0.02	18.8
5/9/2024	13:31:24	187,338	$26,914,850	143.67	143.67	143.73	0.00%	$-	12.7
1/21/2022	12:20:11	223,118	$27,363,192	122.64	122.53	122.62	0.02%	$0.02	28.9
2/25/2022	12:30:30	192,554	$23,143,065	120.19	120.19	120.25	0.00%	$-	27.6
2/1/2022	13:27:59	186,567	$23,095,129	123.79	123.74	123.79	0.00%	$-	22.0

Source: Virtu/ITG, as of October 3, 2024.

The above is provided for illustrative purposes only. Each client’s circumstances differ and this client’s experience may not be representative of every client’s experience.

Figure 4: QUS's Secondary Market Information

Timeframe	5 Day	30 Day	Year-to-Date
Spreads ($)	0.14	0.13	0.10
Spreads (%)	0.09%	0.08%	0.06%
Volume ($)	3,006,336	3,442,591	3,663,183
Volume (Shares)	19,270	21,472	24,968
Performance (%)	-1.79%	-1.80%	19.03%
Fund Flows ($)	-	(1,032,200)	95,142,300
Secondary-Primary Ratio	5:1	2.6:1	3:1
Average Premium/Discount (%)	0.09%	0.08%	0.06%

Source: Bloomberg Finance, L.P., as of December 31, 2024. Past performance is not a reliable indicator of future performance.

Figure 5: Standard Performance Information

QUSSPDR® MSCI USA StrategicFactors℠ ETF

Fund Before Tax	As Of	1 Month	QTD	YTD	1 Year	3 Year	5 Year	10 Year	Since Inception Apr 15 2015
NAV	Feb 28 2025	0.68%	4.57%	4.57%	16.89%	12.34%	15.06%	-	12.56%
Market Value	Feb 28 2025	0.68%	4.54%	4.54%	16.95%	12.35%	15.03%	-	12.56%

Fund Before Tax	As Of	1 Month	QTD	YTD	1 Year	3 Year	5 Year	10 Year	Since Inception Apr 15 2015
NAV	Dec 31 2024	-4.65%	-0.90%	18.96%	18.96%	7.57%	12.11%	-	12.27%
Market Value	Dec 31 2024	-4.64%	-0.86%	18.94%	18.94%	7.57%	12.13%	-	12.27%

View Fund Details

Past performance is not a reliable indicator of future performance. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted. Performance of an index is not illustrative of any particular investment. All results are historical and assume the reinvestment of dividends and capital gains. It is not possible to invest directly in an index.

Performance returns for periods of less than one year are not annualized. Performance is shown net of fees.

Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable.

The market price used to calculate the Market Value return is the midpoint between the highest bid and the lowest offer on the exchange on which the shares of the Fund are listed for trading, as of the time that the Fund's NAV is calculated. If you trade your shares at another time, your return may differ.

Gross Expense Ratio: 0.15%

Rely on the Expertise of the Liquidity Leader

With decades of trading experience and a wide variety of pre-trade liquidity analytics tools, the SPDR Execution Strategy and Analytics team is dedicated to working closely with clients to evaluate ETF liquidity and provide product and trading support.

Footnotes

Glossary

Disclosures

This communication is not intended to be an investment recommendation or investment advice and should not be relied upon as such.

The views expressed in this material are the views of the SPDR Execution Strategy and Analytics Team through the period ended December 31, 2024 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Past performance is not a reliable indicator of future performance.

All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without State Street Global Advisors’ express written consent.

The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.

Investing involves risk including the risk of loss of principal.

Diversification does not ensure a profit or guarantee against loss.

In general ETFs can be expected to move up or down in value with the value of the applicable index. Although ETF shares may be bought and sold on the exchange through any brokerage account, ETF shares are not individually redeemable from the Fund. Investors may acquire ETFs and tender them for redemption through the Fund in Creation Unit Aggregations only. Please see the prospectus for more details.

Equity securities may fluctuate in value and can decline significantly in response to the activities of individual companies and general market and economic conditions.

A “value” style of investing emphasizes undervalued companies with characteristics for improved valuations. This style of investing is subject to the risk that the valuations never improve or that the returns on “value” equity securities are less than returns on other styles of investing or the overall stock market.

Although subject to the risks of common stocks, low volatility stocks are seen as having a lower risk profile than the overall markets. However, a fund that invests in low volatility stocks may not produce investment exposure that has lower variability to changes in such stocks’ price levels.

A “quality” style of investing emphasizes companies with high returns, stable earnings, and low financial leverage. This style of investing is subject to the risk that the past performance of these companies does not continue or that the returns on “quality” equity securities are less than returns on other styles of investing or the overall stock market.

Passively managed funds invest by sampling the index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index.

The Fund is classified as “diversified” under the Investment Company Act of 1940, as amended (the “1940 Act”); however, the Fund may become “non-diversified,” as defined under the 1940 Act, solely as a result of tracking the Index (e.g., changes in weightings of one or more component securities). When the Fund is non-diversified, it may invest a relatively high percentage of its assets in a limited number of issuers.

While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.

Unless otherwise noted all information contained herein is that of the SPDR® MSCI USA StrategicFactorsSM ETF.

Performance of an index is not illustrative of any particular investment. It is not possible to invest directly in an index.

Holdings and sectors shown are as of the date indicated and are subject to change. This information should not be considered a recommendation to invest in a particular sector or to buy or sell any security shown. It is not known whether the sectors or securities shown will be profitable in the future.

As with all stocks, you may be required to deposit more money or securities into your margin account if the equity, including the amount attributable to your ETF shares, declines.

The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities or any index on which such funds or securities are based. The Prospectus contains a more detailed description of the limited relationship MSCI has with SSGA Funds Management, Inc and any related funds.

MSCI - Net total return indices reinvest dividends after the deduction of withholding taxes, using (for international indices) a tax rate applicable to non-resident institutional investors who do not benefit from double taxation treaties.

There can be no assurance that a liquid market will be maintained for ETF shares.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

Intellectual Property Information: The S&P 500® Index is a product of S&P Dow Jones Indices LLC or its affiliates (“S&P DJI”) and have been licensed for use by State Street Global Advisors. S&P®, SPDR®, S&P 500®,US 500 and the 500 are trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and has been licensed for use by S&P Dow Jones Indices; and these trademarks have been licensed for use by S&P DJI and sublicensed for certain purposes by State Street Global Advisors. The fund is not sponsored, endorsed, sold or promoted by S&P DJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of these indices.

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