TruLiquidity vs Implied Liquidity

Most newly launched ETFs face one key hurdle: Liquidity. This leads to long conversations between capital markets, sales and trading teams and the client. Having reliable third-party guidance around liquidity helps frame this conversation. The fallback option is often an Implied Liquidity measure.

Implied Liquidity alone cannot convey the full liquidity picture as it relies solely on the ADV of individual basket components to extrapolate for maximum ETF liquidity. In addition, it typically assumes that you will want to trade 25% of the average share volume in the least liquid name of the basket to achieve this liquidity. This methodology faces serious issues since it fails to incorporate how trading in ETF’s actually occur.

ETFLogic’s TruLiquidity™ approaches the problem differently. We understand that investors and market-makers care about volume, impact costs and slippage. Our TruLiquidity™ tools answer one simple question:“How many shares of this ETF can I trade if I am willing to pay up to X basis-points?”

You can instantly get this answer by logging into ETFLogic.

We also provide you a complete look through:

  • What is the cost-limiting component?
  • What happens when you remove some components?
  • What is the basket liquidity at the chosen impact level?

We capture the impact on every basket component by incorporating market-specific costs, spreads, volatility and trade urgency – you can also download the resulting calculations instantly.

Our analysis is also summarized in the TruLiquidity™ ranking that does a relative cost-comparison of a name to its peers. For example, a large-cap factor-focused fund may be more liquid than small-cap factor fund, but we will rank the small-cap fund versus vehicles that provide similar exposures in a similar fashion. The benefit: Investors get pertinent information right away on the specific asset-class exposure they seek.

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