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upgrade cycles and the general health of the economy.

ndirect Costs

Tracking Error

A fund’s tracking error is another important consideration for evaluating an ETF’s total cost of ownership. Since passive ETFs are designed to track the performance of their underlying indexes, investors should consider funds with a median tracking difference that is close to the expense ratio. One of the most popular ETFs with a low tracking error is the iShares Core S&P 500 ETF (IVV A). In other words, it closely tracks its benchmark, the S&P 500 Index.

Liquidity Constraints

When it comes to buying and selling ETFs, liquidity constraints become apparent in the bid/ask spread. This is the difference between the price a buyer is willing to pay for shares and the price at which the seller will offload it. Trading volume and liquidity have a direct influence on the bid/ask spread. Some of the most liquid ETFs with the lowest spreads include SPDR S&P 500 ETF (SPY A) and iShares MSCI Emerging Markets ETF (EEM A-).