Page 28 - DIY Magazine March 2018

SIZE MATTERS WHEN IT COMES TO ETFS!
Dominique Riedl CEO, justETF
Bigger is better is a good rule of thumb when comparing similar ETFs. Larger ETFs can exploit economies of scale to lower their costs and are less liable to liquidation with unfortunate consequences for your returns.
ETFs must reach a certain size to become viable. Once over that threshold, an ETF’s profits rise much faster than its costs, so fund size is a good indicator of a product’s durability as well as its popularity.
Newly launched ETFs are in a race against time to prove themselves. Most ETF providers will give their fledgling products about a year to grow large enough to make money. If an ETF isn’t sustainable after 12 months then there’s a danger it will be closed (see below for how liquidation can impact you).
LARGE ETFS BENEFIT
As ETFs gather more assets under management, it becomes easier to cut their expense ratios as costs shrink as a proportion of revenue. This is especially true for ETFs that track broad market indices such
as the FTSE 100 or MSCI World. The sheer scale of these markets gives the most popular ETFs room to manoeuvre on cost and the incentive of handsome profits if they can continue to attract investors’ cash. That’s generated intense competition between product providers, and investors have been the winners as expense ratios have continued to fall.
Large ETFs also tend to have higher trading volumes, enabling you to buy and sell quickly and pay lower bid- offer spreads as market makers can efficiently match supply and demand (creation and redemption).
The ten largest ETFs (by fund size)
Fund name ISIN
Ticker chart
Fund size
in m GBP
19,527
16,841
9,832
7,143
7,041
6,902
6,056
5,576
5,421
5,202
Ongoing Return charges 1 year
0.07% 4.69% p.a.
0.07% 1.36% p.a.
0.20% 4.48% p.a.
0.16% 5.59% p.a.
0.20% 4.43% p.a.
0.25% 17.51% p.a.
0.07% 4.64% p.a.
0.50% 0.21% p.a.
0.07% 2.50% p.a.
0.45% -7.91% p.a.
4 weeks
Shares Core S&P 500 UCITS ETF (Acc)
Vanguard S&P 500 UCITS ETF
iShares Core MSCI World UCITS ETF USD (Acc)
iShares Core DAX UCITS ETF (DE)
iShares Core Euro Corporate Bond UCITS ETF (Dist)
iShares Core MSCI Emerging Markets IMI UCITS ETF
iShares S&P 500 UCITS ETF (Dist)
iShares J.P. Morgan EM Local Government Bond UCITS ETF
iShares Core FTSE 100 UCITS ETF (Dist)
iShares J.P. Morgan USD Emerging Markets Bond UCITS ETF (Dist)
IE00B5BMR087 CSP1
IE00B3XXRP09 VUSA
IE00B4L5Y983 SWDA
DE0005933931 O006
IE00B3F81R35 IEBC
IE00BKM4GZ66 EMIM
IE0031442068 IUSA
IE00B5M4WH52 SEML
E0005042456 ISF
IE00B2NPKV68 SEMB
Source: justETF.com; as of 13/03/18
Good to know: Fund size (assets under management) of around £100 million enables an ETF to be managed cost-efficiently.
DIY Investor Magazine | Mar 2018 28