EMS

[Monty]

Hi,
Should I take account of the EMS for a ETF when building my portfolio?

Background: Almost 2 years ago I switched from Investment Trusts to a simple ETF portfolio. My reason for doing so was the signs that IT's were losing more than ETF's in a downturn. I have since become aware that my holdings are above the EMS, for example, the last time that I looked VWRL had an EMS of 700. I was looking to change the holdings to be within the EMS and I can do this by adding the likes of VEVE and reducing the portfolio % held in each holding. However, one of my favoured ETF's is JGRE which has an EMS of only 368 which is currently about £11,500 whereas I would like to hold more than that.

Note from HL website: The EMS or exchange market size is the minimum number of shares that a market maker is obliged to quote a firm two way price on the trading system. This does not ensure the price is equal to the market quoted price at that time.

[tjh290633]

As far as I can see, the only time that EMS matters is if you want to dispose of a holding which is several times the EMS. You may have to sell in dribs and drabs if the share is relatively ill-liquid.

The other way depends on how many shares the market maker holds if you want to make a large purchase. In the case of AIM shares it can be very few. In theory there should be no problem with ETFs as the managers will either create or liquidate units/shares as demand dictates. They do not have discounts or premiums.

TJH

[Monty]

Thank you for your reply.

Since my post I decided to test the EMS using the Hargreaves Lansdown website. The difference between 1 x 1200 sell order and 2 x 600 sell orders for VWL (Vanguard FTSE All World ETF) was about £45 less the additional £11.95 dealing fee for the second order. A saving of around £30 but that may simply have been due to movement in the price between orders. I concluded that for mainstream ETF's, the EMS was likely not to be of concern if liquidty was not abnormally affected by another factor.

I am still surprised that the EMS for JGRE (JPMorgan Global) was just 368 shares (less than 15k) but looking at recent trades it appears that less than 10 orders a day occur, I suspect the EMS reflects that.

Thanls again,
Monty