ETFs and fund volume: Big is beautiful

• Level: For beginners
• Reading duration: 3 minutes

ETF volume: Why it matters

Small ETFs with low fund volumes are less profitable for ETF providers than large ones. The reason: whether they manage many customer funds or only a few – the effort is almost the same. When an ETF is new on the market, most ETF providers therefore give it a trial period of about one year. If it fails to deliver on its promises during this time, especially to bring in a lot of money, the likelihood of it being closed again or liquidated increases. And that can have unpleasant consequences for your investment, as described in the section below. Of course, ETFs with a small fund volume can also be interesting for a provider and exist on the market in the long term. In this case, further strategic considerations regarding the product range, the expense ratio and the trading volume play a decisive role.

Large ETFs benefit from economies of scale

Size makes the difference – this is especially true for ETFs on the common indices. Because then economies of scale take full effect through the distribution of fixed costs. This usually manifests itself in scope for cost reductions. Especially in recent years, ETF providers have reduced costs in several rounds because of the high competition, from which you as an ETF fan automatically benefit. With increasing size, the number of shares in circulation of an ETF also increases. This simultaneously ensures lower buying and selling margins. The creation-redemption process which keeps the transaction costs within an ETF as low as possible, also contributes to this.

The 10 largest ETFs (by volume)

What happens when an ETF is liquidated

If an ETF is closed, this has unpleasant consequences for your investment. Once the worst case scenario has occurred, you have two options for action:

1. Either you sell your shares on the stock exchange before the ETF is liquidated and transfer them to a comparable ETF if necessary.
2. Or: You simply wait. In this case, the fund automatically sells all the units it contains and you participate in equal measure in the sales proceeds.

In both scenarios, gains or losses are realized and have a tax effect. This is particularly annoying if you actually intended to postpone taxation as far into the future as possible, as with an accumulating ETF. Apart from taxes, there are of course also fees for the purchase of a new ETF. Instead of a liquidation, there may also be a fund merger, in which one ETF is merged into another ETF. The same tax effects can occur here. To avoid getting into such a situation in the first place, remember: Big is beautiful.