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Want to trade Standard & Poor’s 500? The SPDR S&P 500 Trust (NAR:SPY) — the first ETF and the one with the most trading volume — isn’t on the list; you could settle for the Guggenheim S&P 500 Equal Weight ETF (NAR:RSP) or the PowerShares S&P 500 Low Volatility ETF (NAR:SPLV) , but they’re hardly the same thing.
One key issue that investors often overlook with ETFs is liquidity. A fund that is lightly traded can have a wide bid-ask spread, the difference in the lowest price a seller is willing to accept and the highest price a buyer was willing to pay as of the last trade.
Mutual Fund OneSource started with eight fund families and less than 100 mutual funds, and today it has more than 4,000 funds, so the ETF availability issue could evaporate in time. The same can’t necessarily be said for execution concerns.
If, over time, ETF sponsors raise operating expenses slightly to make up for the dough they fork over to participate, the trades may be free but the cost would be undeniable for all affected shareholders.
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