Managed ETF programs have grown tremendously over recent years as brokers and investment advisors “outsource” the management of ETF portfolios to large managers. The strategies and frequency of the trading varies. But observers have already noted that the large trades can have significant impact on market prices. The impact can be further aggravated because some of these managers both manage accounts directly and issue “buy and sell alerts” which individual advisors and large brokerage firms implement on their own. Thus not only are there trades directly from the advisor entering the market but trades from other sources making the same buy/sells as well. The result when the orders hit the market is that the trades can move the market creating the same ‘slippage” as active stock manager’s experience. For the client that means an unseen cost.
An article by Matt Hougan in ETF.com focuses on the large flow created by some of these managers although it doesn’t specifically reference the slippage article. He writes that through use of the fund flow data on the etf.com website it is possible to isolate ETF activity that generates one time large trade flows and those that represent a trend in flows in and out of an asset class. He notes that often there are large flows in a particular ETF even though similar flows may not be present in other ETFs in an asset class.
And here is the same data for SHY