Practical Applications of ETF Transaction Costs Are Often Higher Than Investors Realize

The bid–ask spreadalone does not tell the true cost of trading an exchange-traded fund( ETF). The market priceson most ETFsfrequently deviate from their net asset value(NAV) because of fluctuations in market demand and supply. An investor needs to measure the true cost of an ETFtrade as the difference between the fund9s current transaction price and its NAV at that point in time. Author James Angel , from Georgetown University , discusses his article, ETFTransaction Costs Are Often Higher Than Investors Realize , published in The Journal of Portfolio Management’s Spring 2016 issue. In this article, Angel and co-authors Todd Broms of Broms Asset Managementand Gary Gastineau of ETFConsultants.com offer their analysis of how and why ETF market pricesdeviate from their NAVs.