When Evaluating ETFs, Should Size Matter?

Gain a deeper understanding of what matters when trading ETFs. Read more.


When it comes to assets under management (AUM), should a fund’s size be a consideration for investing in an ETF? In our opinion, no, the main consideration for investment in a transparent, active ETF should be exposure to the strategy, which includes all the benefits of the ETF structure. When evaluating ETFs’ size for investment, at Matthews Asia we believe investors should consider:

  1. The ETF structure is a ‘Wrapper’ – Look at the percentage ownership of the underlying securities. Although an investor may own a large percentage of the ETF, the actual percentage ownership of the underlying securities total market capitalization is likely to be very small.
  2. AUM is Not Liquidity – The underlying basket of securities dictate the liquidity for the ETF. Because ETFs have an open-ended structure, investors typically will have no issues moving larger positions in or out of the ETF because liquidity providers are willing to provide bids and offers at the prevailing fair value of the ETF, regardless of fund size.
  3. Isolated Impact – Investors transact on exchange in the secondary market. This aspect of the ETF mechanism allows smaller and larger investors to isolate their own trading activity and not be impacted by what other investors in the fund are doing.
  4. Closure Risk – If the ETF fails to gather assets and the manager chooses to close the fund, investors risks are primarily market exposure, potential capital gains event, and reinvestment. On the closure date, the fund’s assets are liquidated and the closing net asset value (NAV) is returned to the remaining shareholders.

When considering an investment, we believe that Investors should evaluate the ETF’s investment objectives, risk characteristics and liquidity to better understand how it may complement their allocations.

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Michael Barrer
VP, Head of ETF Capital Markets
Matthews Asia



The views and information discussed in this report are as of the date of publication, are subject to change and may not reflect current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. Investment involves risk. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies. Past performance is no guarantee of future results. The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.