Question #22
Reading: Reading 35 Exchange-Traded Funds - Mechanics and Applications
PDF File: Reading 35 Exchange-Traded Funds - Mechanics and Applications.pdf
Page: 7
Status: Correct
Correct Answer: A
Question
Spreads tend to be narrower for:
Answer Choices:
A. fixed-income ETFs (as compared to large-cap equity ETFs)
B. specialized ETFs such as those that track commodity indexes
C. popular ETFs
Explanation
The primary factors affecting ETF spreads are the liquidity and the market structure of the
underlying securities. Popular, highly liquid ETFs tend to have smaller spreads. Fixed
income ETFs tend to have larger spreads compared to large-cap equity ETFs. Specialized
ETFs such as those that track commodities, volatility futures, or small-cap stocks tend to
have wider spreads.