Today James Shelton was a guest on CNBC "Squawk on the Street" to discuss exchange traded funds (ETFs).
ETFs have enjoyed strong growth over the last several years as investors discovered the advantages of this investment vehicle, including low cost and transparency. However, researching and performing due diligence to find the most appropriate ETFs for an investor's portfolio has become quite complex due to the proliferation of nearly 1,000 ETFs on the market today.
During the segment, CNBC host Mark Haines touched on one of many critical considerations: what is the impact of trading volume, or liquidity, on the risk and return of an ETF? Shares in ETFs are created by large institutional investors, called authorized participants, which exchange baskets of underlying securities representing an index for the ETF shares.
Kanaly Trust prefers to invest in ETFs represented by shares of highly liquid securities to ensure better tracking of the underlying index. In addition, it is important to invest in ETFs that have significant assets under management and sizeable trading volume to keep trading costs low.
Mr. Haines misspoke during the segment when he stated that the ETF James recommended had a trading volume of 70,000 shares per day (it's actually several million shares).