Frank usually ignores the market price. Instead, he sets prices for buy and sell orders at no more than "a penny or two" from an ETF's intraday intrinsic value, which reflects the per share net asset value of its holdings. To find a stock's intraday intrinsic value, type in its normal ticker followed by ".IV."
2. Get help. Throwing a large order into the market, even if you use a limit order, may not get you the best possible price on a thinly traded ETF. Instead, advisors should contact a broker who will work with them to fill the order at the best possible price.
It's especially important to get help if an order exceeds 10,000 shares, or more than 50% of an ETF's daily trading volume, Skidmore says. "You don't want to come in with a huge, unexpected order and have the price move on you because of it," he cautions. With very large orders, he will often contact the ETF provider for execution to make sure he gets the best possible price. While smaller providers have been responsive, Skidmore says one larger firm was less than helpful on the execution side with one of its lower-volume offerings.
3. Watch the clock. Some experts advise against placing orders at the beginning and end of the trading day, which are usually the most volatile times for the market. Trades involving international ETFs are also more likely to run more smoothly when those markets are open, especially for large orders.
4. Consider the risk of closure. Since smaller ETFs are usually unprofitable for the providers, the companies sometimes close them and leave shareholders with a tax bill and other headaches. It's hard to figure out which ETFs are likely to close, but if the past is any indication, it's less likely to happen at larger firms. Vanguard, State Street and iShares have the financial heft to support less-profitable, smaller ETFs, so product closures at those firms are extremely rare. Of the 87 exchange-traded products that shut down in 2010 and 2011, only two were housed at one of the big three ETF players.
According to Matt Hougan of IndexUniverse, ETFs with assets of more than $30 million are unlikely to shut down since they are profitable for providers. Nor do new funds normally bite the dust; even if trading is slow for the first six to nine months, the issuers will likely hang in and wait for things to improve. If an ETF has a unique niche, it is also less likely to close than a fund with 10 or 20 competitors offering similar exposure.