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The Hidden Power of ETF Liquidity in Your Portfolio
There is no doubt the markets have been volatile this year. During such times, we believe it is important for investors to maintain a high level of liquidity. Compared to individual stocks or closed-end funds with fixed shares, ETF shares can typically be easily bought and sold at prices close to the NAV of the securities themselves, making them highly liquid. Investing in ETFs during periods of high volatility can therefore help to reduce certain types of risks for investors.
The VIX index is a forward-looking measure of market volatility that uses the price fluctuations of S&P 500 options as indicators of the expected market uncertainty over the next 30-day period (1). Between 1990 and 2020, the closing range on the VIX index fell between 9.14 and 82.69, with a higher VIX index indicating higher expected volatility (1). Not surprisingly, the VIX reached its highest levels in 2008 at the start of the Great Recession and again in 2020 with the beginning of the pandemic (1). In general, VIX values of 0 to 12 indicate low expected volatility; VIX values from 13 to 19 indicate normal volatility; and VIX values greater than 20 indicate higher than average volatility (2).
Volatility greatly impacts one’s ability to buy and sell stocks. An asset’s liquidity, therefore, refers to the ease with which it can be converted to cash without impacting its price (3). Cash is the most liquid asset while assets like real estate or rare coin collections are considered very illiquid. The ability to convert an asset to cash quickly in a highly volatile market can help to avoid forcibly selling at an unfavorable price.
The bid-ask spread can be used to indicate an asset’s liquidity, calculated as the amount by which the asking price exceeds the bidding price (4). When a bid-ask spread is narrow, it means the price a buyer offers per share is close to the price a seller is willing to accept. A tighter bid-ask spread indicates a more liquid market because not much value is sacrificed in exchange for a quick sale. The bid-ask spread can also be thought of as the difference between supply and demand.
Of course, bid-ask spreads vary by asset type. Equities are some of the most liquid assets on the market and ETFs are often just as liquid. US ETF trading volume has been increasing year over year for the past three years, representing as high as 26% of total US trading volume in 2021 (5). This increase is not just a reflection of natural market growth; ETF trading volumes are correlated with market volatility (5). As the VIX index increases above 30, which occurred on 15% of days over the past three years, the bid-ask spread of ETFs doubles, on average (5).
ETFs can offer highly liquid investment options for investors seeking to build low-liquidity risk portfolios for their clients.
- https://www.cboe.com/tradable_products/vix/
- https://www.fidelity.com/insights/investing-ideas/vix-volatility-index
- https://www.investopedia.com/terms/l/liquidity.asp
- https://www.investopedia.com/terms/b/bid-askspread.asp
- State Street Global Advisors SPDR (2022), The Liquidity Playbook: Trading ETFs in Volatile Markets, pp. 1-25.
It is important to consider trading volume and liquidity of underlying investments when evaluating the liquidity of ETFs.
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©2025, TrueShares, ©2025 TrueMark Investments, LLC. (“TrueMark”).
Before investing, carefully consider the TrueShares ETFs investment objectives, risks, charges and expenses. Specific information about TrueShares is contained in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.www.true-shares.com. Read the prospectus carefully before you invest.
An investment in TrueShares is subject to numerous risks, including possible loss of principal. The ETFs are subject to the following principal risks: Authorized Participants, Market Makers, and Liquidity Providers Concentration Risk associated with ETFs; Equity Market Risk; Management Risk; Market Capitalization Risk (Large Cap; Mid Cap, Small Cap Stock); Market Risk; New Fund Risk: The Fund is a recently organized, non-diversified management investment company with no operating history. As a result, prospective investors have no track record or history on which to base their investment decision. Additionally, the Adviser has not previously managed a registered fund, which may increase the risks of investing in the Fund.
Depositary Receipts Risk. American Depositary Receipts (“ADRs”) have risks similar to those of foreign securities (political and economic conditions, changes in the exchange rates, etc.) and entitle the holder to all dividends and capital gains that are paid out on the underlying foreign shares.
Individual investors should contact their financial advisor or broker dealer representative for more information on TrueShares ETFs.
Investment Products and Services are: NOT FDIC INSURED / MAY LOSE VALUE / NO BANK GUARANTEE.
All registered investment companies, including TrueShares, are obliged to distribute portfolio gains to shareholders at year-end regardless of performance. Trading in TrueShares ETFs will also generate tax consequences and transaction expenses. The information provided is not intended to be tax advice. Tax consequences of dividend distributions may vary by individual taxpayer.
TrueShares ETFs are bought and sold through exchange trading at market price, not Net Asset Value (NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns.
ETF shares may be bought or sold throughout the day at their market price, not their NAV, on the exchange on which they are listed. Shares of ETFs are tradable on secondary markets and may trade either at a premium or a discount to their NAV on the secondary market. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF’s NAV. Brokerage commissions and ETF expenses will reduce returns.
Fund Intelligence Mutual Fund Industry and ETF Award shortlists and winners are comprised of individuals and firms who have submitted entries or been nominated via the online submission process, as well as through recommendations from leading market participants. Fund Intelligence Mutual Fund Industry and ETF Award judges will use the submitted application material, as well as any uploaded supplemental information, to determine which firm, individual or product they believe to be the most suitable and deserving winners for each category. Fund Intelligence Mutual Fund Industry and ETF Award judges have the discretionary power to move nominations into alternative categories that they think may be more suitable. Fund Intelligence Mutual Fund Industry and ETF Awards were decided by an independent panel of 20 judges with expertise across the asset management space.
TrueShares ETFs (the “Funds”) are registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940. The fund is distributed by Paralel Distributors LLC, Member FINRA. Paralel is not affiliated with TrueMark Investments, LLC. TrueMark Investments, LLC, is the investment advisor to the Funds and receives a fee from the Funds for its services.
TrueMark Investments, LLC is the investment advisor to the Funds and receives a fee from the Funds for its services.
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