Interview
The costs that are not in the factsheet
The race to the lowest management fee suggests costs are transparent. Peter Almqvist manages crypto ETPs at a European provider and explains where money actually leaks away.
In conversation with
Peter Almqvist — Portefeuillebeheerder, een Europese fondsaanbieder
Why does the headline fee say so little?
Almqvist: 'The fee is easy to compare, so everyone competes on it. But an investor also pays the spread when buying and selling, and carries the gap between the product price and the underlying value.'
'In a product that only trades a few times a day, that gap can exceed the annual fee. It is never printed large on the first page.'
Where a year of costs goes
Indicative build-up for an investor buying four times a year.
- Management fee45 bp
- Trading spread32 bp
- Deviation from net asset value18 bp
- Broker custody and transaction fees15 bp
How do you spot a liquid product?
Almqvist: 'Do not look at assets under management alone, but at volume on the exchange where you trade, and at the number of active market makers. Two competing market makers do more for your spread than a billion in fund assets.'
'Also avoid trading in the first or last quarter hour of the day. That is exactly when spreads are widest.'
- Volume on your exchange, not globally
- Multiple market makers
- Trade away from the open and close
- Limit orders instead of market orders
How does an ETP compare with direct ownership?
For some investors a listed product is the only practical route, for instance inside a pension account. For others direct control weighs heavier.
ETP versus direct ownership
| Listed product | Direct ownership | |
|---|---|---|
| Custody | Professional custodian | Own keys or platform |
| Trading hours | Exchange hours | Continuous |
| Costs | Fee plus spread | Spread plus network fees |
| Use | Investing only | Also paying and moving |
| Tax treatment | As a security | As a crypto asset |
What should the industry improve?
Almqvist: 'Publishing realised spreads per exchange as standard, not only theoretical ones. Then investors see what they actually pay and competition moves to where it belongs.'
'I also expect the fee race to end once the cheapest products stop making money. What remains is execution quality.'
Frequently asked questions
Is the cheapest ETP always best?
Not necessarily. A low fee with wide spreads can cost more than a slightly pricier but more liquid product.
What is tracking difference?
The gap between the product's return and the underlying asset's return, including costs and execution differences.
When is the best time to trade?
Outside the first and last minutes of the trading day, when spreads are usually tighter.
About the author
Thijs schrijft over aandelen, indexfondsen en de kruisbestuiving tussen beurs en crypto. Hij ontleedt kwartaalcijfers van AI- en chipbedrijven en wat die betekenen voor beleggers.