So says the WSJ’s Eleanor Laise in the article Liquidity Problems Can Be Costly for ETF Investors.  Laise writes that high yield bond, commodity, and specialty ETFs can be especially problematic when it comes to the difference between buying and selling prices or the bid-ask spread.

One example is the Claymore U.S. Capital Markets Bond ETF (UBD) which had an average bid-ask spread of $2.56 in December 2009.  Other examples highlighted by the article include the iShares S&P GSCI Commodity Indexed Trust (GSG) and the PowerShares DB US Dollar Index Bullish Fund (UUP).

Because the ETFs will be accessible to more investors, the cross listing agreement should increase trading volume and improve liquidity. As noted in an article in Financial-Planning last November, lightly traded ETFs tend to have a higher bid-ask spread which, in turn, work to reduce investor returns.