Tips for Trading Clough ETFs
By Vince Lorusso, CEO & Portfolio Manager, Clough Capital Partners
Active ETFs trade on exchanges during market hours, just like any stock. But because their value comes from an underlying portfolio of securities, not a single company, the mechanics for trading them effectively are different. We think advisors allocating to Clough Select Equity ETF (CBSE) or Clough Hedged Equity ETF (CBLS) should keep three practical considerations in mind.
Tip 1: Mind the open and the close
Not all stocks in an ETF’s underlying portfolio begin trading at the same time. At the market open, some securities may still be working through overnight order imbalances, and prices can be volatile as the market finds equilibrium. That volatility can feed directly into ETF pricing.
Market makers typically respond by widening their bid-ask spreads during the first 15 to 30 minutes of the trading day. The same dynamic can occur near the close, as market makers look to flatten their books before the end of the session.
For actively managed ETFs like CBSE and CBLS, where the portfolio reflects real-time fundamental research and may hold positions across multiple sectors, this effect matters. Allowing the market to settle before placing a trade may result in tighter spreads and potentially more favorable execution.
Consider placing trades after 9:45 AM ET and before 3:45 PM ET, when spreads are typically tightest and the underlying securities are all actively trading.
Tip 2: Understand your order types
How you place an order matters as much as when. Three order types we think are relevant for ETF trading:
Limit orders1 set a maximum price for buying (or minimum for selling) and execute only at that price or better. For most ETF trades, this may be the default approach. It seeks to protect against execution at a price that diverges significantly from the portfolio’s net asset value — particularly important for ETFs with lower daily trading volume. Setting a marketable limit (close to the current bid or ask) lets market makers see your order and potentially respond with available liquidity.
Market orders are executed immediately at whatever price is available. They prioritize speed over price. In liquid, tight-spread conditions, they generally work fine. But when spreads are wide — during the open, the close, or periods of volatility — a market order can potentially result in execution at a meaningful premium or discount to NAV.
Block trades are for larger orders. Contact your custodial trading desk and ask them to source liquidity from multiple providers. For a trade large enough, the desk can access the primary market through ETF creation/redemption, tapping the liquidity of the underlying securities directly. This often produces better execution than splitting the order into smaller pieces on screen.
In our opinion, default to limit orders for routine trades. Consider using day orders rather than good ‘til canceled (GTC) orders, reassess the limit price each trading day based on current market conditions. For trades larger than the on-screen depth, lean on your custodial block desk.
Tip 3: During volatile markets, sometimes less is more
When markets are stressed, liquidity can become scarce. Market makers may widen spreads and reduce the number of shares they’re willing to trade. The arbitrage mechanism that normally keeps ETF prices close to NAV can be impaired when market makers cannot confidently price the underlying portfolio.
If a trade is necessary during volatile conditions, compare the ETF’s market price to the intraday indicative value (iNAV)2 before executing. A wide gap between the two may signal that the market is having difficulty pricing the underlying securities.
For actively managed, fully transparent ETFs, like CBSE and CBLS, investors can examine the portfolio holdings daily. This transparency allows you to assess whether the ETF’s market price makes sense relative to the portfolio’s underlying securities — a potentially meaningful advantage over non-transparent structures (e.g. mutual funds, collective investment trusts, active non-transparent or semi-transparent ETFs3).
During market dislocations, we believe you should trade only when necessary. When you do trade, consider using limit orders and compare the ETF price to iNAV. Please contact us if you have questions — our team can explain the pricing dynamics or help you think through execution.
ETFs can be powerful vehicles for accessing actively managed, research-driven strategies. Understanding the mechanics of how they trade can help investors seek more efficient execution.
Questions about trading CBSE or CBLS ?
Contact our team at
investorrelations@cloughcapital.com
617-204-3400
1 A buy limit order is an instruction to purchase a security at a specific price or lower, and acts as a price ceiling for a buy trade. A sell limit order is an instruction to sell a security at a specific price or lower, and acts as a price floor for a sell trade. A stop order is an instruction to buy or sell a security once it reaches a specific stop price, and once triggered it instantly becomes a market order and is executed at the best available price. A stop-limit order is an instruction to ensure a broker only buys or sells if the stock hits a specific stop price and then caps the price at a specified limit price, or better.
2 Intraday indicative value (iNAV) is a real-time estimate of an ETF’s fair value calculated throughout the trading day. It updates every 15 seconds to give investors a benchmark for how the underlying portfolio is performing before the official end-of-day NAV is determined.
3 Active non-transparent or semi-transparent ETFs actively manage assets while disclosing holdings only quarterly, rather than daily.
Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. Prospectus available at www.cloughcapital.com/etfs. Please read the prospectus carefully before you invest. Past performance does not guarantee future results.
This content is for informational and educational purposes only and does not constitute investment advice, an offer to sell, or the solicitation of any offer to buy, and should not be relied upon for any investment decisions.
The Clough Capital ETFs are NYSE listed ETFs and may trade at a price above or below an ETF’s NAV. Shares of the ETFs may trade at a premium or discount to NAV and may be bought and sold throughout the day at their market price on the exchange on which they are listed. The market price may be at, above or below an ETF’s NAV and will fluctuate with changes in the NAV as well as supply and demand in the market for shares. The market price of an ETF’s shares may differ significantly from its NAV during periods of market volatility. Shares of the ETFs may only be redeemed directly at NAV by Authorized Participants, in very large creation units. There can be no guarantee that an active trading market for the ETFs’ shares will develop or be maintained, or that their listing will continue or remain unchanged. Buying or selling shares of the ETFs on an exchange may require the payment of brokerage commissions and frequent trading may incur brokerage costs that detract significantly from investment returns.
Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. Diversification does not eliminate the risk of market loss. A long-term investment approach cannot guarantee a profit. All financial products have an element of risk and may experience loss. Past performance is not indicative of, nor does it guarantee future results. Purchases are subject to suitability, risk tolerance and any other investment limitations
The Clough Capital ETFs are distributed by Paralel Distributors, LLC. Paralel Distributors, LLC and Clough Capital are not affiliated.