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ETF Expense Ratios, NAV, and Short-Selling Costs

Article Quant Q&A · Author: Julian
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Summary

The note addresses how an ETF’s management expense is reflected for investors, including funds without applicable dividends, and asks how those expenses affect a short seller. Its answer states that the expense ratio is reflected in the ETF’s net asset value. This means the fee is embedded in the fund’s value rather than necessarily appearing as a separate dividend deduction.

For a short position, the answer distinguishes the fund expense from the cost of borrowing shares: shorting also incurs a borrow cost. The brief response does not quantify either effect, describe how NAV accrues the expense over time, or explain borrow rates and their variation. It therefore gives a basic accounting distinction, but not enough detail to estimate the net return of a specific long or short ETF position.

Key ideas

  • An ETF’s expense ratio is reflected in its net asset value.
  • The fee is not described as a separate deduction from dividends.
  • Shorting an ETF also incurs a share-borrow cost.
  • The note does not quantify the fee’s effect over time or the short borrow charge.

Tags

EquitiesRisk managementExecution
Full text
# How are ETF fees deducted? What happens if you short an ETF?


# How are ETF fees deducted? What happens if you short an ETF?












When I buy an ETF, the ETF issuer wants a certain management fee (expense ratio). How is this usually paid?

I've read that this might be deducted from dividends - is this the case? How does it work for ETFs where no dividends are applicable (for example, physically backed commodity ETFs)?

And specifically, what happens if you short an ETF? Who pays the fees and how does that influence the profit of the short seller?

## Answer by pyCthon (score 3)

https://quant.stackexchange.com/a/30544

To answer your second question, the expense ratio fees are reflected in the net asset value of the ETF. Shorting also incurs a borrow cost.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.