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 of trading them effectively are different. Advisors allocating to Clough Select Equity ETF (CBSE) or Clough Hedged Equity ETF (CBLS) should keep three practical considerations in mind.

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 feeds 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 can result in tighter spreads and more favorable execution.

How you place an order matters as much as when. Three order types are particularly relevant for ETF trading:

Limit orders set a maximum price for buying (or minimum for selling) and execute only at that price or better. For most ETF trades, this should be the default approach. It protects 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 respond with available liquidity.

Market orders execute immediately at whatever price is available. They prioritize speed over price. In liquid, tight-spread conditions, they work fine. But when spreads are wide — during the open, the close, or periods of volatility — a market order can 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.

When markets are stressed, liquidity becomes scarce. Market makers 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) before executing. A wide gap between the two signals 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 securities it actually owns — a meaningful advantage over non-transparent structures.

ETFs are powerful vehicles for accessing actively managed, research-driven strategies. Understanding the mechanics of how they trade helps ensure you get the execution your clients deserve.