Mutual funds or ETFs?

[KrazyHorse]

In addition to KH's comments, I note that sometimes mutual funds are harder to get into and out of than ETFs because mutual funds settle at the end of the day. During the meltdown a couple of years ago, I was delayed a few days in moving money from one fund to another. Almost always, this is no big deal, but volatility was enormous at the time, and I lost something on the order of 5% by that friction.

Another consideration is that ETFs sometimes act a little strangely if there is low trading volume, if I recall correctly. This argues for keeping to some of the bigger ETFs.

Good luck.

ETFs are usually maintained close to their NAV because large investors are allowed to swap a basket of securities in correct proportions for a large block of shares of the ETF (and vice versa). The more illiquid an ETF is, or the more illiquid or numerous its underliers are, the more that NAV can deviate from market price. In most cases, for the larger ETFs, the basis is < 50bps.

[KrazyHorse]

In addition to KH's comments, I note that sometimes mutual funds are harder to get into and out of than ETFs because mutual funds settle at the end of the day. During the meltdown a couple of years ago, I was delayed a few days in moving money from one fund to another. Almost always, this is no big deal, but volatility was enormous at the time, and I lost something on the order of 5% by that friction.

Another consideration is that ETFs sometimes act a little strangely if there is low trading volume, if I recall correctly. This argues for keeping to some of the bigger ETFs.

Good luck.

ETFs are usually maintained close to their NAV because large investors are allowed to swap a basket of securities in correct proportions for a large block of shares of the ETF (and vice versa). The more illiquid an ETF is, or the more illiquid or numerous its underliers are, the more that NAV can deviate from market price. In most cases, for the larger ETFs, the basis is < 50bps.

[pchang]

So good he said it twice.

[KrazyHorse]

[Asher]

Vanguard Total Stock Index. Vanguard Total International Index. No load and management fee is about the same as ETFs. TSX is really too narrow.

Doesn't look like I could buy these even if I wanted to in Canada.

[DanS]

The management fees on an index ETF depend a lot on the market. Emerging markets tend to have much higher fees. F.e., the China index ETF (FXI) that I'm invested in has fees on the order of .7% or more.

This is probably due to the fact that the emerging market index ETFs are very recent creations and have not yet been exposed to much competition. Over time, the fees should decrease. Also, these markets often have regulatory hassles that increase cost.

[DanS]

Thanks for the reasoning behind that, KH. I read an article about this phenomenon a few months ago, but didn't remember all of the details.

[KrazyHorse]

ETFs are usually maintained close to their NAV because large investors are allowed to swap a basket of securities in correct proportions for a large block of shares of the ETF (and vice versa). The more illiquid an ETF is, or the more illiquid or numerous its underliers are, the more that NAV can deviate from market price. In most cases, for the larger ETFs, the basis is < 50bps.

I think this DP happened because I ****ed up sending a second response. Specifically, I wanted to mention that the replicating "currency neutral" returns (more properly, delivering in a second currency the same nominal returns an asset delivers in its native currency) is actually rather difficult. In order to make it work perfectly, you need a liquid quanto market. I doubt one exists even for the S&P 500 and CAD. I would be wary of such a complex product being sold to retail investors.

I wouldn't be surprised if the portfolio manager for these funds just hedges the forward value of the index against currency fluctuations (modulo dividends, of course). This opens up the investor to all manner of risks he may not be comfortable with (and in fact, may not even understand)

[DanS]

A relevant article from the WSJ...

http://online.wsj.com/article/SB10001424052748704409004576146631535757132.html

[Asher]

Thanks

Also, "Financial Advisor"

[pchang]

Sorry, about the Vanguard recommendation. I forgot they cannot sell to Canadians. I guess TD is probably your best choice.