Why ETFs have low ER? - 未名空间MITBBS历史存档

国际科技财经博客移民网络热点娱乐民生时事公众号

Redian新闻

>未名空间

>Investment - 投资

Why ETFs have low ER?

Why ETFs have low ER?# Investment - 投资

K*D2009-03-02 08:03

1 楼

ETFs are traded much more frequently than mutual funds, i.e., higher
turn-over ratio. Why they have lower expense ratio?
Will a low turn-over ratio ETF have lower ER too? Why people say we
should trade those popular (heavy volume) ETFs? Thanks.

c*o2009-03-02 08:03

2 楼

因为passive management吧

K*D2009-03-02 08:03

3 楼

I just don't understand how they are managed.

【在 c****o 的大作中提到】

: 因为passive management吧

k*t2009-03-02 08:03

4 楼

you pay commission when you trade etf. if you buy the no load no fee funds
at the funds issuer you don't pay anything. the funds only source of admin
fee is from the ER.
higher turn over ratio? not necessarily. The etf's are traded much more
frequently for sure but the composition turnover is not necessarily higher
than some actively managed mutual funds. turnover means the change of the
underlaying stocks, not the trading of the fund itself.
some ppl prefer eft over the regular mutual funds bec

K*D2009-03-02 08:03

5 楼

I personally do not pay commission for trading ETFs; if I do, I will try
to control the ER to be less than 1.5%/yr.
My confusion is: I know for MF, there is usually a short-term redemption
fee of 2% or so, to penalize traders that sell the fund too soon. That
will help keep the cash flow lower, i.e., keep a lower trading volume.
Intuitively that would help cutting the cost.
ETFs don't have restrictions. I just don't understand why that would
result in a typical lower ER than their counterparts i

【在 k****t 的大作中提到】

: you pay commission when you trade etf. if you buy the no load no fee funds
: at the funds issuer you don't pay anything. the funds only source of admin
: fee is from the ER.
: higher turn over ratio? not necessarily. The etf's are traded much more
: frequently for sure but the composition turnover is not necessarily higher
: than some actively managed mutual funds. turnover means the change of the
: underlaying stocks, not the trading of the fund itself.
: some ppl prefer eft over the regular mutual funds bec

k*t2009-03-02 08:03

6 楼

How low is the eft's er you are looking at?
for index mf, if you look at fidelity spartan 500, it is 0.07% for advantage
class ($100K min) or 0.1% for invester class (10K min). Vargard 500 index
is 0.09% admiral class and 0.18% regular class (3K min).

K*D2009-03-02 08:03

7 楼

I looked at VFINX (0.15% ER) with SPY. If you compare their 5-year
NAV curves, they are almost identical. (I didn't not compare the
dividends, but I suppose they are similar too.)
Therefore, on one hand we have an index mutual fund from a prestigious
fund company that provides low ERs -- and because of that you are
penalized if you sell your fund (can't buy back in 2 months); on the
other hand we have a huge-volume ETF that people trade like crazy and
without restrictions at all. It turns out th

【在 k****t 的大作中提到】

: How low is the eft's er you are looking at?
: for index mf, if you look at fidelity spartan 500, it is 0.07% for advantage
: class ($100K min) or 0.1% for invester class (10K min). Vargard 500 index
: is 0.09% admiral class and 0.18% regular class (3K min).

k*t2009-03-02 08:03

8 楼

Dude, VFINX is NOT an eft!
you put the ticker in yahoo finance and draw 1D chart. if it cannot draw it
is MF, which is priced only at closing.

K*D2009-03-02 08:03

9 楼

I did not say VFINX is ETF.
SPY is an ETF. I was comparing VFINX with SPY.

it

【在 k****t 的大作中提到】

: Dude, VFINX is NOT an eft!
: you put the ticker in yahoo finance and draw 1D chart. if it cannot draw it
: is MF, which is priced only at closing.

k*t2009-03-02 08:03

10 楼

SPY turnover is 3%. lower than vfinx (5%).
as I said earlier, the turnover is the fund's underlaying stock composition
change. not trading of the funds.

K*D2009-03-02 08:03

11 楼

I realize my concept was a little mixed up in the first post. But I have
rephrased my real question in another post.
My real question is: if VFINX removes all short-term trading penalty,
would it still be able to hold the 0.15% low ER?
In another word: I am very expense-sensitive. I would like to go with
lowest cost. Should I worry about ETF's huge trading volume? If there
are two S&P500 ETFs with the same turn-over ratio, shall I go with the
low volume one or the high volume one? Most people su

【在 k****t 的大作中提到】

: SPY turnover is 3%. lower than vfinx (5%).
: as I said earlier, the turnover is the fund's underlaying stock composition
: change. not trading of the funds.

k*t2009-03-02 08:03

12 楼

your concern is extremely valid. for index funds, the only single most
important factor is the expense.
Now the expense is two folds. one is the er, which pays the "experts" to
pick and turnover of the underlying stocks. another is the trading cost of
the funds. with etf you pay the trading cost $10 a shot. whether you
actually pay or not is irrelavent - you are on a promotion or satify a min
balance your broker recoop the cost from somewhere else. with index MF you
don't pay that cost. The load

K*D2009-03-02 08:03

13 楼

Thanks for the reply and valuable information.
I guess the conclusion is the heavy trading volume (not my volume, but
the whole market volume) does not undermine the performance of an ETF.
Based on that conclusion I would still prefer ETFs. I have an active
management style, the flexibility of ETF trading enables me to turn over
my portfolio quickly if needed, without triggering noticeable penalty.

incurs

【在 k****t 的大作中提到】

: your concern is extremely valid. for index funds, the only single most
: important factor is the expense.
: Now the expense is two folds. one is the er, which pays the "experts" to
: pick and turnover of the underlying stocks. another is the trading cost of
: the funds. with etf you pay the trading cost $10 a shot. whether you
: actually pay or not is irrelavent - you are on a promotion or satify a min
: balance your broker recoop the cost from somewhere else. with index MF you
: don't pay that cost. The load

s*n2009-03-02 08:03

14 楼

When you buy or sell MF, you are providing money to the fund or withdrawing
money from the fund. The fund manager has to do something (buy or sell) to
accomodate your request.
When you buy or sell ETF, you are simply buying it from other people who are
currently holding it or selling it to others who are willing to hold it,
the fund management is not affected by the heavy tradings everyday.

【在 K****D 的大作中提到】

: ETFs are traded much more frequently than mutual funds, i.e., higher
: turn-over ratio. Why they have lower expense ratio?
: Will a low turn-over ratio ETF have lower ER too? Why people say we
: should trade those popular (heavy volume) ETFs? Thanks.

p*h2009-03-02 08:03

15 楼

compare GLD and IAU, GLD is always a little bit lower than IAU while
GLD's Mkt Cap is almost 13 times of IAU
the weird thing is EPS of these two ETF differ quite a lot too.

【在 K****D 的大作中提到】

: I realize my concept was a little mixed up in the first post. But I have
: rephrased my real question in another post.
: My real question is: if VFINX removes all short-term trading penalty,
: would it still be able to hold the 0.15% low ER?
: In another word: I am very expense-sensitive. I would like to go with
: lowest cost. Should I worry about ETF's huge trading volume? If there
: are two S&P500 ETFs with the same turn-over ratio, shall I go with the
: low volume one or the high volume one? Most people su

K*D2009-03-02 08:03

16 楼

So how does ETF link to the index? There must be something that backs
up the value of the 50 shares of ETF you are holding?

withdrawing
are

【在 s**********n 的大作中提到】

: When you buy or sell MF, you are providing money to the fund or withdrawing
: money from the fund. The fund manager has to do something (buy or sell) to
: accomodate your request.
: When you buy or sell ETF, you are simply buying it from other people who are
: currently holding it or selling it to others who are willing to hold it,
: the fund management is not affected by the heavy tradings everyday.

K*D2009-03-02 08:03

17 楼

They look almost identical on google chart since inception. In 4 years:
109.03% vs 109.04%, hoho.

【在 p******h 的大作中提到】

: compare GLD and IAU, GLD is always a little bit lower than IAU while
: GLD's Mkt Cap is almost 13 times of IAU
: the weird thing is EPS of these two ETF differ quite a lot too.

j*12009-03-02 08:03

18 楼

retail investor's selling or buying ETF has nothing to do with the expense
of ETF.
When one "sells" an MF, he surrenders his shares of MF to fund mananger in
return for cash. The fund manager sometimes has to sell some holdings in the
fund to get cash to pay him. Hence penalty for frequent redemption.
When a retail investor sells an ETF, usually he is selling this ETF to other
investors, just like selling stocks in the open market. It does not involve
the fund, just like you selling 500 shares o

k*t2009-03-02 08:03

19 楼

Yes, this is well know problem of index etf that can wander off the index 2
to 3 % when there is larger buy/sell by retail investor. it creates the
demand/supply problem for the funds shares.

the
other
involve

【在 j********1 的大作中提到】

: retail investor's selling or buying ETF has nothing to do with the expense
: of ETF.
: When one "sells" an MF, he surrenders his shares of MF to fund mananger in
: return for cash. The fund manager sometimes has to sell some holdings in the
: fund to get cash to pay him. Hence penalty for frequent redemption.
: When a retail investor sells an ETF, usually he is selling this ETF to other
: investors, just like selling stocks in the open market. It does not involve
: the fund, just like you selling 500 shares o

K*D2009-03-02 08:03

20 楼

Thanks.
Where can we view an ETF's actual security holdings?
It still amazes me that an ETF's performance can match the stuffs that
its holding so well.
It's like if I invent a new ETF: "Sex and City", only holding 2 stocks,
GS and C, 50% portfolio each. Now I sell it for $10 per share to frogs.
Now the frogs start to buy and sell from each other. They are so efficient
that the yield of my ETF would exactly match that of 50% GS + 50% C, at
any time. It feels like the frogs always check the chart

【在 j********1 的大作中提到】

s*i2009-03-02 08:03

21 楼

of 50% GS + 50%
they don't need to check prices of GS and C.
each ETF has a different ticker for NAV. and yes, the
market price of ETF often drift from NAV. when it happens,
the "authorized user" steps in to make money and drag the
price back to close to NAV.
the authorized user is who creates and take out ETF shares.

【在 K****D 的大作中提到】

: Thanks.
: Where can we view an ETF's actual security holdings?
: It still amazes me that an ETF's performance can match the stuffs that
: its holding so well.
: It's like if I invent a new ETF: "Sex and City", only holding 2 stocks,
: GS and C, 50% portfolio each. Now I sell it for $10 per share to frogs.
: Now the frogs start to buy and sell from each other. They are so efficient
: that the yield of my ETF would exactly match that of 50% GS + 50% C, at
: any time. It feels like the frogs always check the chart

k*t2009-03-02 08:03

22 楼

Looks like that way. if you compare the etf with index, the most drift is
either at opening (not yet pulled back) or closing (don't have a chance to
pull) of the day.

【在 s****i 的大作中提到】

:
: of 50% GS + 50%
: they don't need to check prices of GS and C.
: each ETF has a different ticker for NAV. and yes, the
: market price of ETF often drift from NAV. when it happens,
: the "authorized user" steps in to make money and drag the
: price back to close to NAV.
: the authorized user is who creates and take out ETF shares.

s*n2009-03-02 08:03

23 楼

There are always someone out there to take care of arbitrage opportunities.

【在 K****D 的大作中提到】