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Vanguard Launches Emerging Markets ex-China ETF -duplicate post
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
Is this only happening at VG or do other ETF's operate this way?
That's exactly how ETFs are designed to work. Only Authorized Participants can redeem shares "in very large aggregations [creation units] worth millions of dollars". Retail investors "buy and sell [] ETF shares in the secondary market [on exchanges]."
The idea of ETFs is that APs arbitrage ETFs - if the secondary market price drops much below the NAV they will buy shares and redeem them at NAV (in kind) with the fund sponsor, here Vanguard. The demand they create will raise the secondary market price up toward the NAV. In the meantime, others will be buying and selling shares on the secondary market for "less than the net asset value".
Likewise, the secondary market price may be above NAV. In that case, APs buy shares from the sponsor (in creation units worth gazillions of dollars) at NAV and sell them at the higher market price on the secondary market. This excess supply pushes the price down toward the NAV. In the meantime, others will be buying and selling shares on the secondary market for "more than net asset value".
Have you looked at China funds recently? They are flying.
Ex-China indexes were driven by the Fed TSP change to exclude China from its foreign indexes. That has crept into general investing arena too.
But the timing for ex-China funds seems poor. BTW, Vanguard suddenly quit its China business some years ago - in those old days, it promoted China exposure.
Comments
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
Is this only happening at VG or do other ETF's operate this way?
Thanks for your time, Derf
The idea of ETFs is that APs arbitrage ETFs - if the secondary market price drops much below the NAV they will buy shares and redeem them at NAV (in kind) with the fund sponsor, here Vanguard. The demand they create will raise the secondary market price up toward the NAV. In the meantime, others will be buying and selling shares on the secondary market for "less than the net asset value".
Likewise, the secondary market price may be above NAV. In that case, APs buy shares from the sponsor (in creation units worth gazillions of dollars) at NAV and sell them at the higher market price on the secondary market. This excess supply pushes the price down toward the NAV. In the meantime, others will be buying and selling shares on the secondary market for "more than net asset value".
Ex-China indexes were driven by the Fed TSP change to exclude China from its foreign indexes. That has crept into general investing arena too.
But the timing for ex-China funds seems poor. BTW, Vanguard suddenly quit its China business some years ago - in those old days, it promoted China exposure.