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Vanguard Jumps On ETF-Of-ETFs Bandwagon, The Vanguard Way
Thank you @shadow for adding an SEC filing link to an earlier thread on this subject. For anyone having difficulty finding that earlier thread, it's here:
Those SEC links are helpful. In the filing one sees that the 0.07% ER that Sven mentions is actually the cost of the acquired funds. There is no second layer of fees.
Now if Vanguard would only do the same thing with its open end funds of funds and invest in Institutional (or at least Admiral) class shares, rather than investing in more expensive investor class shares (and thus implicitly slather on fees, albeit small ones).
Seriously, this has got to be one of the most stupid ideas I've seen in awhile. It equal weights five of its own family's ETFs. I have problems with simplistic equal weighting, but in some domains (e.g. S&P 500) an argument can be made for it. Not here.
What's being equal weighted are ETFs that represent apples and oranges. Some may be sector funds, others industry groups. Thus a concentrated sector gets as much weighting as a broad industry group. Used this way, the equal weighting is a lazy substitute for a methodology with any thought given to weights.
Worse, this apples and oranges fruit salad is prone to redundancy. Currently it has about 1/5 in FDN (Internet index) and about 1/5 in QTEC (Nasdaq 100 Tech). You can imagine the overlap. Facebook (8.78% and 3.34% respectively of the ETFs), Alphabet A&C shares combined (9.13% and 2.94%), Citrix Systems (2.44% and 2.84%), Akamai (2.12% and 2.75%). This isn't equal weighting, it's double counting.
You get the idea. Not to mention the 0.30% management fee on top of rather expensive underlying ETFs.
@Kaspa, Many diversified iShare ETFs that David posted are widely used by institutional investors and thus have high if not the highest daily trading volume. Powershares and Vanguard follow closely. Really need to look at them on case by case basis. Even sector-focus ETFs are widely used these days. I personally like to invest in Vanguard's ETF versus the equivalent index funds where sometimes a small 0.25% purchase fee is being charged (that is to cover added expense on new funds and it gets eliminated as the asset base grows).
I was talking about the ETFs of ETFs David mentioned. Average daily trading volumes from M* AOR: 131,000 AOK: 72,000 AOM: 125,000 AOA: 71,000 That's not a lot of volume. Of course, I am aware of the highly traded iShare and other ETFs, and have used them to get sector or market exposure.
Pardon ignorance, but not following --- how does volume affect much of anything in this case? They are made up of a variety of other etfs .... Ah, if you had a mil (20k sh) in AOA and wanted to sell it all at once, that would depress your price? Is this informative? https://sixfigureinvesting.com/2015/08/determining-liquidity-of-low-volume-etf-etn/
@ davidmoran: What I'm trying to point out , the article starts out with the word some, why not say most have the liquidity of large caps. Have a good night. Derf
Will read up on the link. My only direct experience from a year back was losing 1.5% on a market trade of 500 shares due to bid-ask spread. Limit order penny below ask did not go through for a long time and was forced to enter market order because I wanted to get out to fund another position. Never happened to me for high volume ETFs. Note that some days the volume can be dramatically lower than the average volume. Could be one-off.
Ah. Thanks v much for specific example. Interesting. I bet that was not unique. That's a nontrivial bid-ask.
I just checked at ML and for AOR at the moment it's 44.24 and 44.28, 4 cents. ~1% if my arithmetic is good today. Vol 56k. I did not try and trade a small quantity, so I suppose worse is possible. I did not check at Fido.
Given the kind of entity it is, such a nice diverse mix of other etfs (AOA, AOK, and AOM are very similar, different proportions), I guess it should be buy-hold and not something to consider trading.
But your point is taken and I will remember what I have learned when I suggest it in the future. Thanks much.
Comments
http://www.mutualfundobserver.com/discuss/discussion/34872/vanguard-announces-plans-to-launch-total-corporate-bond-etf
Those SEC links are helpful. In the filing one sees that the 0.07% ER that Sven mentions is actually the cost of the acquired funds. There is no second layer of fees.
Now if Vanguard would only do the same thing with its open end funds of funds and invest in Institutional (or at least Admiral) class shares, rather than investing in more expensive investor class shares (and thus implicitly slather on fees, albeit small ones).
Seriously, this has got to be one of the most stupid ideas I've seen in awhile. It equal weights five of its own family's ETFs. I have problems with simplistic equal weighting, but in some domains (e.g. S&P 500) an argument can be made for it. Not here.
What's being equal weighted are ETFs that represent apples and oranges. Some may be sector funds, others industry groups. Thus a concentrated sector gets as much weighting as a broad industry group. Used this way, the equal weighting is a lazy substitute for a methodology with any thought given to weights.
Worse, this apples and oranges fruit salad is prone to redundancy. Currently it has about 1/5 in FDN (Internet index) and about 1/5 in QTEC (Nasdaq 100 Tech). You can imagine the overlap. Facebook (8.78% and 3.34% respectively of the ETFs), Alphabet A&C shares combined (9.13% and 2.94%), Citrix Systems (2.44% and 2.84%), Akamai (2.12% and 2.75%). This isn't equal weighting, it's double counting.
You get the idea. Not to mention the 0.30% management fee on top of rather expensive underlying ETFs.
https://www.ishares.com/us/products/etf-product-list#!type=ishares&tab=overview&view=list&fac=43521
AOR: 131,000
AOK: 72,000
AOM: 125,000
AOA: 71,000
That's not a lot of volume. Of course, I am aware of the highly traded iShare and other ETFs, and have used them to get sector or market exposure.
Ah, if you had a mil (20k sh) in AOA and wanted to sell it all at once, that would depress your price?
Is this informative?
https://sixfigureinvesting.com/2015/08/determining-liquidity-of-low-volume-etf-etn/
Derf
so what exactly is the problem?
Derf
I just checked at ML and for AOR at the moment it's 44.24 and 44.28, 4 cents. ~1% if my arithmetic is good today. Vol 56k. I did not try and trade a small quantity, so I suppose worse is possible. I did not check at Fido.
Given the kind of entity it is, such a nice diverse mix of other etfs (AOA, AOK, and AOM are very similar, different proportions), I guess it should be buy-hold and not something to consider trading.
But your point is taken and I will remember what I have learned when I suggest it in the future. Thanks much.