Comments on: ETF substitutes for my portfolio

By: Gerald

Gerald — Wed, 25 Apr 2007 16:09:36 +0000

Keep in mind that for Int’l Large-cap the EAFE index can be replicated with 2/3 VGK and 1/3 VPL with an ER of 18 bp…

By: indexfundfan

indexfundfan — Mon, 23 Apr 2007 16:04:55 +0000

choozm,

I would keep most of the mutual funds. At this moment, I am using ETFs for emerging markets (VWO) and healthcare. I am adding these using a no-commission brokerage.

However, most of my investments are still held at Vanguard and their brokerage commissions are not competitive at all. I will let those remain in mutual funds.

By: choozm

choozm — Mon, 23 Apr 2007 14:32:22 +0000

indexfundfan,

When you substitute your mutual fund holdings with ETFs, what do you plan to do with the existing mutual funds? Keep them? Or sell them to buy into ETFs?

What are the concern when you switch-sell mutual funds to ETFs (cost, tax,… )?

By: indexfundfan

indexfundfan — Sat, 07 Apr 2007 23:55:02 +0000

Hi LostInRebates,

I am not sure how often and which broker do you use. But using a free-trade broker like those from Wells Faro or Zecco would help when using DCA with ETFs.

Currently, I only have a limited number of ETFs (VWO, IHI, IHF and PBE); most of my money is still invested in mutual funds with Vanguard. As for my strategy, I maintain a spreadsheet showing the value of the funds in each asset class. Every month, I will look at which asset classes are ‘lagging’ and put my money into that one. This is a purely mechanical system which helps to remove emotion from the equation and helps me stay the course.

By: LostInRebates

LostInRebates — Sat, 07 Apr 2007 19:41:13 +0000

Hello:

I am a big proponent of ETFs over Mutual Funds. But I have difficulty with Dollar Cost Averaging in ETF and so I still stick with Mutual Funds. Can you shed some light on your strategy for DCA? Thank you for your time.

By: indexfundfan

indexfundfan — Mon, 26 Feb 2007 18:01:05 +0000

It depends. The duration will depend on a combination of the following:

1. trading volume and liquidity (hopefully at least 100k shares traded everyday)
2. Fund size (at least 50 million)
3. tax efficiency / distributions (if possible)
4. amount of expense ratios savings

I wouldn’t be letting cash sit idle since I can still buy the mutual fund version in the tax-deferred account, and swap out into taxable account when I have decided on the ETF.

Overall, my guess is that the wait is probably 3 to 6 months.

By: choozm

choozm — Mon, 26 Feb 2007 11:35:30 +0000

indexfundfan, how long would you observe after the Vanguard’s Int’l ETF starts trading? If you take a long time (one year?) to observe its volume or spread before you decide to invest in it, then the cash waiting to be invested will be idle, no? I am just thinking of similar problem should Lyxor lists broad based ETF in SGX.

By: indexfundfan

indexfundfan — Sun, 25 Feb 2007 16:26:22 +0000

I added information on all the expense ratios into the post. The case for EFA doesn’t look so bad actually, but I would still be interested to find out more on Vanguard’s upcoming all-world ex-USA offering.

On US small-cap, IJR, which tracks S&P 600 index, might be a good option to VB (Vanguard small-cap index ETF) as it has a more respectable trading volume compared to VB.

By: indexfundfan

indexfundfan — Sun, 25 Feb 2007 05:48:06 +0000

choozm, you guessed right. I don’t like the ETFs with higher ER, e.g. EFA. As for Wisdom Tree’s DLS, it is just using the latest fad — weightage by dividend distribution and is not a “true” index fund. Rick Ferri calls it Spindex.

As for GDX, I think it deviates quite significantly from VGPMX — and I haven’t decided if I will take it up.

By: choozm

choozm — Sat, 24 Feb 2007 16:58:52 +0000

Hi,

Why are some ETFs “poor substitue”? Is it because of high ER? Or low trading volume?

How about trading volume of these ETFs? Any problem with that?