Comments on: Should I convert VEIEX to VWO ETF? http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/ Personal finance and investing in mutual funds and ETFs Thu, 08 Jan 2009 12:46:57 +0000 http://wordpress.org/?v=2.5 By: indexfundfan http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-23054 indexfundfan Mon, 21 Apr 2008 15:19:12 +0000 http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-23054 dave.d, thanks for your comments. It's interesting that you should mention about specific share ID. Recently I tax-harvested my Total Stock Market index mutual fund using specific share identification and I do intend to write about it. ;-) dave.d, thanks for your comments. It’s interesting that you should mention about specific share ID. Recently I tax-harvested my Total Stock Market index mutual fund using specific share identification and I do intend to write about it. ;-)

]]> By: dave.d http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-23051 dave.d Sun, 20 Apr 2008 16:05:23 +0000 http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-23051 The second possible reason cited for converting -- "the possibly better tax efficiency in terms of capital gains distributions" -- is not valid as stated. The ETF share class will have exactly the same capital gain distributions as the open-ended fund, because they are the same fund. Some tax benefit will accrue to the combined fund from the destruction of low-basis shares in ETF redemptions by authorized participants, but that benefit will be shared with investors in the open-ended fund. However, there is a tax-related advantage to holding the ETF, in that Vanguard Brokerage Service supports on-line tracking of tax cost lots on vanguard.com, which can be set (upon request) to track the sale of highest-cost shares first (HIFO). HIFO will result in optimal or near-optimal tax results, for example when tax-loss harvesting. It may still be necessary for compliance with IRS rules to call VBS the same day of each sale, and ask them to note on your confirmation that you are selling the highest-cost shares. Still, after entering the tax lots upon conversion, the online tracking will save a lot of tedious work -- especially in a volatile asset class like emerging markets where you are likely to have both purchases and sales if you rebalance periodically. I understand that Vanguard is also now supporting specific share ID to some extent in the open-ended funds, but apparently this must be requested by telephone and is not tracked online. I have not used this feature and can't really comment or explain. This last might be a good topic for a future piece, if not already done. THANKS dave.d The second possible reason cited for converting — “the possibly better tax efficiency in terms of capital gains distributions” — is not valid as stated. The ETF share class will have exactly the same capital gain distributions as the open-ended fund, because they are the same fund. Some tax benefit will accrue to the combined fund from the destruction of low-basis shares in ETF redemptions by authorized participants, but that benefit will be shared with investors in the open-ended fund.

However, there is a tax-related advantage to holding the ETF, in that Vanguard Brokerage Service supports on-line tracking of tax cost lots on vanguard.com, which can be set (upon request) to track the sale of highest-cost shares first (HIFO). HIFO will result in optimal or near-optimal tax results, for example when tax-loss harvesting. It may still be necessary for compliance with IRS rules to call VBS the same day of each sale, and ask them to note on your confirmation that you are selling the highest-cost shares. Still, after entering the tax lots upon conversion, the online tracking will save a lot of tedious work — especially in a volatile asset class like emerging markets where you are likely to have both purchases and sales if you rebalance periodically.

I understand that Vanguard is also now supporting specific share ID to some extent in the open-ended funds, but apparently this must be requested by telephone and is not tracked online. I have not used this feature and can’t really comment or explain. This last might be a good topic for a future piece, if not already done.

THANKS
dave.d

]]> By: indexfundfan @ indextown » Blog Archive » Review of VEIEX to VWO ETF conversion at VBS http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-23037 indexfundfan @ indextown » Blog Archive » Review of VEIEX to VWO ETF conversion at VBS Fri, 18 Apr 2008 14:40:41 +0000 http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-23037 [...] various reasons already discussed (Should I convert…? and Is it worthwhile to pay the ETF conversion fee?), I recently converted my Vanguard Emerging [...] […] various reasons already discussed (Should I convert…? and Is it worthwhile to pay the ETF conversion fee?), I recently converted my Vanguard Emerging […]

]]> By: indexfundfan http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-22929 indexfundfan Sun, 13 Apr 2008 16:55:59 +0000 http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-22929 stan1, I have the Total Stock Market admiral shares and I am not converting them. I had held out converting the emerging markets fund until recently to save on the conversion fee. I will probably convert tax managed intl soon because I intend to tax harvest my most recent purchases (no redemption fee on ETF shares). stan1, I have the Total Stock Market admiral shares and I am not converting them. I had held out converting the emerging markets fund until recently to save on the conversion fee. I will probably convert tax managed intl soon because I intend to tax harvest my most recent purchases (no redemption fee on ETF shares).

]]> By: stan1 http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-22891 stan1 Sun, 13 Apr 2008 07:14:19 +0000 http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-22891 One thought on the investment horizon. You will get Admiral shares when your investments in any fund grow to $100K or $50K after holding for 10 years. I have decided to stick with my Investor class Total Stock Market shares because I should be able to get Admiral shares in about 4 more years. I did convert Emerging Markets and Tax Managed Intl to their ETF share classes. The most disturbing feature of the conversion process is that the old mutual fund shares you are converting will disapear from your mutual fund account for a few days before the new ETF shares show up in your brokerage account. The VBS phone rep wanred me this would happen, and everything was good within 3 working days. Not sure how this will work at other brokerages if you are not doing the conversion at VBS. One thought on the investment horizon. You will get Admiral shares when your investments in any fund grow to $100K or $50K after holding for 10 years. I have decided to stick with my Investor class Total Stock Market shares because I should be able to get Admiral shares in about 4 more years. I did convert Emerging Markets and Tax Managed Intl to their ETF share classes. The most disturbing feature of the conversion process is that the old mutual fund shares you are converting will disapear from your mutual fund account for a few days before the new ETF shares show up in your brokerage account. The VBS phone rep wanred me this would happen, and everything was good within 3 working days. Not sure how this will work at other brokerages if you are not doing the conversion at VBS.

]]> By: indexfundfan @ indextown » Blog Archive » Is it worthwhile to pay the ETF conversion fee? http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-22890 indexfundfan @ indextown » Blog Archive » Is it worthwhile to pay the ETF conversion fee? Sun, 13 Apr 2008 06:03:57 +0000 http://www.indextown.com/archives/2008/04/12/should-i-convert-veiex-to-vwo-etf/#comment-22890 [...] indexfundfan @ indextown Personal finance and investing in mutual funds and ETFs « Should I convert VEIEX to VWO ETF? [...] […] indexfundfan @ indextown Personal finance and investing in mutual funds and ETFs « Should I convert VEIEX to VWO ETF? […]

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