psriniva[at]yahoo.com (Paddy Srinivas) wrote in message news:<25d4a6b3.0310281923.107352c5[at]posting.google.com> ...
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The main problem with market timing trading in mutual funds, from the
point of view of the participant in the fund, is that it can generate
extra trading costs for the participants in the fund. This will drive
down their returns. ETFs shouldn't be making many trades, only buying
when selling new shares or buying and selling when the index
composition changes. However there's nothing stopping them from
having large administrative or trading fees.

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This is technically true, but misleading. ETFs aren't immune to
timing, so much as they are designed for market timing trades. You
can always either sell them directly or buy and sell futures on them.
The advantage is that the ETF doesn't have to incur the trading costs
when the shares of the fund are bought and sold. The downside is that
*you* incur trading costs to buy and sell them.

psriniva[at]yahoo.com (Paddy Srinivas) writes:

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That depends on the index being tracked. Most SP500 funds *do*
replicate the index. On the other hand, all Wilshire 5000 funds
simulate/sample it, since it's too expensive to handle owning all
those stocks. The fund prospectus will say what the fund is doing.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Hi,

Today, I learnt that transacion costs of buying and selling stocks by
Index mutual funds primarily for keeping in track with the underlying
index, are not included in calculating the expense ratio. So, the
commissions paid by the Index fund Manager is on top of the expense
ratio. So, an index fund's performance could lag further behind the
index if the commissions paid by the manager are large.

Note: Index fund will only try to simulate the index. The index fund
is not a replica of the index. For example: S&P 500 has around 500
stocks. The weights of each stock varies everyday due to changing
prices. On the other hand, the fund may have just 50 stocks out of
500. So, an index fund will periodically readjust its portfolio so
that the fund does not get too far away from the underlying index.

Am I correct? Any more comments?

Paddy



zhendsch[at]yahoo.com (zak) wrote in message news:<a7a1bede.0310280418.2ac425a0[at]posting.google.com> ...
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I was simply comparing ETFs to low-cost mutual funds. Vanguard's index
funds have the same ER as Barclays comparable ishares.

If you believe that there's widespread fraud in the securities
industry, then yes ETFs, cubes and spiders are somewhat immune to
arbitrage. I'm no expert, but as an investor I have to assume that
financial intermediaries are basically honest, but I suspect that
there are commissions and spreads in ETFs just like there are hidden
costs in mutual funds.


On Wed, 29 Oct 2003 04:02:52 CST, psriniva[at]yahoo.com (Paddy Srinivas)
wrote:

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Point 1. If I understand you correctly, Managers rebalance the ETF by
buying and selling component stocks. So, it is possible that the
managers are paying huge commissions so that their ETF gets promoted
by the broker.

Point 2. However, ETFs are immune to market timing trading. For
example manager of an ETF can not strike a special deal with a hedge
fund like Canary capital whereby Canary is allowed to buy after 4:00
p.m deadline. This is because ETFs are purchased in the open market
and not from the company.

Thus, I conclude that ETF's are less susceptible to fraud.

Am I correct about Point 1 and Point 2.

Paddy.
nGbZRS3BtySuN_remove_[at]att.net (paminof) wrote in message news:<3f9e771d.2064858279[at]netnews.worldnet.att.net> ...
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Expense ratios (ER) on ETFs such as Barclays (www.ishares.com) are
similar to Vanguards lowest-cost index funds. I don't see any
advantage to ETFs unless you're going to be trading frequently. I
looked at ishares and thought that I might be tempted to become a
day-trader. Vanguard's funds give you more choices, so I'm sticking
with them for now.

On Mon, 27 Oct 2003 11:39:19 CST, psriniva[at]yahoo.com (Paddy Srinivas)
wrote:

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"HW \"Skip\" Weldon" <skip5700removethis[at]hotmail.com> wrote in message news:<r3oqpvklpiq5201q2b967qhplvv1et83r9[at]4ax.com> ...
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No I haven't seen anything linking Vanguard to these inproprieties.
With Vanguard's mutual structure (if the company makes a profit that
profit is paid to the people invested in their mutual funds), they
wouldn't have much incentive to allow these sorts of trades. The list
of companies subject to inquiries is longer than you list, and IIRC
does include Putnum (and Fidelity), but it is yet to be seen who is
guilty.

Looking at the original question. Yes, brokers get paid for
recommending a mutual fund. When you pay a commission (or load) to
buy a fund, all of that money goes to the broker (and yes, paying
large loads will put a dent in performance).

For index mutual funds, however, you can check to what extent trading
is effecting performance by comparing the actual fund returns to the
corresponding index. The fund should lag by the amount of the expense
ratio, any more than that and you should look for a fund with less
tracking error.

On Mon, 27 Oct 2003 11:39:19 CST, psriniva[at]yahoo.com (Paddy Srinivas)
wrote:


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Besides Putnam, the only names I have heard associated with mutual
fund misbehavior were Bank of America and Janus. Has anyone heard
such things about Vanguard?

-HW "Skip" Weldon
Columbia, SC

Hi,

Recently, I heard that Mutual funds have been subjected to market
timing trading by their own managers (Putnam???). I also heard that
these Managers sometimes pay huge amounts of trading commissions to
brokers so that the brokers will recommend their funds. These two
activities will put a big dent on the mutual fund performance over the
long run.

I have investments in Vanguard Index 500 fund and Total Index funds.
I am thinking of converting these to Vanguard ETF's (Vipers?).

Are ETF's subject to similar payment of high commissions and market
timing trading by managers?

All I am wondering is whether my rate of return will be better with
ETFs's vis-a-vis Index Mutual funds.

Note: Expense ratio is almost same for Vanguard ETF and Vanguard Index
Mutual Fund.

All your responses are appreciated.

Thanks

Paddy Shri