I invest mostly in ETF’s. Mutual funds generally have higher fees than ETFs and are subject to capital gains taxation due to others selling out of the fund. Despite the small commission that needs to be paid for an ETF, I find it a much better product. They are also tax friendly! Is there any benefit that mutual funds have that ETFs do not? I’m tempted to sell my fund down and use it to purchase ETF’s of the same category. This will also act as my tax harvesting strategy. Are there any benefits that I’m simply overlooking by keeping it?
Active management. If you view this as a benefit.
Well, lets say one is placing money in a LCV Mutual Fund. Active management is unimportant.
KJH Wrote: ------------------------------------------------------- > I invest mostly in ETF’s. Mutual funds generally > have higher fees than ETFs and are subject to > capital gains taxation due to others selling out > of the fund. > > Despite the small commission that needs to be paid > for an ETF, I find it a much better product. They > are also tax friendly! > > Is there any benefit that mutual funds have that > ETFs do not? I’m tempted to sell my fund down and > use it to purchase ETF’s of the same category. > This will also act as my tax harvesting strategy. > Are there any benefits that I’m simply overlooking > by keeping it? No. Except that you put more people in the Mutual Fund gig out of work. ETF’s are the way to go.
You didn’t mention that mutual funds have no transaction costs if you go through Vanguard, Schwab, etc. and buy their in-house funds…this offsets the higher mgmt fees.
Young_Prof, Here is my scenario now. I have a Vanguard Fund in my Scottrade account. Is it possible to ACAT transfer it to Vangaurd? Scottrade hit me with a ‘sales fee’ even though it is a no load fund.
KJH Wrote: ------------------------------------------------------- > Young_Prof, > > Here is my scenario now. I have a Vanguard Fund > in my Scottrade account. Is it possible to ACAT > transfer it to Vangaurd? Scottrade hit me with a > ‘sales fee’ even though it is a no load fund. Sorry, can’t help you there… The only thing I can say is that you should build yourself a quick spreadsheet that compares the mutual funds’ higher annual fees versus the round-trip transaction costs of buying ETF’s in the same category. I suspect that, unless you are throwing around tons of money and/or are investing for the very long term, you may not benefit from selling off your mutual fund.
ETFs all the way. MF is a rip off to me. the only reason people buy MFs is because people think its more sophisticated and they have someone tellign them that its good, as opposed to ETFs which dont’ have great promotional vechicles. if you’re trying to gain exposure to the S&P, would you buy a equity fund or the spider? check out the performances of the equity funds, they get killed on average. why take the risk on a guy who claims they can beat the market? the market has been the clear winner for how long now. with a MF you’re taking on risk that the manager will underperform (which most do). i don’t see why anybody would get into a MF unless it is a bond fund or a international equity/bond fund. transaction cost are small. even where i work which most consider to be the most expensive, commission is only 29.00 for most trades. if you’re doing 10k, the commission is minimal.
>if you’re trying to gain exposure to the S&P, would you buy a equity fund or the spider? Spider. If i’m trying to beat it, I’d buy a “mutual fund” (we call them OEICs over here). >check out the performances of the equity funds, they get killed on average. The average person has less than two legs. The idea is to find the above average managers - some people profess to have the skill to identify these talents. >if you’re doing 10k, the commission is minimal. If you want a a diversified portfolio, you might want 10 assets (say). If you have 10k, that’s 1000 per fund. So that’s nearly 3 percent on a buy, and another on the ultimate sale. That’s significant. Commission is also significant if you want to invest regularly to take advantage of [insert currency] cost averaging. Mutual funds are useful. ETFs are useful. Neither dominates the other.
The premise of my question came from my rookie mistake. I should have bought my Vanguard Fund from Vanguard thereby eliminating the sales charge of my broker. I think I’ll simply hold it rather then play games and churn myself.
slightly off topic question that likely has a simple answer that should be obvious but I haven’t finished my coffee yet… Why isn’t there a secondary market in open end funds? If I want to buy your shares of the XYZ fund can you sell them to me? Say a crossing network… prior to the next days open you cross all the buys with sells at the NAV? I should know why, I guess but I can’t recall.
I think a better question is why you dont see a secondary market for funds that are closed to new investors?? i know you can gift stock/MF to people, so i imagine its possible to sell them?
Why own a MF? These assume a competent management team that are not closet indexers: 1) Active manager can exploit inefficiencies that are present in the small, emerging and mid cap markets. Given the out performance if some large cap managers this argument can apply 2) You want expourse to a specific part of the index or have a preference for a certain style that cannot be indexed as effectivly becasue it require qualitative judgement. 3)You want to avoid the pitfalls of the market cap wieghted indexs e.g. more of your portfolio becomes wieghted in the sectors or stocks that are hot right now. Case on point during the tech boom 30% of the TSX was Nortel. 4)Tax efficient income via TSWP ( for all you retirees out there;)
So I think consenus is that ETF’s are better than mutual funds. I mean honestley, all of the talented fund managers that may have helped MF’s comparitively say 20 years ago are now likely making 10X working at a HF
Isnt one of the goals in completing the CFA Program to give you the skills to beat the market. I would think that the group of people on this website would be proponents of active management since many of us here are trying to one day become managers. If you think the best way to earn money in the market is to buy the market, fine, but why are you here and why are learning how to beat it?
Because we are all better than the current crop of fund managers
thasnake82 Wrote: ------------------------------------------------------- > Isnt one of the goals in completing the CFA > Program to give you the skills to beat the market. > I would think that the group of people on this > website would be proponents of active management > since many of us here are trying to one day become > managers. If you think the best way to earn money > in the market is to buy the market, fine, but why > are you here and why are learning how to beat it? True, but unless you have a decent net worth you can’t really build a well divserified portfolio, which virtually no one here does seeing as how we’re mostly young people starting out. I don’t think the whole idea of not attempting active management is that out of tune with the idea of CFA, Book 2 of Level III is pretty much beating that point to death with individual portfolio management. Beta versus Alpha. With institutions, the situation is obviously very different for various reasons, ie more capital, more analysts, more controls etc. but even alot of institutional investors are using ETF’s, in some cases hunting alpha, in others to reduce Beta and hedge.
It used to be that MFs were the only option for small investors who agreed with the idea of efficient market portfolios and wanted to get index exposures. There were mutual funds that simply tracked an index (index funds), and then there were mutual funds that tried to beat an index through various active management strategies. For smaller investors that want active management and don’t have the time or want to do it themselves, MFs are still a sensible deal. Today, on the index front, if you want to get index exposures, index MFs and ETFs are more or less equivalent, although ETFs have a few advantages - intraday trading and the ability to short an index if you want to are the main ones. My guess is that the annual management fees are roughly the same. I’m not sure about the tax implications. I suspect ETFs may have larger tracking errors than index funds, but this would need to be checked, and for long term investments, it may not be that important. ETFs are also relatively new and probably haven’t weathered too many strange market conditions. I have a feeling that the way some ETFs are redeemed for a basket of underlying stocks could expose it to strange liquidity risks. I’m not sure if MFs have the same issue, but if I were trying to look for a difference between MF and ETF risk exposures, I’d investigate further there.
As a person in the mutual fund industry, ETFs are the devil!
ETFs basically beat index MFs in every way imaginable: http://en.wikipedia.org/wiki/Exchange-traded_fund#ETFs_vs._open-ended_funds Even Bogle, who invented MFs, can’t find a way to beat them, so notice that his firm (Vanguard) recently jumped on the bandwagon. His sole beef with ETFs is that some of them aren’t indices