ETF's the mutual fund of now?

8839 Views 12 Replies 12 Participants Last post by Canadian CC, Oct 18, 2009

Smac20

Discussion Starter · Sep 13, 2009

I think ETFs are basically just glorified mutual funds. They are so similar.

1) own a pool of stocks (same as a mutual fund that tries to match the market)

2) they charge a MER (but slightly less than most funds since there are less trades)

This is likley to cause a bubble with eveyone buying etfs just like what happened with the mutual funds.

The only reason we have ETFs now is because it is common knowledge that fund managers suck at beating the market as a result they rename there mutal funds etfs and try to match the market with a similar basket of stocks.

The only real difference is that there are no front/back end fees associated with etfs (at lease I think so).

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DrStan

· #2 · Sep 13, 2009

Are you kidding? Explain the following assertions and then you may have some actual relevant answers to your post:

1) "ETFs are basically just glorified mutual funds". What do you mean by glorified? I don't get it.
2) "Mutual funds try to match the market". Uh, no. Mutual funds actually try to beat their index. That's their goal.
3) ETFs have a mer "slightly less" than mutual funds. Uh, no. They can be 10 times lower and more. Trading activity is not the only issue. There are trailer fees to advisors and a bunch of other administrative expenses associated with mutual funds.
4) Explain what you mean by "likely to cause a bubble". I'm very curious to know what shape this "bubble" will take.
5) "They rename their mutual funds ETFs". Uh, no. These are two different ways to invest. The closest mutual fund to an ETF is an index fund.
6) The "only real difference is that there are no front/back end fees associated with etfs". Uh, no. There are mutual funds without such fees. They're called no load. Look into it.

Please educate yourself before posting such nonsense.

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bean438

· #3 · Sep 14, 2009

I have also read that an index mutual fund will be forced to sell stock in the case of a lot of redemptions to raise cash.

An ETF doesnt have to sell any stock as it is just a receipt for stocks.
You dont have to be penalized for panic selling, you can hang on.

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Rickson9

· #4 · Sep 14, 2009

ETFs v. Index Funds

"Which Investment Will You Choose?
"Typically, the choice between ETFs and index funds will come down to the most important issues: management fees, shareholder transaction costs, taxation and other qualitative differences. According to the analysis we mentioned earlier by Kostovetsky, a comparison of these costs favors index funds as the choice for most passive retail investors. Kostovetsky's analysis assumes no tracking costs and the more popular indexes."

"For example, if you were looking at a holding period of one year, you would be required to hold over $60,000 of an ETF for the management fee and taxation savings to offset the transaction costs. With a longer-term time horizon of 10 years, the break-even point would be lowered to $13,000. However, both these limits are usually out of range for the average retail investor."

"Conclusion
"As with many financial decisions, determining which investment vehicle to commit to comes down to "dollars and cents". Given the comparison of costs, the average passive retail investor will decide to go with index funds. For these investors, keeping it simple can be the best policy. Passive institutional investors and active traders, on the other hand, will likely be swayed by qualitative factors in making their decision. Be sure you know where you stand before you commit."

http://investopedia.com/articles/mutualfund/05/ETFIndexFund.asp

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Spidey

· #5 · Sep 14, 2009

IMO it depends which ETFs. For example, some specialized ETFs have only a handful of holdings. (I could be off by one or two but I believe XRE has 11). So is it worth for a long term investor it to pay a .55% MER for 11 holdings? Even if you only had the money to buy the top 5 individually, you would probably be better off. The top 5 holdings make up about 70% of the fund and Riocan alone makes up 25%.

I do like some of the ETF fixed income funds, however and they usually have low MERs (.25% for XSB).

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leslie

· #6 · Sep 14, 2009

I agree with Spidey that it depends on the ETF. For every new ETF (almost) created there has been a new 'index' created as well. Instead of the ETF mirroring the index, the reality is that the indexes are created to mirror what the ETF mananger can do.

See this list of indexes on StockCharts. It is endless. Yes some are technical screens, but most are the indexes created to justify ETFs.

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Jon Chevreau

· #7 · Oct 17, 2009

"I thought I wanted an ETF"

Has anyone seen Mackenzie Financial's new brochure supposedly rebutting ETF myths? It's called "I thought I wanted an ETF." There's a link to it in my blog of the same title published today:

http://network.nationalpost.com/np/...0/17/quot-i-thought-i-wanted-an-etf-quot.aspx

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osc

· #8 · Oct 17, 2009

Most non-index mutual funds don't beat S&P 500 even before considering the load. If one likes to gamble, I'd recommend a combination of individual stocks instead of mutual funds. Each month buy a different one to keep transaction cost to minimum.
To decide between index funds and ETFs, transaction costs need to be considered besides mer/load. Usually index mutual funds make sense only for small recurring monthly investments. For moderate investments (like 2000-3000/month) and low transaction costs (like $5/transaction) a combination of 2-3 ETFs beats a combination of 2-3 index funds.

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fersure

· #9 · Oct 17, 2009 (Edited)

Claymore's Pre-Authorized Cash Contribution Plan

Jon Chevreau said:
Has anyone seen Mackenzie Financial's new brochure supposedly rebutting ETF myths? It's called "I thought I wanted an ETF." There's a link to it in my blog of the same title published today:

http://network.nationalpost.com/np/...0/17/quot-i-thought-i-wanted-an-etf-quot.aspx

"I thought I wanted to barf..."

Claymore's PACC

Claymore's PACC plan shoots Mackenzie's cost myth to shreds. Mackenzie brings up the red herring that if your want to purchase funds monthly, you'll incur monthly transaction costs. Claymore's PACC means no transaction costs after the intial purchase for automatic deductions, just the (somewhat higher than average) MER.

Now if only iShares would introduce this feature!!!

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fersure

· #10 · Oct 17, 2009

Claymore's Pre-Authorized Cash Contribution Plan

Another thing...I just noticed that majority of the big banks on-line brokerages won't allow PACC contributions. I use Credential Direct, and have never had a problem. Yet another reason to leave the big banks!

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OntFA

· #11 · Oct 17, 2009

fersure said:
Claymore's PACC plan shoots Mackenzie's cost myth to shreds. Mackenzie brings up the red herring that if your want to purchase funds monthly, you'll incur monthly transaction costs. Claymore's PACC means no transaction costs after the intial purchase for automatic deductions, just the (somewhat higher than average) MER.

Now if only iShares would introduce this feature!!!

Yes, but Claymore hasn't really introduced it. From what I've seen and heard, no broker is actually facilitating this program. So Claymore keeps saying it's up and running and brokers keep saying it ain't. Until that's resolved, that part of Mackenzie's argument stands. By the way, I think Mackenzie's arguments are weak but that's beside the point of this particular discussion.

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mogul777

· #12 · Oct 18, 2009

Crap and crappier. Not really worth a thread. Both products are mass marketed inherently flawed garbage. The only real difference is that ETFs aren't as bad.

And by the way find me an index fund with a load... pretty much only the no load banks offer index funds. Of course I'm excluding the moron only bank funds that charge load fees.

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Canadian CC

· #13 · Oct 18, 2009

I found 2 interesting post on the topic:

A financial planner and a Trader are arguing on which one is best between ETF and Mututal funds. They take the TSX60 index over the past 5 years (9.40% annualized yield) and compare it to the XIU (Canadian Market ETF Index; 9.25%) and the Altamira Canadian Index mutual funds (8.84%). While the ETF is obviously much closer to the TSX60 than the Altamira funds, there are situations where the mutual funds is better than the ETF's. Here are the 2 articles:

ETFs VS Index Mutual Funds: The Ultimate Battle!

Top 10 reasons ETF’s are superior to Mutual Funds

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