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Barclay iShares
Old 02-01-2005, 07:37 PM   #1
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Barclay iShares

For some reason, on a couple of recent occasions, I've run across references to Barclay iShares as a lower cost index investment than Vanguard funds.

Anyone have information? The published expense ratio for the iShares S&P500 index fund is 0.09%. Is there a catch?


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Re: Barclay iShares
Old 02-01-2005, 08:23 PM   #2
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Re: Barclay iShares

Bernstein has a couple of columns on this on his web page. In summary, it's the tracking error.

Here's two of those columns:

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Re: Barclay iShares
Old 02-02-2005, 07:12 AM   #3
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Re: Barclay iShares

For some reason, on a couple of recent occasions, I've *run across references to Barclay iShares as a lower cost index investment than Vanguard funds.
It just depends on the funds. Some iShares ETFs have ERs of 0.25% or 0.4%. Or their international ETF (EFA) lacks the dollar hedging offered by some mutual funds.

And of course it depends on brokerage fees. For smaller periodic amounts, one writer has advised stashing DCA money in Vanguard until $10K-$25K is accumulated and then cashing in the Vanguard funds to make a single purchase of the corresponding ETF.

But others swear by Sauter's experience at index replication with minimal tracking error.

I think Barclays works very hard to keep their more popular ETFs a bp or two below Vanguard & Fidelity IOT profit from the fees paid by arbitrageurs who are buying the units and redeeming them. Hopefully their fee income makes up for the loss-leader expense ratio.

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Re: Barclay iShares
Old 02-02-2005, 10:49 AM   #4
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Re: Barclay iShares

Hyper, Nords,

Thanks for the info.
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Re: Barclay iShares
Old 02-09-2005, 11:32 AM   #5
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Re: Barclay iShares

If I were to make a decision based on Vanguard's/Gus' record on positive tracking errors, I'd want to understand risks taken to beat the index.
Are bets being made which ordinarily would give a slight advantage, but very rarely lead to big losses?
A Vanguard bond index fund had a significant negative tracking error not long ago. IIRC, in that case, bets were made in the form of deviating from the index.
Another attempt to beat the index involves futures. Perhaps if done properly, extra return can be obtained without risk? I haven't researched this; am imagining using futures trades to collect on spreads somehow, when there's fund redemptions or inflow, without changing exposure to the index. Just don't screw up...

Bernstien talks about corporate culture at Vanguard being an advantage. I suppose I still feel that way, but not as much as I used to.

Depending on frequency of trades/rebalancing, the differnece between your executed price and the NAV can be a significant downside to ETFs. It is small though if you buy and hold, for many ETFs.

Another reason to chose an ETF might be the availability of an index you want to own.
For example, I like the Barra value indexes, mostly because they don't penalize a stock for growing earnings. The Vanguard (Morgan Stanley) and DJ, Russel, Morningstar indexes do, if I understand correctly.
Others may have different reasons to chose an index, such as getting deeper value (like Morningstar omitting core stocks from value index) or techniques to slow turnover (like Morgan Stanley delaying removals).
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