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).