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ETFs
Old 01-03-2007, 03:24 PM   #1
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ETFs

I am helping my brother invest a taxable nest-egg. I am not an ETF investor but I do know enough to look to consider management and fund holdings. On the table at the moment is large cap value, choosing between iShares Morningstar Large Value (JKF) and Vanguard Value ETF (VTV) for large cap value; and choosing between iShares S&P 600 Barra Value (IJS) and Vanguard Small Cap Value (VBR).

I looks like iShares has a slight edge. Am I missing something other than the saintly corporate culture of Vanguard?
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Re: ETFs
Old 01-03-2007, 03:57 PM   #2
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Re: ETFs

ishares tracks a different index than the respective vanguard etfs. I'm thinking that the indexes that ishares track are more value-ey than VG's etfs. Value outperformed, hence the more value-ey indexes also outperformed. With ishares, you're paying an extra 0.13-0.14% in expenses - may be significant if you add enough zeroes to the portfolio size.
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Re: ETFs
Old 01-03-2007, 04:24 PM   #3
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Re: ETFs

In theory at least all are "value" ETFs, two small cap, two large cap.

His nest-egg is modest and we plan to keep it at Vanguard. Probably choosing Vanguard ETFs (lacking any major reason) would be the way to go.
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Re: ETFs
Old 01-03-2007, 06:43 PM   #4
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Re: ETFs

Especially since it's taxable, I'd also consider using total market index VTI (extremely tax efficient), and a relatively small amount of Rydex Pure Value small, and possibly either the Rydex pure value mid or large.

The pure value indexes are deep value, so only a little is needed, and E/R is "only" .35 when I last looked, which may be cost effective since you need less of it.

There's some good advice here: http://www.altruistfa.com/dfavanguard.htm

If it were my brother, I'd probably just suggest VTI and nothing else for U.S.

Among the choices you list, I'd pick VTV and VBR, because I'd expect them to be more cost and tax efficient in the long run, since the new VG indexes were designed with that in mind, and they will probably always have lower ER.
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Re: ETFs
Old 01-03-2007, 07:24 PM   #5
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Re: ETFs

I've been real happy with IJS, but we've never been with Vanguard or a fund company that will handle their products without an extra fee.

It probably all comes down to the expense ratio. I like that iShares tries to stick to the index (or a "representation" of it) without trying to add alpha, but Gus Sauter's gotten away with that for so long that no one challenges it any more.
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Re: ETFs
Old 01-03-2007, 07:56 PM   #6
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Re: ETFs

I like to use etf's that have some liquidity. I just feel that in the back of my mind, I may want to sell quickly, though I never have. So I add average trading volume to my decision. Also look at the bid/ask spread. When the volume is high, the spread tends to be low; when the volume is low ....
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Re: ETFs
Old 01-03-2007, 10:28 PM   #7
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Re: ETFs

Heaven help the over analyzer!!! (God knows I need help) I found an article on the web that talked about international ETF's and expenses.

I graphed out the iShares total foreign against the Vanguard equivalent in an index fund and low and behold after 5 years or so Vanguard index fund came out ahead. The difference is infinitesimal for the first couple years, but then the expenses seem to catch up. So much for ETFs being more cost effective than index index mutual funds.
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Re: ETFs
Old 01-03-2007, 11:10 PM   #8
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Re: ETFs

Hi Brat
The altruistfa link provided before is very useful - I saw the question and thought I should post that link and saw someone already did. It details for each asset class the lowest ER and the ETF's or funds with the best chracteristics like value and small. You might also find the links useful on the same site:
http://www.altruistfa.com/readingroomarticles.htm#ETFs

Bernstien has 2 very good writeups on the topic
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Re: ETFs
Old 01-04-2007, 09:36 AM   #9
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Re: ETFs

Quote:
Originally Posted by Brat
I graphed out the iShares total foreign against the Vanguard equivalent in an index fund and low and behold after 5 years or so Vanguard index fund came out ahead. The difference is infinitesimal for the first couple years, but then the expenses seem to catch up. So much for ETFs being more cost effective than index index mutual funds.
I don't understand the comment about "infinitesimal difference for the first few years". What changes? Is this analysis based on DCA or a one-time lump-sum purchase?
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Re: ETFs
Old 01-04-2007, 11:02 AM   #10
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Re: ETFs

I used http://stockcharts.com/charts/perfor...html?vgtsx,efa
and stretched it to 1350 days.

This will be a one time purchase. If the mutual fund is purchased in a Vanguard account there are no transaction fees for the original purchase or re-invested dividends. If he buys efa dividends I doubt that dividends would be reinvested (I haven't figured out if there is a program to do that without fee).
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Re: ETFs
Old 01-04-2007, 11:04 AM   #11
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Re: ETFs

Quote:
Originally Posted by Brat
If he buys efa dividends I doubt that dividends would be reinvested (I haven't figured out if there is a program to do that without fee).
I can't speak for Vanguard but Fidelity reinvests stock & ETF dividends at no charge.
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Re: ETFs
Old 01-04-2007, 01:40 PM   #12
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Re: ETFs

Quote:
Originally Posted by Brat
I used http://stockcharts.com/charts/perfor...html?vgtsx,efa
and stretched it to 1350 days.
This will be a one time purchase. If the mutual fund is purchased in a Vanguard account there are no transaction fees for the original purchase or re-invested dividends. If he buys efa dividends I doubt that dividends would be reinvested (I haven't figured out if there is a program to do that without fee).
Brat,
I could not find anywhere if these charts include dividends and capital gains distribution - so you might be not exactly comparing the "performance" you want.
On your other question Schwab will reinvest dividends and capital gains for free on most ETFs (but not on some CEFs, like GIM for example). Scottrade will not let you do this.

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Re: ETFs
Old 01-04-2007, 11:27 PM   #13
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Re: ETFs

I thought PerfChart included dividends, but if it doesn't the spread would increase, if the last 12 months are indicative. The yield of EFT is 1.54%, VGTSX 1.68% for the current period (per Yahoo).
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