Low cost funds into ETFs?

[Bookm]

Let me also add to ats5g's (Alec's) Bernstein link with a later one by him as well, titled,  It's the execution stupid.

In all seven cases where a direct head-to-head comparison can be made, the Vanguard funds outperform the iShares. The results are highly statistically significant, with a t-stat of 2.78 for net returns and 3.44 for gross returns (p values less than 0.016 and 0.007, respectively). Pretty impressive for just seven data points. In some cases, it isn’t even close; the Vanguard Small-Cap Value Index Fund beats the relevant ETF by about 80 basis points (bp) both In all seven cases where a direct head-to-head comparison can be made, the Vanguard funds outperform the before and after expenses.
The conclusion here should be obvious even to the most rabid early-adopter (if it hasn’t already hit everyone else over the head in light of recent events in the fund industry): corporate culture counts. It’s not that there’s anything wrong with Barclays; their tracking errors are pretty respectable. It’s just that they’re not Gus Sauter.

Which is a slight variance from the first article from a little over two years prior. Keep in mind tho, who's opinion is statedin the first article:

In the opinion of Mr. Wiandt, the common bugaboos raised about ETFs—the discount/premium problem, the bid/ask spread, and dividend-reinvestment drag—are not significant. In most cases, these are less than 0.25%. In addition, as more shares are created and traded, the arbitrage opportunities at the authorized-participant level will narrow the discount/premium spreads even more. But Mr. Wiandt raises a more important point, namely, that "an ETF is only as good as its underlying index." If the index consists of liquid stocks, then its ETF will trade with reasonable spreads and minimal discount/premium problems. And if the markets are highly illiquid, and especially if there are currency constraints, as occurred in the past few years with the iShares Malaysia Fund, then the discount/premium problem will be enormous

Just some more to consider (if there isn't already enough, eh?) 

Bookm

 

[Olav23]

I would have to argue the efficient market foundation here. If the underlying portfolio ETF is less efficient than the Vanguard fund, then it would create an arbitrage opportunity (even for as little as 80bp which could be heavily leveraged into some real dollar amounts). And if said arbitrage exists, it would be abused until the market cleans it up efficiently, like with your case of the malaysian fund?

Also, why would a fund do any better or worse than an ETF with the same portfolio? If either has illiquid stocks, you are only as good as your broker/market maker as far as slippage/trading costs. My guess is, perhaps vanguard has better relationships with broker dealers or uses specific marketplaces and good managers that know where to send specific orders over a StateStreet Ishare or something... I don't even wanna get into VWAP strategies here!