Ron Delegge vs John Bogle on ETFs?

[BornInCA]

Ron Delegge has stated "Why Bogle is dead wrong on ETFs"
http://m.advisorone.com/2013/03/12/dele ... tfs?ref=hp

Bogle's response to Delegge was "It is you who are dead wrong"
http://m.advisorone.com/2013/03/12/bogl ... -wr?ref=hp

Hmmm. I wonder who is "dead wrong" here: Delegge? or Bogle?

[baw703916]

As a long term investor in ETFs, I don't consider it a problem that hedge funds invest heavily in them with high turnover. That lowers the bid-ask spreads!

[Ketawa]

Hmmm. I wonder who is "dead wrong" here: Delegge? or Bogle?

I think both interpret the data or use selective points to suit their viewpoints. Bogle points out that SPY is the most traded ETF in the world. Who cares? It's also the oldest ETF, mostly widely known ETF, has liquid options, etc. To echo the point above me, it doesn't matter at all to me if a hedge fund is the primary holder of an ETF.

The only ETFs I would consider that sometimes have a persistent premium/discount to NAV are those that also have a purchase/redemption fee to transact, such as VSS.

DeLegge exaggerates Bogle's position and accuses him or not understanding them, perhaps willfully. This seems an extreme distortion of Bogle's position, as Bogle pointed out with quotes from his book.

I think one of the biggest advantages of ETFs, which neither specifically addresses, is that it's easier to TLH. For example, I have the I Fund in the TSP, so I hold VWO in taxable. If I had a TLH opportunity, it would be far more difficult to execute it if I was limited to mutual funds. Vanguard has only one Emerging Markets fund. With ETFs, I can easily swap VWO for SCHE or IEMG. On top of that, IEMG has the same expense ratio and covers 99% market capitalization, versus 90% for VWO!

ETA - And even with the multitude of ETFs out there following crazy indexes, you still have Schwab and iShares promoting their broadest, lowest cost ETFs as Core ETFs. I don't think there's that many investors choosing a 2x S&P 500 ETF for a core holding. Additionally, the Vanguard study cited in both articles may confuse cause and effect. Maybe ETF investors trade slightly more frequently because they would have been predisposed to that anyway. They might have traded more frequently with mutual funds. In some ways, it's more difficult to trade ETFs. You have to do it while the market is open, you're stuck with whole shares, and you can't auto-invest easily. Admittedly, I haven't read the study and don't know if the Vanguard research team considered these possibilities.

[Random Musings]

Who is Ron Delegge? Not to say that he has some points, but so does John Bogle. Personally, I used ETF's, but I don't abuse them.

IMHO, the interesting part moving forward is that more active ETF's (without any pretenses of being tied to some "index") will be entering the market so people will be trading active ETF's during the day rather than active mutual funds at the close. I guess that's progress.

RM

[SpringMan]

Ron Delegge does not deserve our respect. Not only did he wrongfully attack Jack Bogle on the topic of ETFs, but incorrectly told his listeners that VEA holds Canadian stocks. Maybe he was thinking VEU but he said VEA. He routinely knocks portfolios that do not include commodities saying they are not be diversified, same for TIPs.

[dmcmahon]

As a long term investor in ETFs, I don't consider it a problem that hedge funds invest heavily in them with high turnover. That lowers the bid-ask spreads!

Ditto. I appreciate the liquidity and price discovery function, and don't mind if some fractional amount is skimmed from my trades because I do it so infrequently it's lost in the noise.

[pkcrafter]

Give the average investor an ETF and he will find a way to lower his returns.


Paul

[BornInCA]

http://money.cnn.com/2010/12/31/pf/inve ... /index.htm

I like the Vanguard Total Stock Market mutual fund, but if you want to buy the ETF version of it and hold it for a long, long time, up to forever, how could I argue against that?

The trouble is, when you buy something for the short term, or something that's concentrated as distinct from something diversified, that's really speculating, which is a loser's game.

I couldn't disagree with the above

[BornInCA]

Vanguard has only one Emerging Markets fund

Now they got 2. here is their second one
Vanguard Emerging Markets Select Stock Fund VMMSX
https://personal.vanguard.com/us/funds/ ... IntExt=INT

[Taylor Larimore]

"Why Bogle is dead wrong on ETFs"

Some people will say anything to get attention.

Best wishes.
Taylor

[Brian2d]

I'm not opposed to ETFs, though I don't own any at present. An investor who chooses an ETF similar to Vanguard's for low cost, low taxes, and market diversification is likely making a sound choice.

However, the tone of Delegge's piece was clearly uncalled for, being far too extreme (waiting for end of day is not tyranny), and Bogle's response has far more good points than the initial article. That said, there are times when ETFs make sense for an investor, and the fact that Delegge makes a poor case for ETFs is not a reason to avoid theme necessarily.

I agree with Bogle that for the most part, Vanguard has chosen a sound implementation for ETFs, and has created vehicles which can provide value for investors while avoiding many of the purely speculative ETF's (such as leveraged indices) pitfalls. Assuming a customer understands the potential risk of a difference between ETF buy and sell price and its NAV (which in the case of broad indices is likely to be small) there's nothing wrong with such an investor choosing index funds.

[LazyNihilist]

I'm not opposed to ETFs, though I don't own any at present. An investor who chooses an ETF similar to Vanguard's for low cost, low taxes, and market diversification is likely making a sound choice.

However, the tone of Delegge's piece was clearly uncalled for, being far too extreme (waiting for end of day is not tyranny), and Bogle's response has far more good points than the initial article. That said, there are times when ETFs make sense for an investor, and the fact that Delegge makes a poor case for ETFs is not a reason to avoid theme necessarily.

I agree with Bogle that for the most part, Vanguard has chosen a sound implementation for ETFs, and has created vehicles which can provide value for investors while avoiding many of the purely speculative ETF's (such as leveraged indices) pitfalls. Assuming a customer understands the potential risk of a difference between ETF buy and sell price and its NAV (which in the case of broad indices is likely to be small) there's nothing wrong with such an investor choosing index funds.

This is why I like Vanguard. They have a very good implementation of ETF's making them a share class of the same underlying fund.
I don't personally have any ETF's. But I can appreciate why they are useful. As long as they are not abused, they serve a very good purpose.