Bogleheads

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Hi,

I've been reading this forum for about a year, but have finally made an account.

I know there have been several threads on the new FTSE All-World ex-US Small-Cap Index Fund/ETF, but I have some specific questions I wanted to ask. From reading the forums, I suspect people here will come up with reasonable predictions for the answers.

Some background:

1. I plan to put about $7K into this fund in the next week or two.
2. Taxable account
3. My trading cost for ETF = $10.
4. For Mutual Fund, I'd just use my Vanguard account.
5. I plan to leave the money in there for a very long time frame.
6. For those not following this fund:

ETF - .38 ER available April 3
Mutual Fund - .60 ER, .75 Purchase and Redemption fee (fee waived until after April 2).

I need to decide the cost trade-offs between the ETF and Mutual fund. I know expense ratios, ETF trading fee, mutual fund purchase and redemption fees, etc. Some questions:

1. Does anyone one have an idea on what kind of spreads this may have for the ETF? This is the main cost I cannot estimate. I bought some other ETFs in the past, but they had very high volume so the 1 cent spreads were not an issue.

2. If I buy the ETF, should I do it on the first day, or wait? When will spreads and premium/discount to the NAV be most favorable? What time of day is best? Limit Order?

3. If I buy the mutual fund, April 2 or shortly before that seems the way to go, correct?

My dilemma is that I won't know the ETF spreads until after April 2, but if I wait until then I'll miss the no-purchase fee period for the mutual fund.

I am leaning toward the ETF route, but just worry I'll pass April 2 and then see huge ETF bid/ask spreads.

tarnation · Joined: 26 Apr 2007 Posts: 1371

I'm no expert, but I imagine that ETF will be trading at a premium for a while since money will be flowing in.
I you buy ETF at your brokerage, can you reinvest for free?
Do yo plan on any TLH?

Don't think there is any free lunch to be found here really. If you want to own it, I think the simplest way to go is to buy in during the subscription period.

If you want to TLH, then maybe buy the ETF's after a while.
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Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Thanks for the reply, tarnation.

I agree the ETF may be at a premium at first. I don't fully understand how they make the new creation units, so don't know how fast they can respond to ETF demand.

"I you buy ETF at your brokerage, can you reinvest for free?" - YES, even fractional shares.

"Do yo plan on any TLH?" - No. After last year, I have plenty of losses to carry-over for a while.

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Thanks to the 8 people who answered the poll. Any reason why you voted the way you did?

gkaplan · Posted: Wed Mar 25, 2009 3:14 pm Post subject:

I voted for VFSVX. I don't want to open a brokerage account.
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Gordon

Karl · Joined: 13 May 2007 Posts: 918 Location: Milwaukee, WI

I seem to recall that Vanguard International ETFs almost always sell at a premium according to annual reports (I assume that would be end of day pricing).

Would it thus be reasonable to buy it during the subscription period and then if I wanted exchange it to ETF shares (free as I'm a Flagship client)?

Yes, I fully realize that buying during the subscription period does NOT avoid transactions costs. While there is no 0.75% purchase fee, the pile of new money will obviously be subject to however much costs Vanguard incurs in buying about 1,500 international small caps at the end of the subscription period.

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

gkaplan - I have a brokerage account already, so no big deal there.

Karl - Good point. I am a long way from Flagship status, so converting would cost me $50 (and I'd lose tax history when changing brokers). If I were Flagship I'd consider going that route (buy mutual fund then convert). No spreads to worry about, and buys at NAV, not a premium/discount.

I've been following the poll and comments closely. I am still undecided but leaning toward ETF.

Can anyone guess what the spreads/premiums will be? That's my main fear.

AboveBeyond · Joined: 27 May 2008 Posts: 19

I didn't vote but I do comtemplate a lot in deciding to go with MFs or ETFs. It seems to me that if you invest infrequently and hold long term, ETF is the way to go. But for soem reason I still feel it more comforting to go with MF because it tried and trusted! And so there's my dilemma Laughing

I'm waiting to get into this fund too! My brokerage doesn't have VSS yet..

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Thanks AboveAndBeyond.

We are on the same page, so the poll results will help you as well. The ETF is available April 3 I believe.

I prefer mutual funds, but will do ETF if it is something I cannot get otherwise, or if the cost difference is large. For this one, I am leaning toward ETF because of the cost difference... just wish I knew the spreads/premium.

Especially if I buy the ETF, I do not plan many trades in this fund.... just trying to get some exposure to small cap intl.... it doesn't need a perfect weighting so will just buy and hold.

Visitor · Joined: 02 Apr 2008 Posts: 156

I'm confused here. If your a Buy-and-Hold ETF Investor does it really make a big difference on the ETF bid/ask spreads if you buy the first day?

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Visitor, that's what I am asking. Should I be worried about the spread? I never bought an ETF when it first came out. Are you saying it will be small enough I should just ignore it?

That sure would make the decision easier. Like I said, in the past I've only bought some of the big ETFs with tiny spreads and huge volumes.

tarnation · Joined: 26 Apr 2007 Posts: 1371

Visitor · Joined: 02 Apr 2008 Posts: 156

Tarnation,

If what you say is true, then the premium is more than likely not to be significant the first day the ETF opens correct?

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

By the way, is the ticker for the index this fund tracks SS03.FGI?

tarnation · Joined: 26 Apr 2007 Posts: 1371

grabiner · Joined: 21 Feb 2007 Posts: 3882 Location: Columbia, MD

Karl · Joined: 13 May 2007 Posts: 918 Location: Milwaukee, WI

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Yes, the premium/discounts seem to average out... but not sure if it will be true for when a fund first opens..

modal · Joined: 20 Feb 2007 Posts: 1080 Location: USA

I'm going to VFSVX fund route.

tarnation · Joined: 26 Apr 2007 Posts: 1371

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Anyone else would like to give their reasons?

The decision time nears....

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

11 votes for the Mutual Fund, 11 votes for the ETF. You folks aren't doing a very good job helping me decide! Wink

livesoft · Joined: 01 Mar 2007 Posts: 12030

OK, I'll try to break the tie: Go buy something else like GWX.

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

I've followed GWX for about 6 months now. It's a good fund, but did not buy it for several reasons compared to VSS:

1. .59 ER
2. Almost no EM
3. 511 stocks
3. 38.8% Japan seems heavy (even though VSS exact weight still unknown..about 17%)

On the plus side, we know its volume and spreads, but in the long term I don't worry about that for VSS (only in the short term).

Any compelling reason you recommend it over VSS?

livesoft · Joined: 01 Mar 2007 Posts: 12030

VSS has no history. None. Give it time. Also I think you should not ignore potential future tax loss harvesting just because you have plenty of carryover.

The ER is probably not so important. You can find a day to buy/sell when the premium/discount and the bid/ask spread overwhelms any difference in ER. For example, any big difference in return from EEM and VWO? Really?

I'm not against VSS, but there's no compelling reason to buy it now. I will probably own it in the future.

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Those are good points.

I am still leaning toward VSS, and think I'll wait to see the spreads/premiums.

I don't plan to buy GLX, SCZ or DLS. If I didn't find them compelling enough to buy before VSS, that won't change once VSS is live. So I guess it's not a VSS vs. GWX decision for me... more like a go or no-go decision. My portfolio won't explode if it is missing 7-10k of small cap international.

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Actually, livesoft, those are VERY good points.

I think I will plan on the ETF route. If April 3 comes and the spreads look large or premiums are out of whack, and they don't stabilize favorably, I'll just dump it in FSIIX to at least keep my AA in balance for overall international (plus, its close to advantage class then). When VSS matures, then I'll buy it.

On the other hand, if spreads, etc. look good, then I'll buy VSS right away.

grabiner · Joined: 21 Feb 2007 Posts: 3882 Location: Columbia, MD

Visitor · Joined: 02 Apr 2008 Posts: 156

Guys I'm considering to buy the index fund during the subscription period (to avoid the .75 percent purchase fee) then convert to the ETF ($50) to avoid the commission plus bid/spread fees.

If I originally planned on purchasing 15 to 20k to buy the ETF, would this be the best way to go to not pay a premium on the unknown bid/spread cost?

tarnation · Joined: 26 Apr 2007 Posts: 1371

We decided to go the VFSVX route.
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grabiner · Joined: 21 Feb 2007 Posts: 3882 Location: Columbia, MD

Visitor · Joined: 02 Apr 2008 Posts: 156

tonythered · Joined: 24 Apr 2008 Posts: 632

I bit the bullet and purchased the mutual fund version, selling my SCZ ETF to do it. Decided to do it today so I don't have to worry about the purchase fee.

I much prefer mutual funds since I don't have to worry about commissions or bid/ask spreads or minute-to-minute price movements. I like just being able to check at about 3:30 what the major indexes are doing so I have a general idea of what I'll be purchasing a fund for. I expect to not have to sell this for a very long time so I don't get whacked with the redemption fee (Vanguard should drop it after a few years).

I've already decided that I will skip TLH on this (didn't put that much into it anyway) except in the case of a pretty extreme loss, since I don't have an equivalent Vanguard fund to TLH into.

Hopefully the trading fees incurred by the fund on the first day will be quickly offset by people buying into the fund during its first few days and paying that initial .75 fee, which should benefit existing holders.

Bounca · Joined: 26 Feb 2007 Posts: 735

3rd vote option: Keeping my DLS, no particular reason.

tarnation · Joined: 26 Apr 2007 Posts: 1371

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Thanks for keeping this thread alive -- I am still undecided and the deadline approaches.

I only plan to buy $7-8K, so the $50 conversion fee won't be likely to be worth my while.

I am like Tony that normally I prefer mutual funds, but in the case the delta in ER makes me lean toward the ETF.

Dan Kohn · Joined: 26 Jun 2007 Posts: 1504 Location: New York, NY

How do I check the intraday value of VSS tomorrow to decide if it is close enough to the NAV? If I get free ETF conversion as a Flagship client, am I better off buying the fund and then immediately converting?

tarnation · Joined: 26 Apr 2007 Posts: 1371

tonythered · Joined: 24 Apr 2008 Posts: 632

modal · Joined: 20 Feb 2007 Posts: 1080 Location: USA

michaelmoontaco · Joined: 23 Oct 2008 Posts: 1

Hi,

I'm investing in the International Small-Cap Index Fund, VFSVX, instead of the ETF.

VFSVX is 25% of my "Paranoid About Inflation" IRA. The rest of the account is 50% short-term bond funds and 25% Inflation-Protected Securities TIPS Fund.

-Mike

Karl · Joined: 13 May 2007 Posts: 918 Location: Milwaukee, WI

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Karl, if I were in your situation, I'd do it that way as well.

Is your broker Vanguard as well? If not, you'll have to manually keep track of the tax records if you move it.

Karl · Joined: 13 May 2007 Posts: 918 Location: Milwaukee, WI

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

Karl, one more thing... the ETFs convert at the NAV. So if the ETF is trading at a premium you get it cheaper than you could buy it. Of course, if it is trading at a discount....

Karl · Joined: 13 May 2007 Posts: 918 Location: Milwaukee, WI

Boglenaut · Joined: 23 Mar 2009 Posts: 1081

31 minutes to go.. I did not buy the mutual fund yet, so I guess ETF is the way I'll go.

Hopefully spreads/premiums will be OK so I can buy sooner rather than later.

Karl, did you buy the mutual fund?

tarnation · Joined: 26 Apr 2007 Posts: 1371

I see VSS page now on VG site, https://personal.vanguard.com/....IntExt=INT

Fidelity, Ameritrade and even VBS says the ticker is not valid. What's up with that?
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Boglenaut · Joined: 23 Mar 2009 Posts: 1081

My broker and Yahoo also don't know about VSS yet.