Warning - don't invest in funds with low assets

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kosomoto
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Warning - don't invest in funds with low assets

Post by kosomoto »

I learned the hard way. I loved my tiny fund - SPDR® S&P® International Consumer Staples Sector ETF IPS. Up 16.5% year to date. Sadly, just received a liquidation notice since the ETF is disbanding. So now I need to pay short term capital gains taxes and my marginal rate in California. Big tax hit. Stick with the giant Vanguard/Schwab funds I guess. Lesson learned.
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nedsaid
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Re: Warning - don't invest in funds with low assets

Post by nedsaid »

That is a disappointment, we have to remember there is a critical mass of assets that an ETF provider needs to gather to keep that ETF profitable. Trading volume is another factor, if there is sufficient liquidity, premiums/discounts from Net Asset Value are not a problem. Also good trading volume keeps the bid/ask spread low.
A fool and his money are good for business.
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simplesimon
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Re: Warning - don't invest in funds with low assets

Post by simplesimon »

With those monstrous gains YTD, how has money not poured in to prevent the ETF from disbanding?
jebmke
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Re: Warning - don't invest in funds with low assets

Post by jebmke »

VEU is up ~19% - the results on that ETF are not remarkable.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Alex GR
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Re: Warning - don't invest in funds with low assets

Post by Alex GR »

kosomoto, what exactly would be considered "low assets"? I just purchased SFVLX for a part of my emerging market portion of the portfolio, it's a small company operating in San Francisco, so your post got me worried.
MotoTrojan
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Re: Warning - don't invest in funds with low assets

Post by MotoTrojan »

Alex GR wrote:kosomoto, what exactly would be considered "low assets"? I just purchased SFVLX for a part of my emerging market portion of the portfolio, it's a small company operating in San Francisco, so your post got me worried.
Worrisome for other reasons; entire company could go under, and force liquidation. Concern here is large companies that have massive funds, but also cater to niches, which sometimes don't grow enough to be worth it.
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saltycaper
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Re: Warning - don't invest in funds with low assets

Post by saltycaper »

Alex GR wrote:kosomoto, what exactly would be considered "low assets"? I just purchased SFVLX for a part of my emerging market portion of the portfolio, it's a small company operating in San Francisco, so your post got me worried.
According to Morningstar, the fund has $12.2 million. That's pretty tiny, IMO. Also, the expense ratio of 1.15% would be way too high for me.
Quod vitae sectabor iter?
Alex GR
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Re: Warning - don't invest in funds with low assets

Post by Alex GR »

MotoTrojan wrote:
Alex GR wrote:kosomoto, what exactly would be considered "low assets"? I just purchased SFVLX for a part of my emerging market portion of the portfolio, it's a small company operating in San Francisco, so your post got me worried.
Worrisome for other reasons; entire company could go under, and force liquidation. Concern here is large companies that have massive funds, but also cater to niches, which sometimes don't grow enough to be worth it.
May I ask a really silly question?
How is that a risk? When I hold that fund don't I own the underlying stocks that are in the fund?
What I mean is, isn't it the same as owning whatever stock is in the fund. In this case for example-
Dreyfus Government Cash Manage 12.50%
First Pacific Co Ltd/Hong Kong 4.50%
Melco International Development 4.15%
WH Group Ltd 4.07%
China Resources Beer Holdings 3.83%
Pacific Basin Shipping Ltd 3.06%
Del Monte Pacific Ltd 3.06%
Samsung SDI Co Ltd 2.99%
Asia Satellite Telecommunications 2.98%
etc.
Sorry if it's a dumb question but I somehow always thought that the only risk is down market.
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oldcomputerguy
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Re: Warning - don't invest in funds with low assets

Post by oldcomputerguy »

saltycaper wrote:
Alex GR wrote:kosomoto, what exactly would be considered "low assets"? I just purchased SFVLX for a part of my emerging market portion of the portfolio, it's a small company operating in San Francisco, so your post got me worried.
According to Morningstar, the fund has $12.2 million. That's pretty tiny, IMO. Also, the expense ratio of 1.15% would be way too high for me.
Also I happened to notice in their Prospectus that they can at any time invest in "debt obligations" of foreign countries. Not really my cup of tea, I prefer to know which asset classes I'm invested in.
Avo
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Re: Warning - don't invest in funds with low assets

Post by Avo »

Alex GR wrote:May I ask a really silly question? How is that a risk? When I hold that fund don't I own the underlying stocks that are in the fund?
Yes. The risk, as stated in the OP, is that you might have to pay unexpected capital-gains taxes if your liquidated shares are worth more than you paid for them.
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bottlecap
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Re: Warning - don't invest in funds with low assets

Post by bottlecap »

Avo wrote:
Alex GR wrote:May I ask a really silly question? How is that a risk? When I hold that fund don't I own the underlying stocks that are in the fund?
Yes. The risk, as stated in the OP, is that you might have to pay unexpected capital-gains taxes if your liquidated shares are worth more than you paid for them.
I'd rather pay taxes than book a loss, but I'm weird that way!
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