VEMAX up 0.44% / VWO up 2.67% ??

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ge1
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VEMAX up 0.44% / VWO up 2.67% ??

Post by ge1 »

Not a big deal, but I bought some Vanguard Emerging Market Admiral Shares today (VEMAX) and given the 2.67% jump in the equivalent ETF (VWO) I was surprised to see that VEMAX only increased 0.44%. I know there can be differences, but I don't think I have ever seen one that big?

Works out for me as I paid less than expected, but I guess I must be missing something (ex-div date)?

thanks
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saltycaper
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Re: VEMAX up 0.44% / VWO up 2.67% ??

Post by saltycaper »

For international holdings, not uncommon to see significant discrepancies between the ETF and the mutual fund. Probably to do with time zones, arbitrage, net asset value calculation times, etc. Hopefully someone else can provide a more detailed explanation.

Distributions are usually March, June, September, December.
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lack_ey
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Re: VEMAX up 0.44% / VWO up 2.67% ??

Post by lack_ey »

I'm seeing a change in NAV for the ETF of $0.15 (approx. 0.44%) but a change in price of $0.79 (approx. 2.67%).

For reference, Schwab's similar Emerging Markets Equity ETF (SCHE) was up 2.65% by price. Others did similarly.

The discrepancy probably has to do with Vanguard's fair value pricing for yesterday's NAV, today's NAV, or both.
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jhfenton
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Re: VEMAX up 0.44% / VWO up 2.67% ??

Post by jhfenton »

There was a thread a couple of weeks ago in which I discussed my observations on the frequent flipping between discounts and premiums on VWO/VEMAX. (I believe the title dealt with foreign ETF best trading practices.)

Yesterday, VWO closed at a large discount to NAV after international markets were largely up and the U.S. tanked. Today, VWO closed at a large premium after international markets tanked and the U.S. bounced back, particularly international ETFs.

Vanguard closes the discount/premium gap a bit with fair value pricing adjustments, but they don't want to get the mutual fund too far away from the actual closing prices in the underlying markets. So they regularly let 50+bp premiums and discounts develop.

As a result, yesterday my virtual ETF tracking portfolio closed with a low four-figure discount to my real portfolio with the equivalent Admiral shares. Today, my virtual portfolio closed with a low-figure premium to my real portfolio, most of it in the VWO premium to VEMAX and a little bit with VEA compared to VTMGX (Developed Markets) and VNQI compared to VGRLX (ex-US Real Estate). (If all of my ETFs closed at NAV, the value of the two portfolios would match. If I converted my Admiral shares to ETFs, my real portfolio would turn into my virtual ETF portfolio.)
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ge1
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Re: VEMAX up 0.44% / VWO up 2.67% ??

Post by ge1 »

jhfenton wrote:There was a thread a couple of weeks ago in which I discussed my observations on the frequent flipping between discounts and premiums on VWO/VEMAX. (I believe the title dealt with foreign ETF best trading practices.)

Yesterday, VWO closed at a large discount to NAV after international markets were largely up and the U.S. tanked. Today, VWO closed at a large premium after international markets tanked and the U.S. bounced back, particularly international ETFs.

Vanguard closes the discount/premium gap a bit with fair value pricing adjustments, but they don't want to get the mutual fund too far away from the actual closing prices in the underlying markets. So they regularly let 50+bp premiums and discounts develop.

As a result, yesterday my virtual ETF tracking portfolio closed with a low four-figure discount to my real portfolio with the equivalent Admiral shares. Today, my virtual portfolio closed with a low-figure premium to my real portfolio, most of it in the VWO premium to VEMAX and a little bit with VEA compared to VTMGX (Developed Markets) and VNQI compared to VGRLX (ex-US Real Estate). (If all of my ETFs closed at NAV, the value of the two portfolios would match. If I converted my Admiral shares to ETFs, my real portfolio would turn into my virtual ETF portfolio.)
So fair to say that the ETF is as of cob today approx 1% overvalued? I didn't realize that premium / discounts could be this significant.
swl
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Re: VEMAX up 0.44% / VWO up 2.67% ??

Post by swl »

ge1 wrote:So fair to say that the ETF is as of cob today approx 1% overvalued? I didn't realize that premium / discounts could be this significant.
It likely means that the ETF and mutual fund are both fairly priced. Both need fudging / estimation since the underlying cash markets aren't open through the US close. It's just that the ETF's estimating is done by the market and the mutual fund's is done by a team at Vanguard. The mutual fund is probably slightly underpriced, in this instance, but less so than if they didn't use fair value pricing at all (which was in response to arbitrageurs taking advantage of stale mutual fund NAV calculations); it's probably good enough to reduce arbitrage to the point where it's easily mitigated through trading frequency restrictions while also reducing the average investors' perception of volatility.
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Re: VEMAX up 0.44% / VWO up 2.67% ??

Post by jhfenton »

swl wrote:
ge1 wrote:So fair to say that the ETF is as of cob today approx 1% overvalued? I didn't realize that premium / discounts could be this significant.
It likely means that the ETF and mutual fund are both fairly priced. Both need fudging / estimation since the underlying cash markets aren't open through the US close. It's just that the ETF's estimating is done by the market and the mutual fund's is done by a team at Vanguard. The mutual fund is probably slightly underpriced, in this instance, but less so than if they didn't use fair value pricing at all (which was in response to arbitrageurs taking advantage of stale mutual fund NAV calculations); it's probably good enough to reduce arbitrage to the point where it's easily mitigated through trading frequency restrictions while also reducing the average investors' perception of volatility.
Well said. The only time it ever concerned me was when I initially moved all of our accounts from TDAmeritrade to Vanguard, and I wanted to "convert" VWO to VEMAX by selling VWO near the close and immediately buying VEMAX with the proceeds (which you can do now). If you do that, you want to do that on a day like yesterday and not a day like Tuesday.

In the long run, it doesn't make any difference. If you look on a long-term chart, you won't see the noise.

And I own both. I have a small position in VWO in taxable and three positions in VEMAX in different retirement accounts.
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jhfenton
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Re: VEMAX up 0.44% / VWO up 2.67% ??

Post by jhfenton »

ge1 wrote:
jhfenton wrote:There was a thread a couple of weeks ago in which I discussed my observations on the frequent flipping between discounts and premiums on VWO/VEMAX. (I believe the title dealt with foreign ETF best trading practices.)

Yesterday, VWO closed at a large discount to NAV after international markets were largely up and the U.S. tanked. Today, VWO closed at a large premium after international markets tanked and the U.S. bounced back, particularly international ETFs.

Vanguard closes the discount/premium gap a bit with fair value pricing adjustments, but they don't want to get the mutual fund too far away from the actual closing prices in the underlying markets. So they regularly let 50+bp premiums and discounts develop.

As a result, yesterday my virtual ETF tracking portfolio closed with a low four-figure discount to my real portfolio with the equivalent Admiral shares. Today, my virtual portfolio closed with a low-figure premium to my real portfolio, most of it in the VWO premium to VEMAX and a little bit with VEA compared to VTMGX (Developed Markets) and VNQI compared to VGRLX (ex-US Real Estate). (If all of my ETFs closed at NAV, the value of the two portfolios would match. If I converted my Admiral shares to ETFs, my real portfolio would turn into my virtual ETF portfolio.)
So fair to say that the ETF is as of cob today approx 1% overvalued? I didn't realize that premium / discounts could be this significant.
You only see them in Vanguard's international ETFs, and they are transient. They flip back and forth from discount to premium depending whenever U.S. markets go up or down more or in the opposite direction of the underlying international markets. Tuesday, with the large U.S. drop, most of the international ETFs were at a discount. Yesterday that flipped to a premium. Today, they are all pretty close to NAV. My virtual portfolio this evening is $3.16 higher than my real portfolio--less than a rounding error. (A 2 cent premium in VWO and a 5 cent premium in VEA is canceling out a 15 cent discount in VNQI.) (VSS closed at more than a 40 bp discount, but I only own VSS, not the mutual fund share class, so I don't see that unless I look.)
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