BlackRock Cuts Prices on ETFs

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dumbmoney
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Re: BlackRock Cuts Prices on ETFs

Post by dumbmoney » Sat Oct 08, 2016 1:22 am

grabiner wrote: You can tell that ETFs aren't losing much to trading costs, because they track their indexes well after expenses.
Unfortunately no. An index fund that trades in perfect sync with the index (which is easy - use market-on-close orders) will track the index regardless of market impact. Market impact cost is baked into the index return.

Good tracking does tell you that trading due to fund inflows/outflows isn't hurting.
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Re: BlackRock Cuts Prices on ETFs

Post by triceratop » Sat Oct 08, 2016 3:42 am

dumbmoney wrote:
grabiner wrote: You can tell that ETFs aren't losing much to trading costs, because they track their indexes well after expenses.
Unfortunately no. An index fund that trades in perfect sync with the index (which is easy - use market-on-close orders) will track the index regardless of market impact. Market impact cost is baked into the index return.

Good tracking does tell you that trading due to fund inflows/outflows isn't hurting.
If market impact were that easy to minimize -- why does Vanguard intra-day trade for their index mutual funds?
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Re: BlackRock Cuts Prices on ETFs

Post by Barry Barnitz » Sat Oct 08, 2016 5:36 am

HI:

Keep in mind that an exchange-traded fund has negligible internal trading costs due to the manner in which the fund transacts the portfolio through baskets of securities. Inflows and outflows are handled by in-kind transactions. Institutional investors tendering a creation basket (inflows into the portfolio) have transacted the purchases of the stock securities prior to placing them in the basket. Similarly, if the exchange-traded fund has outflows, it tenders a redemption basket with securities it puts in the basket. The institution receiving the redemption basket incurs transaction costs if it decides to subsequently sell stocks. A tax-savvy manager of an exchange-traded fund may incur transaction costs if a high basis stock is sold at a loss (tax-loss harvesting) to raise cash. These opportunities can arise because exchange-traded baskets sometimes require a modest cash component to balance out the basket value.

Transaction costs for exchange-traded funds are mostly incurred by investors buying shares on the stock exchanges. The purchaser or seller bears the costs, not the portfolio.

The index mutual fund operates quite differently. Inflows and outflows into the fund require the fund manager to buy and sell securities for the portfolio, with the portfolio bearing the transaction costs. These costs can be mitigated if the fund uses in-kind redemption to meet a requested sale, or if it cross-trades the transaction with another index fund (such as a value index fund and a growth index fund cross-trading a security that is migrating from one index to the other).

Note that the individual investor, if purchasing or selling a no-load index fund usually pays no transaction costs when buying and selling the fund.
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Re: BlackRock Cuts Prices on ETFs

Post by grabiner » Sat Oct 08, 2016 3:07 pm

Barry Barnitz wrote:Keep in mind that an exchange-traded fund has negligible internal trading costs due to the manner in which the fund transacts the portfolio through baskets of securities. Inflows and outflows are handled by in-kind transactions.
It still has trading costs from index changes; a small-cap ETF has to sell stocks which have become large-cap. Cross-trading is still possible here when the small-cap ETF can sell stocks to the same provider's large-cap ETF.
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Re: BlackRock Cuts Prices on ETFs

Post by bberris » Sun Oct 09, 2016 7:39 am

Keep in mind when you choose an ETF that it may not be trading at exactly NAV. These differences can swamp expense ratio differences.
I encourage you to check the IIV before trading.

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Re: BlackRock Cuts Prices on ETFs

Post by LadyGeek » Sun Oct 09, 2016 9:21 am

^^^ Here's the acronym decoder for IIV. From the SEC: Investor Bulletin: Exchange-Traded Funds (ETFs)
An ETF (like a mutual fund) must calculate its NAV (the value of all its assets minus all its liabilities) every business day, which is done typically at the close of the New York Stock Exchange.

Approximately every 15 seconds throughout the business day, an ETF’s estimated NAV is calculated and distributed through quote services. This estimated NAV (called the IIV – for intraday indicative value –or IOPV – for intraday operative value – depending on the exchange on which the ETF lists) is unique to ETFs and is based on the estimated value of the ETF’s holdings (minus its liabilities) throughout the trading day.

You can find an ETF’s intraday value on various financial services websites, many of which are familiar to the general public. Often an ETF’s intraday value may be found by searching the ETF’s ticker symbol followed by “.IV”; however this will vary depending on the service used. You should check with the financial service to find out how it makes an ETF’s intraday value available.
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Re: BlackRock Cuts Prices on ETFs

Post by grabiner » Sun Oct 09, 2016 6:33 pm

LadyGeek wrote:^^^ Here's the acronym decoder for IIV. From the SEC: Investor Bulletin: Exchange-Traded Funds (ETFs)
An ETF (like a mutual fund) must calculate its NAV (the value of all its assets minus all its liabilities) every business day, which is done typically at the close of the New York Stock Exchange.

Approximately every 15 seconds throughout the business day, an ETF’s estimated NAV is calculated and distributed through quote services. This estimated NAV (called the IIV – for intraday indicative value –or IOPV – for intraday operative value – depending on the exchange on which the ETF lists) is unique to ETFs and is based on the estimated value of the ETF’s holdings (minus its liabilities) throughout the trading day.

You can find an ETF’s intraday value on various financial services websites, many of which are familiar to the general public. Often an ETF’s intraday value may be found by searching the ETF’s ticker symbol followed by “.IV”; however this will vary depending on the service used. You should check with the financial service to find out how it makes an ETF’s intraday value available.
Note that the IIV is not necessarily accurate. For foreign ETFs, the IIV is an estimate; there is no true price since the markets are closed. For ETFs which trade low-volume stocks (such as micro-caps), the market may be open but the current price may not be valid; if a stock which last traded at $20 and now has a bid of $20.10 and an ask of $20.30, do you value it at $20, $20.10, $20.20, or $20.30?
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iShares v Vanguard ETF Expense Ratios

Post by NicaBoglehead » Mon Oct 10, 2016 1:18 pm

[Thread merged into here, see below. --admin LadyGeek]

Hi! I just wanted to share this article I came across last week. iShares has basically cut the expense ratios of their index ETFs, making them lower than Vanguard's VTI, VOO & VXUS.

https://www.ishares.com/us/lp/ishares-vs-vanguard-fees

As a lifelong Vanguard supporter, do you think Vanguard will follow suit and lower their expense ratios for these ETFs?
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Re: iShares v Vanguard ETF Expense Ratios

Post by furwut » Mon Oct 10, 2016 2:23 pm

Isn't competition wonderful?

However, as a non-profit, Vanguard may be at a disadvantage against a for-profit competitor who may be willing to subsidize the costs in one fund as a loss leader.

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Re: iShares v Vanguard ETF Expense Ratios

Post by jhfenton » Mon Oct 10, 2016 2:28 pm

Vanguard doesn't "set" expense ratios. Vanguard reports last year's actual expense ratios as the anticipated expense ratio for the current year. They can control costs and fixed costs can be spread across ever-large asset bases, but the expense ratios are what they are in the end.

And I still consider Vanguard funds to be cheaper, because Vanguard funds keep 100% of net securities lending revenue. BlackRock typically takes a 30% cut of iShares funds' securities lending revenue, a number that is not included in the report expense ratio.

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Re: iShares v Vanguard ETF Expense Ratios

Post by sunnywindy » Mon Oct 10, 2016 2:30 pm

No. Vanguard's expense ratios are based on the costs that incur to run the fund. Not more. Not less. But the cost to run the fund. If the costs go up, the fund ER goes up. If the costs go down, the fund ER goes down.

iShares is owned by BlackRock, which is a publicly traded company, and they lowered their Core fund ratios, not for you or me, but to gather AUM so they could make more profit for their shareholders in the future. (I concede this is great for customers... And if you own Total Stock Market, you likely own BlackRock, so you benefit if their earnings eventually go up.)
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Re: iShares v Vanguard ETF Expense Ratios

Post by CppCoder » Mon Oct 10, 2016 3:49 pm

I wish they would lower the ER on MUB, the iShares national muni bond fund to match Vanguard's equivalent, VTEB. Currently, MUB has an ER of 0.25 while VTEB's is 0.12. It would make choosing a municipal bond fund at Fidelity a lot easier :annoyed.

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Re: BlackRock Cuts Prices on ETFs

Post by LadyGeek » Mon Oct 10, 2016 7:22 pm

NicaBoglehead, Welcome! I have merged your discussion into the original thread.
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