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Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 9:24 am
by UpperNwGuy
Lots of Domino Theory being expressed in the comments on this thread....

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 12:49 pm
by JonFromDimensionC137
wootwoot wrote:
Thu Jan 10, 2019 8:13 am
Is Vanguard going to stop options trading and margin next? It's hard to keep a consistent message when you ban inverse and leveraged ETFs but allow options and margin.
Options I'm not sure about, but some people (myself included) use a margin account as an emergency fund.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 2:50 pm
by Fryxell
It just occurred to me that Vanguard may have noticed that short-to-mid-term traders were using their free ETFs excessively and that these short-term traders were often using the leveraged and inverse ETFs. That is to say, Vanguard’s free ETFs may have drawn in short-term speculators and this may be Vanguard’s way of shooing them away.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 2:56 pm
by HEDGEFUNDIE
Fryxell wrote:
Thu Jan 10, 2019 2:50 pm
It just occurred to me that Vanguard may have noticed that short-to-mid-term traders were using their free ETFs excessively and that these short-term traders were often using the leveraged and inverse ETFs. That is to say, Vanguard’s free ETFs May have drawn in short-term speculators and this may be Vanguard’s way of shooing them away.
This is the most likely explanation, but assuming that leveraged and inverse ETFs cost Vanguard the same to execute as individual stocks and regular ETFs, why would Vanguard care whether I am a speculator or a long-term investor? Do speculators call up Vanguard support more often, adding back office costs?

I don't believe the liability argument. Has anyone successfully sued an all-purpose broker for losing money on a freely-chosen investment that was not actively pitched to them?

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 3:00 pm
by alex_686
ftobin wrote:
Thu Jan 10, 2019 1:40 am
The market maker is taking on risk because it needs to internalize flow to provide price improvement. Inverse/leveraged securities can be more costly to hedge than vanilla securites. Additionally, the inverse/leveraged instruments are usually used by more informed traders, who are more costly to handle.

Market makers often say to the sending firm "we can provide excellent price improvement if you keep this X flow away from us. If you send this X flow, we're going to need to reduce the price improvement we can provide overall."
Some exchanges pay for order flow. But that is the exchange, not the market maker. The market makers don't have have that power, all they can do is widen the bid/ask spread to handle their expenses.

Where are you getting this from? I used to do operational stuff and this seems way off base - but it has been a few years.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 4:20 pm
by Fryxell
HEDGEFUNDIE wrote:
Thu Jan 10, 2019 2:56 pm
This is the most likely explanation, but assuming that leveraged and inverse ETFs cost Vanguard the same to execute as individual stocks and regular ETFs, why would Vanguard care whether I am a speculator or a long-term investor? Do speculators call up Vanguard support more often, adding back office costs?
The leveraged and inverse ETFs may be costing Vanguard the same to execute. However, the no-commission ETFs do cost Vanguard something to execute, but they nevertheless give them away for free. It seems certain that the shorter-term traders are transacting with the free ETFs a lot more than the buy-and-hold investors. In other words, the shorter-term traders may be imposing costs on the buy-and-hold investors by overusing the free ETFs. So perhaps Vanguard is outright banning the levered/inverse ETFs to shoo them away.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 5:09 pm
by Phineas J. Whoopee
wootwoot wrote:
Thu Jan 10, 2019 8:13 am
Is Vanguard going to stop options trading and margin next? It's hard to keep a consistent message when you ban inverse and leveraged ETFs but allow options and margin.
It's a slippery slope. It's the thin edge of the wedge. What's next? Cats and dogs getting along?

To be serious, there is no ban. They're just choosing not to offer them anymore.

A ban is when a higher authority says something isn't allowed at all.

That's what ban means.

Vanguard doesn't have the power to ban anything.

I decline to sell anybody fermented krill. I have no power to ban it.

PJW

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 6:11 pm
by wootwoot
Phineas J. Whoopee wrote:
Thu Jan 10, 2019 5:09 pm
wootwoot wrote:
Thu Jan 10, 2019 8:13 am
Is Vanguard going to stop options trading and margin next? It's hard to keep a consistent message when you ban inverse and leveraged ETFs but allow options and margin.
It's a slippery slope. It's the thin edge of the wedge. What's next? Cats and dogs getting along?

To be serious, there is no ban. They're just choosing not to offer them anymore.

A ban is when a higher authority says something isn't allowed at all.

That's what ban means.

Vanguard doesn't have the power to ban anything.

I decline to sell anybody fermented krill. I have no power to ban it.

PJW
It's an inconsistent message and yes Vanguard is banning these ETFs from their platform.

Re: More Nanny State From Vanguard

Posted: Thu Jan 10, 2019 6:43 pm
by nisiprius
JonFromDimensionC137 wrote:
Thu Jan 10, 2019 3:09 am
wootwoot wrote:
Wed Jan 09, 2019 9:50 pm
Nobody trading leveraged ETFs is holding them long term. These are vehicles that are designed to be traded.
Agreed. There are people in this thread advocating for holding them long term.
In the case of SPXL, Direxion, the fund manager, is perfectly clear, and you don't even need to go to the prospectus. It's right there in the capsule description on the web page for SPXL. The boldfacing is mine; the all-caps word TRADING is Direxion's.
You know that TRADING is different than investing. But the opportunity to take advantage of short-term trends is only won, if you get the direction right.

Whether you’re a bull or a bear, Direxion is with you. Our leveraged ETFs are powerful tools built to help you:
  • Magnify your short-term perspective with daily 3X leverage
  • Go where there’s opportunity, with bull and bear funds for both sides of the trade; and
  • Stay agile – with liquidity to trade through rapidly changing markets

    Leveraged and inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by investors who understand leverage risk and who actively manage their investments.
Proshares uses the language
Investors should monitor their holdings as frequently as daily.
They are intended to be traded, they are intended for people who can get the short-term direction right, and you are supposed to be "monitoring them daily." Buying and holding for the long term is not "monitoring them daily."

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 7:09 pm
by J G Bankerton
The securities referred to herein are not to be offered, sold or otherwise made available to to any retail investor in the European Economic Area and any person who is a retail investor in the European Economic Area should not act or rely on this information or any of its contents.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 7:23 pm
by columbia
I have not, do not and will never own a leveraged ETF/N:

One has been able to achieve almost identical returns with 10% 3x SP500, 10% 3x 20 year treasuries, 80% bonds as a standard 50/50 portfolio.

The stock market can (and has) drop by 90%.

One of those portfolios would see a 10% decline of overall portfolio (as leverage stocks would converge to 0), the other would experience a 45% decline.

Which would you rather experience?

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 7:26 pm
by arcticpineapplecorp.
Listening to interiew "Vanguard CEO Tim Buckley and Chief Investmennt Officer Greg Davis Look Ahead to 2019"

Around the 21 minute mark Tim Buckley was asked a question about security and assets in one location with vanguard. He mentioned a few things Vanguard does to ensure trust. One thing he said was there's an old adage in the investing world that:
Everything bad starts with leverage.
And then went on to remind everyone that the financial crisis of 2008 started with leverage.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 8:36 pm
by munemaker
zx14rr wrote:
Tue Jan 08, 2019 10:12 am
Vanguard to stop accepting purchases in leveraged and inverse investments

Beginning January 22, Vanguard will no longer accept purchases in leveraged or inverse mutual funds, ETFs (exchange-traded funds), or ETNs (exchange-traded notes).

So, forget BDCL, MORL, MRRL, etc.
An investor would be much better off with index funds. These are more for speculation than investing.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 8:41 pm
by alex_686
As a modest counterargument, I will point to this tread:

Portfolio of Leveraged Exchange Traded Funds
viewtopic.php?f=10&t=269194

Which argues that one can build a safer portfolio with leveraged funds. It does require monthly dynamic re balancing, but still - very much in line with passive long term investing.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 9:00 pm
by ftobin
alex_686 wrote:
Thu Jan 10, 2019 3:00 pm
Some exchanges pay for order flow. But that is the exchange, not the market maker. The market makers don't have have that power, all they can do is widen the bid/ask spread to handle their expenses.

Where are you getting this from? I used to do operational stuff and this seems way off base - but it has been a few years.
Market makers pay for order flow. Source: thirteen years of algo work for a market maker.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Thu Jan 10, 2019 9:54 pm
by abuss368
In my opinion this is excellent news. I am happy to hear Vanguard taking a stand against such speculation and trying to protect investors from themselves!

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 10:37 am
by CardinalRule
There is an article in the Wall Street Journal today about this. The article notes that:

Other retail brokerages like Charles Schwab Corp., TD Ameritrade Holding Corp. and Fidelity Investments still offer the products, though investors opting to buy them receive additional prompts to make them aware of risks.

A little surprising to me that Vanguard just doesn't do the same thing. Then again, the story includes a quote from a Vanguard spokesperson, who says that “a very small proportion of our client base utilizes these types of investments.”

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 12:04 pm
by boglesmind
CardinalRule wrote:
Sat Jan 12, 2019 10:37 am
There is an article in the Wall Street Journal today about this. The article notes that:

Other retail brokerages like Charles Schwab Corp., TD Ameritrade Holding Corp. and Fidelity Investments still offer the products, though investors opting to buy them receive additional prompts to make them aware of risks.

A little surprising to me that Vanguard just doesn't do the same thing. Then again, the story includes a quote from a Vanguard spokesperson, who says that “a very small proportion of our client base utilizes these types of investments.”
The article also says
In a 2017 agreement with the Financial Industry Regulatory Authority, Wells Fargo & Co. compensated customers after recommending exchange-traded products linked to stock-market volatility without fully understanding the risks. That followed a $2 million fine for Wells Fargo in 2012 for violations related to leveraged, inverse and inverse leveraged products.
When markets turned volatile last February, some funds that bet against volatility suffered losses, prompting the closure of an inverse exchange traded note. Some investors have sought to recoup losses by suing Credit Suisse Group AG , which managed the note that closed.
No wonder Vanguard chose to terminate trading in these "products".
Boglesmind

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 12:17 pm
by HEDGEFUNDIE
boglesmind wrote:
Sat Jan 12, 2019 12:04 pm
CardinalRule wrote:
Sat Jan 12, 2019 10:37 am
There is an article in the Wall Street Journal today about this. The article notes that:

Other retail brokerages like Charles Schwab Corp., TD Ameritrade Holding Corp. and Fidelity Investments still offer the products, though investors opting to buy them receive additional prompts to make them aware of risks.

A little surprising to me that Vanguard just doesn't do the same thing. Then again, the story includes a quote from a Vanguard spokesperson, who says that “a very small proportion of our client base utilizes these types of investments.”
The article also says
In a 2017 agreement with the Financial Industry Regulatory Authority, Wells Fargo & Co. compensated customers after recommending exchange-traded products linked to stock-market volatility without fully understanding the risks. That followed a $2 million fine for Wells Fargo in 2012 for violations related to leveraged, inverse and inverse leveraged products.
When markets turned volatile last February, some funds that bet against volatility suffered losses, prompting the closure of an inverse exchange traded note. Some investors have sought to recoup losses by suing Credit Suisse Group AG , which managed the note that closed.
No wonder Vanguard chose to terminate trading in these "products".
Boglesmind
When did Vanguard ever “recommend” these funds? Not at all the same situation as Wells Fargo.

And the inverse fund that did close was tracking volatility directly. Of course it was going to be ridiculously volatile, it’s volatility on top of volatility. The leveraged funds most of us are interested in are not those types of funds

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 12:43 pm
by Random Musings
Weird that you will be able to short an individual stock, but not buy an inverse S&P fund. Both can be used to hedge, but shorting an individual stock carries more risk if done in a speculative manner.

RM

Re: More Nanny State From Vanguard

Posted: Sat Jan 12, 2019 12:50 pm
by AlphaLess
Nate79 wrote:
Tue Jan 08, 2019 11:04 am
I do not understand why Vanguard cares. Certainly it is not to protect the investor from risk because if they allow buying individual stocks already they are allowing significant risk of loss.
Companies want to have certain types of customers.
Also, leveraged products may require:
- certain back-office processes,
- certain type of risks.

Vanguard may not want to engage in those.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 1:15 pm
by J G Bankerton
Random Musings wrote:
Sat Jan 12, 2019 12:43 pm
Weird that you will be able to short an individual stock, ...
Does Vanguard lend stock for shorting?

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 2:17 pm
by talzara
HEDGEFUNDIE wrote:
Thu Jan 10, 2019 2:56 pm
Fryxell wrote:
Thu Jan 10, 2019 2:50 pm
It just occurred to me that Vanguard may have noticed that short-to-mid-term traders were using their free ETFs excessively and that these short-term traders were often using the leveraged and inverse ETFs. That is to say, Vanguard’s free ETFs May have drawn in short-term speculators and this may be Vanguard’s way of shooing them away.
This is the most likely explanation, but assuming that leveraged and inverse ETFs cost Vanguard the same to execute as individual stocks and regular ETFs, why would Vanguard care whether I am a speculator or a long-term investor? Do speculators call up Vanguard support more often, adding back office costs?
They're also more likely to blow up their account and owe Vanguard money. It's happened to other brokerages before.

Vanguard is not just protecting customers from themselves. It's also protecting you from Vanguard's other customers. The SIPC only covers the first $500k in a brokerage account, and Vanguard's excess insurance will pay out pennies on the dollar. If you have more than $500k in a Vanguard brokerage, you're relying on Vanguard's strong risk management.

If Fidelity wants to serve speculators, they can have them. Vanguard wants buy and hold investors.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 2:44 pm
by HEDGEFUNDIE
talzara wrote:
Sat Jan 12, 2019 2:17 pm
HEDGEFUNDIE wrote:
Thu Jan 10, 2019 2:56 pm
Fryxell wrote:
Thu Jan 10, 2019 2:50 pm
It just occurred to me that Vanguard may have noticed that short-to-mid-term traders were using their free ETFs excessively and that these short-term traders were often using the leveraged and inverse ETFs. That is to say, Vanguard’s free ETFs May have drawn in short-term speculators and this may be Vanguard’s way of shooing them away.
This is the most likely explanation, but assuming that leveraged and inverse ETFs cost Vanguard the same to execute as individual stocks and regular ETFs, why would Vanguard care whether I am a speculator or a long-term investor? Do speculators call up Vanguard support more often, adding back office costs?
They're also more likely to blow up their account and owe Vanguard money. It's happened to other brokerages before.

Vanguard is not just protecting customers from themselves. It's also protecting you from Vanguard's other customers. The SIPC only covers the first $500k in a brokerage account, and Vanguard's excess insurance will pay out pennies on the dollar. If you have more than $500k in a Vanguard brokerage, you're relying on Vanguard's strong risk management.

If Fidelity wants to serve speculators, they can have them. Vanguard wants buy and hold investors.
If that’s the concern, Vanguard should ban options, not leveraged ETFs where you can only lose how much you put in.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 2:52 pm
by talzara
HEDGEFUNDIE wrote:
Sat Jan 12, 2019 2:44 pm
talzara wrote:
Sat Jan 12, 2019 2:17 pm
They're also more likely to blow up their account and owe Vanguard money. It's happened to other brokerages before.

Vanguard is not just protecting customers from themselves. It's also protecting you from Vanguard's other customers. The SIPC only covers the first $500k in a brokerage account, and Vanguard's excess insurance will pay out pennies on the dollar. If you have more than $500k in a Vanguard brokerage, you're relying on Vanguard's strong risk management.

If Fidelity wants to serve speculators, they can have them. Vanguard wants buy and hold investors.
If that’s the concern, Vanguard should ban options, not leveraged ETFs where you can only lose how much you put in.
If you use margin, you can lose 200% of what you put into a leveraged ETF.

Risk management depends on the numbers. If Vanguard customers have $1 billion of notional value in options and $100 billion in leveraged and inverse funds, then Vanguard has little reason to ban options. You might blow up your own account with options, but it won't take down Vanguard.

We don't know the numbers, but Vanguard probably has very little exposure to options because it charges $7 + $1 per contract to trade. (Unless you're Voyager Select or Flagship.) Vanguard probably has a lot of exposure to leveraged and inverse ETFs because they are free to trade.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 3:12 pm
by HEDGEFUNDIE
talzara wrote:
Sat Jan 12, 2019 2:52 pm
HEDGEFUNDIE wrote:
Sat Jan 12, 2019 2:44 pm
talzara wrote:
Sat Jan 12, 2019 2:17 pm
They're also more likely to blow up their account and owe Vanguard money. It's happened to other brokerages before.

Vanguard is not just protecting customers from themselves. It's also protecting you from Vanguard's other customers. The SIPC only covers the first $500k in a brokerage account, and Vanguard's excess insurance will pay out pennies on the dollar. If you have more than $500k in a Vanguard brokerage, you're relying on Vanguard's strong risk management.

If Fidelity wants to serve speculators, they can have them. Vanguard wants buy and hold investors.
If that’s the concern, Vanguard should ban options, not leveraged ETFs where you can only lose how much you put in.
If you use margin, you can lose 200% of what you put into a leveraged ETF.

Risk management depends on the numbers. If Vanguard customers have $1 billion of notional value in options and $100 billion in leveraged and inverse funds, then Vanguard has little reason to ban options. You might blow up your own account with options, but it won't take down Vanguard.

We don't know the numbers, but Vanguard probably has very little exposure to options because it charges $7 + $1 per contract to trade. (Unless you're Voyager Select or Flagship.) Vanguard probably has a lot of exposure to leveraged and inverse ETFs because they are free to trade.
Ok so now it’s margin that’s the issue? Then ban margin.

The Vanguard exec said above that a very small proportion of the customer base used leveraged ETFs. This is looking more and more like a purely paternalistic move.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 3:14 pm
by columbia
If my local bakery started to use margarine instead of butter, I’d go to a different bakery.

VG is clearly not worried about customers exercising their right to go elsewhere, as a result of this move.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 3:32 pm
by talzara
HEDGEFUNDIE wrote:
Sat Jan 12, 2019 3:12 pm
Ok so now it’s margin that’s the issue? Then ban margin.

The Vanguard exec said above that a very small proportion of the customer base used leveraged ETFs. This is looking more and more like a purely paternalistic move.
Banning margin would have side effects on other customers. You wouldn't be able to float shares for a couple of days while a trade settles, or while you're waiting for a transfer.

You could also ban margin just on these ETFs. Some brokerages have a list of dangerous stocks that cannot be purchased on margin. However, Vanguard's systems may not be able to handle this yet because Vanguard only offers Regulation T margin. It's easier to do when a brokerage offers portfolio margin, because their systems are already set up to calculate different margin for different stocks.

There are many ways to eliminate undesired trades. Vanguard has picked one that only affects people who trade these ETFs. If you don't trade them, then you experience no side effects.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 3:38 pm
by HEDGEFUNDIE
talzara wrote:
Sat Jan 12, 2019 3:32 pm
HEDGEFUNDIE wrote:
Sat Jan 12, 2019 3:12 pm
Ok so now it’s margin that’s the issue? Then ban margin.

The Vanguard exec said above that a very small proportion of the customer base used leveraged ETFs. This is looking more and more like a purely paternalistic move.
Banning margin would have side effects on other customers. You wouldn't be able to float shares for a couple of days while a trade settles, or while you're waiting for a transfer.

You could also ban margin just on these ETFs. Some brokerages have a list of dangerous stocks that cannot be purchased on margin. However, Vanguard's systems may not be able to handle this yet because Vanguard only offers Regulation T margin. It's easier to do when a brokerage offers portfolio margin, because their systems are already set up to calculate different margin for different stocks.

There are many ways to eliminate undesired trades. Vanguard has picked one that only affects people who trade these ETFs. If you don't trade them, then you experience no side effects.
I have a mid six figure Roth IRA I am about to move away from Vanguard because of this decision. That is lost AUM they will no longer be able to spread costs over, to lower expense ratios even further for everyone. How’s that for a side effect?

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 3:43 pm
by talzara
Fryxell wrote:
Thu Jan 10, 2019 2:50 pm
It just occurred to me that Vanguard may have noticed that short-to-mid-term traders were using their free ETFs excessively and that these short-term traders were often using the leveraged and inverse ETFs. That is to say, Vanguard’s free ETFs may have drawn in short-term speculators and this may be Vanguard’s way of shooing them away.
talzara wrote:
Sat Jan 12, 2019 2:52 pm
We don't know the numbers, but Vanguard probably has very little exposure to options because it charges $7 + $1 per contract to trade. (Unless you're Voyager Select or Flagship.) Vanguard probably has a lot of exposure to leveraged and inverse ETFs because they are free to trade.
I misunderstood what Fryxell said. Fryxell was arguing that the same people who trade excessively also use these ETFs.

Leveraged and inverse ETFs are not free to trade at Vanguard:
VALLEY FORGE, PA (August 21, 2018)—Vanguard, the leader in low-cost investing, today launched the largest suite of commission-free ETFs available to investors.1 As announced in early July, Vanguard is offering commission-free online transactions on approximately 90% of all ETFs—nearly 1,800 of the roughly 2,000 ETFs currently trading on the major exchanges. Vanguard has excluded inverse and leveraged ETFs due to their highly speculative nature.

https://pressroom.vanguard.com/news/Pre ... 82118.html

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 4:01 pm
by talzara
HEDGEFUNDIE wrote:
Sat Jan 12, 2019 3:38 pm
talzara wrote:
Sat Jan 12, 2019 3:32 pm
There are many ways to eliminate undesired trades. Vanguard has picked one that only affects people who trade these ETFs. If you don't trade them, then you experience no side effects.
I have a mid six figure Roth IRA I am about to move away from Vanguard because of this decision. That is lost AUM they will no longer be able to spread costs over, to lower expense ratios even further for everyone. How’s that for a side effect?
There are no side effects "if you don't trade them."

You want to trade leveraged ETFs, so it's not a side effect. It's the intended effect.
HEDGEFUNDIE wrote:
Wed Jan 09, 2019 1:19 pm
Here is an actionable question, for those of us who would like to implement a long term strategy using these leveraged ETFs, which brokerage is the best place to move to?

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 4:28 pm
by HEDGEFUNDIE
talzara wrote:
Sat Jan 12, 2019 4:01 pm
HEDGEFUNDIE wrote:
Sat Jan 12, 2019 3:38 pm
talzara wrote:
Sat Jan 12, 2019 3:32 pm
There are many ways to eliminate undesired trades. Vanguard has picked one that only affects people who trade these ETFs. If you don't trade them, then you experience no side effects.
I have a mid six figure Roth IRA I am about to move away from Vanguard because of this decision. That is lost AUM they will no longer be able to spread costs over, to lower expense ratios even further for everyone. How’s that for a side effect?
There are no side effects "if you don't trade them."

You want to trade leveraged ETFs, so it's not a side effect. It's the intended effect.
HEDGEFUNDIE wrote:
Wed Jan 09, 2019 1:19 pm
Here is an actionable question, for those of us who would like to implement a long term strategy using these leveraged ETFs, which brokerage is the best place to move to?
Vanguard needs increased AUM to drive down costs for everyone else. Driving away customers with decisions like this cuts against that goal.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 4:39 pm
by JoMoney
I found this out in the ether and thought it was interesting and relevant to this topic :
http://www.stockbrokerfraudblawg.com/le ... s/2009/10/
... FINRA has already declared that leveraged ETFs are typically unsuitable for retail investors. Therefore, the announcement by ProFunds is not a revelation. If your stockbroker or financial advisor has sold you any leveraged ETFs or inverse ETFs, or purchased any leveraged ETFs or inverse ETFs in your accounts, you may be entitled to recover any losses on these investments. The Kueser Law Firm represents investors who were sold leveraged ETFs and inverse ETFs. If you are concerned that your investments have been mismanaged, contact us to learn more about your rights. ...

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 6:14 pm
by J G Bankerton
talzara wrote:
Sat Jan 12, 2019 2:52 pm
Vanguard probably has a lot of exposure to leveraged and inverse ETFs because they are free to trade.
They were always excluded from free trades; now they are totally excluded.
HEDGEFUNDIE wrote:
Sat Jan 12, 2019 3:38 pm

I have a mid six figure Roth IRA I am about to move away from Vanguard because of this decision. That is lost AUM they will no longer be able to spread costs over, to lower expense ratios even further for everyone. How’s that for a side effect?
How much does Vanguard charge you to trade one of these funds?
HEDGEFUNDIE wrote:
Wed Jan 09, 2019 1:19 pm
Here is an actionable question, for those of us who would like to implement a long term strategy using these leveraged ETFs, which brokerage is the best place to move to?
These are ultra short, no more than 30 days, investments. Rolling them over would not be prudent.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 6:56 pm
by stlutz
If one wants leverage isn't it cheaper to get it via futures anyhow?

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sat Jan 12, 2019 8:09 pm
by RogueBear
Does anyone know where I can find a list of the 400 to be discontinued leveraged/inverse funds and etf(n)s? I use PIMIX and it is considered to be leveraged. Wondering if that is not going to be an offering after Jan. 22.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sun Jan 13, 2019 10:42 am
by Doc
Vanguard won’t let investors trade these 400 popular funds and securities — here’s why

The risky products are attracting scrutiny from regulators
https://www.marketwatch.com/story/vangu ... 2019-01-12

Little info here but links to WSJ article.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sun Jan 13, 2019 1:07 pm
by Doc
WSJ wrote:Other retail brokerages like Charles Schwab Corp. , TD Ameritrade Holding Corp. and Fidelity Investments still offer the products, though investors opting to buy them receive additional prompts to make them aware of risks.
https://www.wsj.com/articles/vanguard-w ... 1547298000

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Sun Jan 13, 2019 1:25 pm
by drk
If I recall, Fidelity and Merrill Edge also banned trading of these sorts of ETPs after XIV blew up. So Vanguard isn’t alone here, even if they could have simply excluded them from the commission-free program.

Of course, it’s still more consistent than Merrill Edge, which won’t let me buy Vanguard’s new factor ETFs, and won’t even explain *why* they’re banned as a policy.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Mon Jan 14, 2019 1:46 am
by Daitokuji
Someone on Reddit who claims to be an ex-employee of Vanguard says the real reason they're doing this is because the people who were using these ended up being high volume customers and their system cannot handle more than 10k trades per year per account. Any more than 10k and their employees have to manually do the trades which was costing them money. And the company is too cheap to update their systems.
They’re doing this because they can’t keep up with the day traders who won’t leave.

Vanguard refuses to invest in system upgrades to keep on top of cost basis, so once day traders hit 10,000 buys and sells, their basis won’t display online anymore.

Instead, they abuse the employees by making them match specific-ID trades manually on behalf of the customers.

Source: I worked there for 10 years.
https://www.reddit.com/r/investing/comm ... g/edyplf4/

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Mon Jan 14, 2019 7:28 pm
by prudent
Daitokuji wrote:
Mon Jan 14, 2019 1:46 am
Someone on Reddit who claims to be an ex-employee of Vanguard says the real reason they're doing this is because the people who were using these ended up being high volume customers and their system cannot handle more than 10k trades per year per account. Any more than 10k and their employees have to manually do the trades which was costing them money. And the company is too cheap to update their systems.
If that's the reason, I'm OK with it. 10K trades/year would work out to at least 5 trades per hour for every hour the market is open during the year. If that tiny fraction of customers causes a lot of cost impact, I wouldn't say they are "too cheap to update their systems" - I'd call it "recognizing that not every customer is worth keeping." Why invest a lot of money in systems that only benefit 0.001% of your customers? Maybe they figure they'd rather apply that effort to things that benefit a wider customer base.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Mon Jan 14, 2019 7:38 pm
by KyleAAA
Seems unnecessarily paternalistic. But most people using these ETFs were probably already investing elsewhere.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Mon Jan 14, 2019 7:53 pm
by jhfenton
prudent wrote:
Mon Jan 14, 2019 7:28 pm
If that's the reason, I'm OK with it. 10K trades/year would work out to at least 5 trades per hour for every hour the market is open during the year. If that tiny fraction of customers causes a lot of cost impact, I wouldn't say they are "too cheap to update their systems" - I'd call it "recognizing that not every customer is worth keeping." Why invest a lot of money in systems that only benefit 0.001% of your customers? Maybe they figure they'd rather apply that effort to things that benefit a wider customer base.
I'm skeptical of the source, but I'd also be OK if that were the reason. 10,000 trades per year (40 trades per day for 252 market days this year) in an account is insane. Vanguard is definitely not the place for that.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Mon Jan 14, 2019 9:17 pm
by garlandwhizzer
HEDGEFUNDIE wrote:

I have a mid six figure Roth IRA I am about to move away from Vanguard because of this decision.
If your investment style involves leveraged and inverse ETFs as trading vehicles, Vanguard is clearly not the place for you. There are plenty of financial companies that will be happy to handle your IRA and allow you to trade these things which generates nice commissions for them. I think Vanguard will continue to thrive focusing on long term buy and hold investors looking for low cost, broadly diversified funds. Vanguard knows what it is and does it very well. It does not attempt to do everything. Personally I applaud that. I wish you good luck with your new firm.

Garland Whizzer

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Mon Jan 14, 2019 10:08 pm
by HEDGEFUNDIE
garlandwhizzer wrote:
Mon Jan 14, 2019 9:17 pm
HEDGEFUNDIE wrote:

I have a mid six figure Roth IRA I am about to move away from Vanguard because of this decision.
If your investment style involves leveraged and inverse ETFs as trading vehicles, Vanguard is clearly not the place for you. There are plenty of financial companies that will be happy to handle your IRA and allow you to trade these things which generates nice commissions for them.
Goodbye Vanguard, hello M1 Finance.

No commission trading, with automatic rebalancing. Perfect for my UPRO/TMF portfolio.

Re: [Vanguard to stop accepting purchases in Leveraged or Inverse mutual funds]

Posted: Tue Jan 15, 2019 2:41 am
by Fryxell
Daitokuji wrote:
Mon Jan 14, 2019 1:46 am
Someone on Reddit who claims to be an ex-employee of Vanguard says the real reason they're doing this is because the people who were using these ended up being high volume customers and their system cannot handle more than 10k trades per year per account. Any more than 10k and their employees have to manually do the trades which was costing them money. And the company is too cheap to update their systems.
They’re doing this because they can’t keep up with the day traders who won’t leave.

Vanguard refuses to invest in system upgrades to keep on top of cost basis, so once day traders hit 10,000 buys and sells, their basis won’t display online anymore.

Instead, they abuse the employees by making them match specific-ID trades manually on behalf of the customers.

Source: I worked there for 10 years.
https://www.reddit.com/r/investing/comm ... g/edyplf4/
Nice to see confirmation for my theory that this is an attempt to shoo away shorter-term traders.