Are index fund managers forced to sell stocks when incurring greater trading?

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Jesteroftheswamp
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Are index fund managers forced to sell stocks when incurring greater trading?

Post by Jesteroftheswamp » Thu Jan 10, 2019 7:44 pm

I was talking to a friend and he said that ETFs are way better than mutual funds because when holders of mutual funds begin to sell their funds, this causes the mutual fund manager to have to sell stocks within the fund as well. Is this true? I think he may be thinking of actively managed funds and not index funds, but either way does this hold any truth to it? Is there an advantage inherent to ETFs in regards to more people selling aside from the fact that it is priced throughout the day and not end of day like index funds?

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by skylar » Thu Jan 10, 2019 9:16 pm

Yes, and it's part of the reason why fund companies put frequent trading restrictions or even purchase and redemption fees in place: if the manager can't handle redemptions out of cash flow, then they have to sell the underlying assets, possibly at a loss, which all of the fund investors have to accept. If a big chunk of money comes in a few weeks later, then they might have to buy those same assets again at a higher price, which drags performance down for all owners again.

ETFs don't have to buy or sell assets when people trade since ETF shares trade directly between investors, but if the value of an ETF share drifts too far from the value of the underlying assets, that can be arbitraged away, or the fund manager can buy/sell more assets directly and create/destroy ETF shares, but the timing is more flexible.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by alex_686 » Thu Jan 10, 2019 9:33 pm

When there are cash flows in or out, funds need to buy or sell. Does not matter if it is a mutual fund or a ETF.

That being said, the redemption / creation process for ETFs are more efficient than running trades through a trading desk - most of the time. There are exceptions.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by dumbmoney » Thu Jan 10, 2019 9:43 pm

ETFs don't all work the same way, but in the classic design (e.g. SPY), the ETF shares are created and destroyed by professional arbitragers with in-kind transactions, not cash transactions. This completely insulates the fund from investor trading, no less than a closed-end fund.

With traditional open ended funds, it's possible for investor trading to harm the fund. That's why fund managers put various trading restrictions in place, and sometimes the fund charges a redemption fee.
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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by Jesteroftheswamp » Thu Jan 10, 2019 9:46 pm

skylar wrote:
Thu Jan 10, 2019 9:16 pm
Yes, and it's part of the reason why fund companies put frequent trading restrictions or even purchase and redemption fees in place: if the manager can't handle redemptions out of cash flow, then they have to sell the underlying assets, possibly at a loss, which all of the fund investors have to accept. If a big chunk of money comes in a few weeks later, then they might have to buy those same assets again at a higher price, which drags performance down for all owners again.

ETFs don't have to buy or sell assets when people trade since ETF shares trade directly between investors, but if the value of an ETF share drifts too far from the value of the underlying assets, that can be arbitraged away, or the fund manager can buy/sell more assets directly and create/destroy ETF shares, but the timing is more flexible.
Does this out index funds at a major disadvantage vs. ETFs?

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by skylar » Thu Jan 10, 2019 10:07 pm

Jesteroftheswamp wrote:
Thu Jan 10, 2019 9:46 pm
skylar wrote:
Thu Jan 10, 2019 9:16 pm
Yes, and it's part of the reason why fund companies put frequent trading restrictions or even purchase and redemption fees in place: if the manager can't handle redemptions out of cash flow, then they have to sell the underlying assets, possibly at a loss, which all of the fund investors have to accept. If a big chunk of money comes in a few weeks later, then they might have to buy those same assets again at a higher price, which drags performance down for all owners again.

ETFs don't have to buy or sell assets when people trade since ETF shares trade directly between investors, but if the value of an ETF share drifts too far from the value of the underlying assets, that can be arbitraged away, or the fund manager can buy/sell more assets directly and create/destroy ETF shares, but the timing is more flexible.
Does this out index funds at a major disadvantage vs. ETFs?
Maybe a little, though note with an ETF you're at the mercy of the liquidity of the market and your own ability to get a good price and timing for your own trading. Vanguard actually has a patent on allowing ETFs to be a share class of their retail mutual funds, which allows the open-ended share classes to invest in the ETF if it's advantageous, rather than the underlying assets. I'm not sure how much that helps, but Vanguard certainly thinks it does so I'll defer to their judgment.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by nisiprius » Thu Jan 10, 2019 10:15 pm

Jesteroftheswamp wrote:
Thu Jan 10, 2019 9:46 pm
Does this put index funds at a major disadvantage vs. ETFs?
Go look at the data. Look at the actual real-world results.

The blue line is an S&P 500 index fund, the Fidelity 500 Index Fund, FXAIX. (I am deliberately not using Vanguard products, so that I don't go down any rabbit holes about Vanguard's system for making ETFs and index funds share classes of a single fund).

The orange line SPY, is an S&P 500 index ETF--the oldest and most famous of all ETFs, in fact.

You tell me. Does it looks as if the index fund (blue line) shows any visible signs of any disadvantage versus the index ETF (orange line)? Can you even see that there are two lines, or do they overlay each other near-perfectly?

Source

Image

Note that both fund and ETF went through two periods of severe stress during 2000-2002 and 2008-2009, during which I imagine shareholders were doing a high transaction volume. Any signs of the lines separating or pulling apart during those time frames?

And when all was said and done, the mutual fund shareholder finally came out five hundred bucks richer than the ETF shareholder.
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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by Northern Flicker » Fri Jan 11, 2019 12:15 am

Jesteroftheswamp wrote:
Thu Jan 10, 2019 7:44 pm
I was talking to a friend and he said that ETFs are way better than mutual funds because when holders of mutual funds begin to sell their funds, this causes the mutual fund manager to have to sell stocks within the fund as well. Is this true? I think he may be thinking of actively managed funds and not index funds, but either way does this hold any truth to it? Is there an advantage inherent to ETFs in regards to more people selling aside from the fact that it is priced throughout the day and not end of day like index funds?
A mutual fund usually holds a small cash position to manage liquidity and process withdrawals without having to sell stock holdings. When withdrawals exceed the cash position it may require selling stocks to process a withdrawal.

If a fund has a lot of frequent trading or large withdrawals relative to the size of the fund, it can affect performance. This is very unlikely, but not impossible with a large index fund.

ETFs do not have this defect, but in return you have to accept the potential reduction in return that goes with bid-ask spreads and discounts or premiums to NAV.
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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by alex_686 » Fri Jan 11, 2019 10:11 am

Jesteroftheswamp wrote:
Thu Jan 10, 2019 9:46 pm
Does this out index funds at a major disadvantage vs. ETFs?
I would not consider it a major disadvantage, but the cost structure does favor ETFs. You just have to look at the trend lines in terms of cash flows and expense ratios to see the industry favors ETFs.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by House Blend » Fri Jan 11, 2019 3:16 pm

nisiprius wrote:
Thu Jan 10, 2019 10:15 pm
Jesteroftheswamp wrote:
Thu Jan 10, 2019 9:46 pm
Does this put index funds at a major disadvantage vs. ETFs?
Go look at the data. Look at the actual real-world results.

The blue line is an S&P 500 index fund, the Fidelity 500 Index Fund, FXAIX. (I am deliberately not using Vanguard products, so that I don't go down any rabbit holes about Vanguard's system for making ETFs and index funds share classes of a single fund).

The orange line SPY, is an S&P 500 index ETF--the oldest and most famous of all ETFs, in fact.

You tell me. Does it looks as if the index fund (blue line) shows any visible signs of any disadvantage versus the index ETF (orange line)? Can you even see that there are two lines, or do they overlay each other near-perfectly?
The main disadvantage IMO is that the mutual fund will need to distribute capital gains periodically, putting taxable investors at a disadvantage.

I only use Vanguard index mutual funds in taxable, so I never see capital gain distributions, but my impression (from seeing reports from others, and from the non-vanguard index funds I have in my employer retirement plan) is that something like 0.5%/yr in cap gains distributions is typical for a non-Vanguard broad US market index fund.

So you would bleed a bit more from taxes on an annual basis. Perhaps to an extent comparable to a difference in ER of 10 basis points/year. Roughly comparable to Investor vs. Admiral at Vanguard. That sort of difference is unlikely to be visible on a chart either, but it's still real.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by greg24 » Fri Jan 11, 2019 3:23 pm

If this was a "major advantage", ETFs tracking the same index as a mutual fund would outperform over time.

Do you see ETFs outperforming similarly indexed mutual funds?

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by alex_686 » Fri Jan 11, 2019 3:27 pm

greg24 wrote:
Fri Jan 11, 2019 3:23 pm
If this was a "major advantage", ETFs tracking the same index as a mutual fund would outperform over time.

Do you see ETFs outperforming similarly indexed mutual funds?
Yes they do. Only by a few bps, but every bps counts. I know savings millions when running trillions of AUM does not sound like a lot, but a penny saved is a penny earned. I will also point that there are lots of new ETF offerings, but few mutual fund offerings.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by Patzer » Fri Jan 11, 2019 3:31 pm

greg24 wrote:
Fri Jan 11, 2019 3:23 pm
If this was a "major advantage", ETFs tracking the same index as a mutual fund would outperform over time.

Do you see ETFs outperforming similarly indexed mutual funds?
Yes, for example. S&P 500 ETF (SPY 0.0945% Expense Fee) has outperformed S&P Mutual Fund (FXAIX 0.015% Expense Fee) by a total 2.25% over the last 5 years.

EDIT: My data is incorrect, mutual fund shows as under-performing, because the chart does not include distributions, and mutual funds have more due to cap gains distributions.
Last edited by Patzer on Mon Jan 14, 2019 9:31 pm, edited 3 times in total.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by greg24 » Fri Jan 11, 2019 5:01 pm

Patzer wrote:
Fri Jan 11, 2019 3:31 pm
greg24 wrote:
Fri Jan 11, 2019 3:23 pm
If this was a "major advantage", ETFs tracking the same index as a mutual fund would outperform over time.

Do you see ETFs outperforming similarly indexed mutual funds?
Yes, for example. Fidelity S&P 500 ETF (SPY 0.0945% Expense Fee) has outperformed their S&P Mutual Fund (FXAIX 0.015% Expense Fee) by a total 2.25% over the last 5 years.
Where are you seeing these results?

Using nisiprius's morningstar link above, I do the same thing with SPY and FXAIX for 01/09/2014 to 01/09/2019.

It shows the ending values as FXAIX:15,587.95 and SPY:15,515.34.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

If I click on the 5Y filter, it changes the dates to 01/11/2014 to 01/10/2019, resulting in final figures of FXAIX:15,614.18 and SPY:15,544.10.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by nisiprius » Fri Jan 11, 2019 5:14 pm

Patzer wrote:
Fri Jan 11, 2019 3:31 pm
greg24 wrote:
Fri Jan 11, 2019 3:23 pm
If this was a "major advantage", ETFs tracking the same index as a mutual fund would outperform over time.

Do you see ETFs outperforming similarly indexed mutual funds?
Yes, for example. Fidelity S&P 500 ETF (SPY 0.0945% Expense Fee) has outperformed their S&P Mutual Fund (FXAIX 0.015% Expense Fee) by a total 2.25% over the last 5 years.
(greg24 beat me to it...)
:?: :?: :?: :?: :?: :?: :?:

To get one detail out of the way, SPY is not a "Fidelity ETF." It is an SPDR ETF from State Street Global Advisors (SSGA).

First, If you look at my chart above, you will see that since inception of SPY, FXAIX (the mutual fund) outperformed SPY, not the other way around.

Second, if you choose to look only at the last five years, you will see that the average total return of SPY, the ETF, was 8.37%, while that of FXAIX, the mutual fund was 8.48%. The index return was 8.49%. The ETF lagged the index by 0.12%, the fund by only 8.48%.

So, once again, the mutual fund had a higher return than the ETF, not the other way around.

Just to be clear: I do not believe mutual funds are better than ETFs. What I believe is that the differences in actual performance. are negligible, and that any narrative that "ETFs are way better" is nonsense.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by grabiner » Fri Jan 11, 2019 10:30 pm

Jesteroftheswamp wrote:
Thu Jan 10, 2019 7:44 pm
I was talking to a friend and he said that ETFs are way better than mutual funds because when holders of mutual funds begin to sell their funds, this causes the mutual fund manager to have to sell stocks within the fund as well. Is this true? I think he may be thinking of actively managed funds and not index funds, but either way does this hold any truth to it? Is there an advantage inherent to ETFs in regards to more people selling aside from the fact that it is priced throughout the day and not end of day like index funds?
It is true, but not a specific disadvantage. Suppose that an index fund has a billion shares outstanding, and holds a million shares of XYZ stock, worth $10 per share; an investor with 1000 shares in the fund thus holds $10 worth of XYZ stock. If the fund has to sell 10% of its holdings, it will have 900M shares, and 900K shares of XYZ stock, so the investor still holds $10 worth of XYZ stock.

The potential disadvantage applies to fundholders in taxable accounts. When the stock is sold, it may be sold for a capital gain. This is less of a disadvantage for index funds, as index funds are likely to have bought the stock at a variety of prices, and if they have outflows in a declining market, they can sell stock for a capital loss rather than for a gain. The creation-redemption process for ETFs reduces the potential capital gains even more, whether from outflows or from index changes. Therefore, if you hold an index fund in a taxable account, it is best to either hold it as an ETF, or as a Vanguard fund with an ETF share class. In an IRA or 401(k), this doesn't matter.
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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by talzara » Sat Jan 12, 2019 1:14 pm

Vanguard also has the right to redeem mutual fund shares in-kind, just like an ETF:
Vanguard reserves the right to pay all or part of a redemption in kind—that is, in the form of securities—if we reasonably believe that a cash redemption would negatively affect the fund’s operation or performance or that the shareholder may be engaged in market-timing or frequent trading. Under these circumstances, Vanguard also reserves the right to delay payment of the redemption proceeds for up to seven calendar days.

https://personal.vanguard.com/pub/Pdf/p ... 2210140182
This clause is often applied when a 401k plan changes its fund choices. Instead of selling stocks and incurring capital gains, Vanguard redeems the Institutional shares in-kind. The 401k plan makes some trades to match the new index, and then it makes an in-kind contribution to the new fund.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by dm200 » Sat Jan 12, 2019 1:16 pm

Jesteroftheswamp wrote:
Thu Jan 10, 2019 7:44 pm
I was talking to a friend and he said that ETFs are way better than mutual funds because when holders of mutual funds begin to sell their funds, this causes the mutual fund manager to have to sell stocks within the fund as well. Is this true? I think he may be thinking of actively managed funds and not index funds, but either way does this hold any truth to it? Is there an advantage inherent to ETFs in regards to more people selling aside from the fact that it is priced throughout the day and not end of day like index funds?
Of course it is true. How could it not be?

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by J G Bankerton » Sat Jan 12, 2019 1:30 pm

dm200 wrote:
Sat Jan 12, 2019 1:16 pm
Jesteroftheswamp wrote:
Thu Jan 10, 2019 7:44 pm
I was talking to a friend and he said that ETFs are way better than mutual funds because when holders of mutual funds begin to sell their funds, this causes the mutual fund manager to have to sell stocks within the fund as well. Is this true? I think he may be thinking of actively managed funds and not index funds, but either way does this hold any truth to it? Is there an advantage inherent to ETFs in regards to more people selling aside from the fact that it is priced throughout the day and not end of day like index funds?
Of course it is true. How could it not be?
Mutual funds and ETF can settle an account with shares of the security instead of cash if necessary. Vanguard funds are so large they can settle most trades internally and not have to buy and sell the same shares on the open market. Remember for every seller they has to be a buyer; actual shares are not created or destroyed.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by Northern Flicker » Sat Jan 12, 2019 8:14 pm

It is true, but not a specific disadvantage. Suppose that an index fund has a billion shares outstanding, and holds a million shares of XYZ stock, worth $10 per share; an investor with 1000 shares in the fund thus holds $10 worth of XYZ stock. If the fund has to sell 10% of its holdings, it will have 900M shares, and 900K shares of XYZ stock, so the investor still holds $10 worth of XYZ stock.

The potential disadvantage applies to fundholders in taxable accounts. When the stock is sold, it may be sold for a capital gain.
There also are transaction costs. Trades are not always settled internally, as easily verified by looking at the transaction costs in annual and semi-annual reports.
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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by Northern Flicker » Sat Jan 12, 2019 8:17 pm

alex_686 wrote:
Fri Jan 11, 2019 3:27 pm
greg24 wrote:
Fri Jan 11, 2019 3:23 pm
If this was a "major advantage", ETFs tracking the same index as a mutual fund would outperform over time.

Do you see ETFs outperforming similarly indexed mutual funds?
Yes they do. Only by a few bps, but every bps counts. I know savings millions when running trillions of AUM does not sound like a lot, but a penny saved is a penny earned.
How would this result be explained?

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by Patzer » Mon Jan 14, 2019 11:06 am

greg24 wrote:
Fri Jan 11, 2019 5:01 pm
Where are you seeing these results?
nisiprius wrote:
Fri Jan 11, 2019 5:14 pm
Second, if you choose to look only at the last five years, you will see that the average total return of SPY, the ETF, was 8.37%, while that of FXAIX, the mutual fund was 8.48%. The index return was 8.49%. The ETF lagged the index by 0.12%, the fund by only 8.48%.
I am looking at Chart comparisons of the performance.

Yahoo Finance shows a 2.25% outperform for SPY from 1/2/2014 - 12/3/2018 (the dates it forces for end of 2013 to end of 2018).
Total return shows as: SPY 42.77%, FXAIX 40.26%

Charles Schwab shows a 2.5% outperform for SPY from 12/31/2013-12/31/2018.
Total return shows as: SPY 40.89%, FXAIX 38.39%.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by greg24 » Mon Jan 14, 2019 11:52 am

Patzer wrote:
Mon Jan 14, 2019 11:06 am
I am looking at Chart comparisons of the performance.
We've shared links above showing a direct comparison, where the ETF lags.

I can't recreate your numbers showing the ETF outperformance. If you can recreate this comparison so that we can see it, that'd be great.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by Patzer » Mon Jan 14, 2019 12:52 pm

greg24 wrote:
Mon Jan 14, 2019 11:52 am
Patzer wrote:
Mon Jan 14, 2019 11:06 am
I am looking at Chart comparisons of the performance.
We've shared links above showing a direct comparison, where the ETF lags.

I can't recreate your numbers showing the ETF outperformance. If you can recreate this comparison so that we can see it, that'd be great.
Here is a link to an IMGUR from my Schwab account:
https://imgur.com/a/hJYdBvP
Here is a link to pull the chart on Yahoo finance:
https://finance.yahoo.com/chart/SPY#eyJ ... luZyI6MH19

Maybe there are flaws with their charting. The differences do seem larger than I would expect.

EDIT: The charts are flawed, mutual fund shows as under-performing, because the chart does not include distributions, and mutual funds have more due to cap gains distributions.
Last edited by Patzer on Mon Jan 14, 2019 9:31 pm, edited 1 time in total.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by H-Town » Mon Jan 14, 2019 1:19 pm

nisiprius wrote:
Thu Jan 10, 2019 10:15 pm
Jesteroftheswamp wrote:
Thu Jan 10, 2019 9:46 pm
Does this put index funds at a major disadvantage vs. ETFs?
Go look at the data. Look at the actual real-world results.

The blue line is an S&P 500 index fund, the Fidelity 500 Index Fund, FXAIX. (I am deliberately not using Vanguard products, so that I don't go down any rabbit holes about Vanguard's system for making ETFs and index funds share classes of a single fund).

The orange line SPY, is an S&P 500 index ETF--the oldest and most famous of all ETFs, in fact.

You tell me. Does it looks as if the index fund (blue line) shows any visible signs of any disadvantage versus the index ETF (orange line)? Can you even see that there are two lines, or do they overlay each other near-perfectly?
What about after-tax result? This chart ignores the capital gain distribution from mutual funds which affects taxable account.

I have no issue holding mutual funds in tax advantaged accounts. But not so much for taxable account.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by alex_686 » Mon Jan 14, 2019 1:29 pm

jalbert wrote:
Sat Jan 12, 2019 8:17 pm
How would this result be explained?
For a start, you are really not comparing anything are you? They are the 2 different share classes of the same fund, with the same expense ratio. Of course you are going to get the same results. In theory Vanguard could chose to offer its ETF at a lower expense ratio because certain administrative functions are offloaded to the broker, but they chose not to.

Second, you are not going to get to far with this approach. What you want to do is regress the performance of a fund against the index and figure out the tracking error. The problem here is breaking down operational efficiency. One mutual fund has a high price but very effective trading desk, another is a EFT which has outsourced that function. Which is the better choice? How do you figure it out? As a hint, trading costs do not show up in the expense ratio.


The current thinking that it is better to offload the trading as the ETFs do. Specifically, since you are using 2 share classes of the same fund, the mutual fund shares gain the structural benefits of the ETF.

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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by nisiprius » Mon Jan 14, 2019 1:54 pm

Patzer wrote:
Mon Jan 14, 2019 12:52 pm
Here is a link to pull the chart on Yahoo finance:
https://finance.yahoo.com/chart/SPY#eyJ ... luZyI6MH19

Maybe there are flaws with their charting. The differences do seem larger than I would expect.
Yahoo! finance charts are not total return (growth) charts and don't include dividend reinvestment.

One can in fact see that this must be the case, because your chart is showing SPY as increasing by +42.77% in five years, which works out to (1.4277)^(1/5) - 1 = 7.38% per year, whereas Morningstar is showing me that the compound annual growth rate--total return--for SPY, 2014-2018 inclusive, was 8.37% (price), 8.39% (NAV).

I don't know if that accounts for the difference, though. That is, I don't know why SPY and VKAIX would be different on a price chart but virtually identical on a growth chart and total return table.
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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by Barry Barnitz » Mon Jan 14, 2019 5:50 pm

Hi Nisi:

Regarding the investment return performance of the SPY ETF. The SPY is structured as a unit investment trust and not as an open-end mutual fund. This structural difference accounts for potential differences of return between SPY and an open-end 500 index fund. Here are the two different aspects of the structures.

Open end fund
1. The fund can engage in security lending.
2. Dividends are immediately reinvested and paid to shareholders (monthly or quarterly).

Unit investment trust
1. The fund cannot lend its securities.
2. Dividends are not reinvested in the fund, but are held until paid to shareholders quarterly or annually. The ETF can be subject to cash drag in rising markets.

regards,
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Re: Are index fund managers forced to sell stocks when incurring greater trading?

Post by Patzer » Mon Jan 14, 2019 9:27 pm

nisiprius wrote:
Mon Jan 14, 2019 1:54 pm
Yahoo! finance charts are not total return (growth) charts and don't include dividend reinvestment.
Thank you! That is the issue with both the Schwab and the Yahoo charts, and makes sense.
The ETF and the Mutual Fund have the same dividend from earnings, but the mutual fund also has Capital gains distributions, whereas the ETF does not.
So, for 2018 for example, SPY distributed 0% in capital gains, whereas FXAIX distributed 0.63%. That added up over 5 years would account for the difference.
In tax deferred it would not matter, but in a taxable account it could be a slight drag on return.
For example, in 2018, assuming the 22% tax bracket:
.25% in Short-Term Gains * .22 + .38% in Long-Term Gains * .15 = 0.11% of tax cost.

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