VEIEX (Emerging Mkt fund) to VWO conversion at VBS

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indexfundfan
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VEIEX (Emerging Mkt fund) to VWO conversion at VBS

Post by indexfundfan »

I am considering converting my VEIEX fund to VWO at VBS. From the prospectus:
If you convert your conventional shares to ETF Shares through Vanguard Brokerage, all conventional shares for which you request conversion will be converted into ETF Shares of equivalent value. Because no fractional shares will have to be sold, the transaction will be 100% tax-free. Vanguard Brokerage does not impose a conversion fee over and above the fee imposed by Vanguard.
It states that "no fractional shares will have to be sold". Does it mean that I will be holding fractional shares of VWO? Can anyone share their experience of a conversion done at VBS?

Thanks!
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LoopyGinJuice
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Post by LoopyGinJuice »

Hmm. You don't have to pay the redemption fee if you sell ETF shares, do you? Sounds like it could be worth it if the sell commission is less than 0.5% of the sale amount. But, doesn't VBS charge at least a 1.25% commission on trades? (I don't know them very well)
jeffarvon
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Post by jeffarvon »

I did this conversion last year. I looked up the transactions and see I started with fractional shares in the mutal fund and ended with fractional shares in the ETF. The conversion fee ($50) was paid from a new MM 'sweep' account that got set up (this activity opened my Vanguard Brokerage account). I had seeded the brokerage MM fund with some monies.

I recall doing this over the phone and it was very smooth and efficient.
"Enough is as good as a feast" - Mary Poppins
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Post by indexfundfan »

jeffarvon wrote:I did this conversion last year. I looked up the transactions and see I started with fractional shares in the mutal fund and ended with fractional shares in the ETF. The conversion fee ($50) was paid from a new MM 'sweep' account that got set up (this activity opened my Vanguard Brokerage account). I had seeded the brokerage MM fund with some monies.

I recall doing this over the phone and it was very smooth and efficient.
Thanks.

Looks like after the conversion, one would usually end up with fractional shares. I presume one can similarly sell fractional shares on the VBS platform? That's kind of interesting to know.
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stan1
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Post by stan1 »

indexfundfan wrote:
jeffarvon wrote:I did this conversion last year. I looked up the transactions and see I started with fractional shares in the mutal fund and ended with fractional shares in the ETF. The conversion fee ($50) was paid from a new MM 'sweep' account that got set up (this activity opened my Vanguard Brokerage account). I had seeded the brokerage MM fund with some monies.

I recall doing this over the phone and it was very smooth and efficient.
Thanks.

Looks like after the conversion, one would usually end up with fractional shares. I presume one can similarly sell fractional shares on the VBS platform? That's kind of interesting to know.
You can only directly buy and sell whole shares of ETFs at VBS, however if after a sale transaction you have less than one share of a holding left VBS will automatically cash out the fractional share at the time the sell trade settles. If you reinvest dividends and gains VBS will give you fractional shares.
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Post by indexfundfan »

stan1 wrote:
indexfundfan wrote:
jeffarvon wrote:I did this conversion last year. I looked up the transactions and see I started with fractional shares in the mutal fund and ended with fractional shares in the ETF. The conversion fee ($50) was paid from a new MM 'sweep' account that got set up (this activity opened my Vanguard Brokerage account). I had seeded the brokerage MM fund with some monies.

I recall doing this over the phone and it was very smooth and efficient.
Thanks.

Looks like after the conversion, one would usually end up with fractional shares. I presume one can similarly sell fractional shares on the VBS platform? That's kind of interesting to know.
You can only directly buy and sell whole shares of ETFs at VBS, however if after a sale transaction you have less than one share of a holding left VBS will automatically cash out the fractional share at the time the sell trade settles. If you reinvest dividends and gains VBS will give you fractional shares.
Great. That makes sense.
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bbrock
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Post by bbrock »

Hello IndexFunFan,
I read through this poster, and also your post at your site:
http://www.indextown.com/archives/2008/ ... on-at-vbs/

I am looking to move my international holding from Dodge & Cox International to Vanguard FTSE all world ex US. Since I am flagship, I have thought of buying the fund class first (VFWIX) and then converting to the ETF (VEU). I thought of this to avoid the bid-ask spread and any premium/discount to NAV. And, to ease my worries since this would be my first ETF purchase and I am intimidated by doing a market order and getting a bad price or using a limit order. I was considering doing a lump sum into VFWIX and then a full conversion into VEU. What's holding me back is that I am confused on how to calculate the cost basis for the converted shares. Your posting at the above link helps, but is there any way you could outline for me how to calculate this cost basis on a conversion?

Since the conversion factor involves the closing NAV of the fund class VFWIX/the closing NAV of the ETF VEU, I have thought that I could just use the closing NAV of VEU for the cost per share. Could you let me know if that is right, or what is?

Thanks.
bbrock
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Post by indexfundfan »

bbrock,

Your cost basis is whatever you paid for the shares. If you spent $10,000 on the mutual fund, after the conversion to ETF, your cost basis is still $10,000.

So for example, say after the conversion you end up with 500 shares of the ETF, the cost basis of the entire lot is still $10,000, and your cost per share is 10,000/500 = $20.

The NAV is used by Vanguard to calculate the number of ETFs for the conversion. It does not come into your cost basis calculations.
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bbrock
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Post by bbrock »

Thanks for the quick response IndexFundFan. I do appreciate the clarification.

If it is that straight-forward, I don't see why Vanguard doesn't do it themselves. Any thoughts?
bbrock
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