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They are new ETFs that are owned by Schwab (just introduced)....if you have a Schwab Brokerage, they will let you trade them for no fee...This only applies to these new Schwab owned ETFs...not ETFs from other companies...Of course, if someone wants to trade these ETFs through other Brokerage Houses, they certainly can do so...but at the same fees they always pay for trading ETFs at that other Brokerage...
So those with Schwab accounts get a break if they want to trade specifically the Schwab Owned ETFs.....No fees at all...
Message edited by: craig10x on 2009-11-04 00:38:22 CST
Hopefully this attracts heavy volume traders, they're going to have to fight hard to drum up interest in these ETFs. A couple of basis points off the already incredibly low annual fees of the competitors' ETFs won't make much of a difference..
Yeah, and more thinly-traded ETFs often suffer from more slippage on transactions. Saving 1 bp a year on an ETF doesn't help much if you lose an additional 20 bp on slippage.
Thanks for the heads up, OP. I've been looking to increase my small cap holdings, which right now are in VB, Vanguard's small cap index ETF. The new Schwab SCHA has the same expense ratio (0.15%) although it follows a different (but comparable) index.
Right now, I only use Schwab for the Visa cc, and use their checking account to hold funds for ATM withdrawals when traveling outside the US. My Schwab brokerage account is only used to receive the cc 2% rebate. Maybe if I held some SCHA in the brokerage they would look favorably upon me if/when they tighten up the rules or terms on their cc.
Message edited by: UncaMikey on 2009-11-04 12:15:36 CST
CC is FIA, brokerage is Charles Schwab Corp (SCHW)
UncaMikey said:Thanks for the heads up, OP. I've been looking to increase my small cap holdings, which right now are in VB, Vanguard's small cap index ETF. The new Schwab SCHA has the same expense ratio (0.15%) although it follows a different (but comparable) index.
Right now, I only use Schwab for the Visa cc, and use their checking account to hold funds for ATM withdrawals when traveling outside the US. My Schwab brokerage account is only used to receive the cc 2% rebate. Maybe if I held some SCHA in the brokerage they would look favorably upon me if/when they tighten up the rules or terms on their cc.
UncaMikey said:Thanks for the heads up, OP. I've been looking to increase my small cap holdings, which right now are in VB, Vanguard's small cap index ETF. The new Schwab SCHA has the same expense ratio (0.15%) although it follows a different (but comparable) index. For anything other than short-term trading, ETFs suck. The level of interest in this thread shows just how well the industry has done at brainwashing people that ETFs are a good idea.
First, the fees are usually not rock-bottom. If you have $10K to invest, you can get FSEMX at Fidelity, with a 0.10% expense ratio. (If you have $100K, you can buy FSEVX, with a 0.07% expense ratio.) Either one soundly beats SCHA on expenses.
Both FSEMX and SCHA are commission-free assuming you have accounts at the sponsoring brokerage. But think about what it costs you in slippage. As I write this, SCHA has a bid of 24.66 and an ask of 24.68. If we guess that the NAV is 24.67, then buying at 24.68 means you're losing 0.04% of your investment. You'll probably lose another 0.04% when you eventually go to sell. That's 0.08% on a round trip.
Add to that that you may not be getting your ETF at NAV. Many stock ETFs commonly trade as much as 1% over NAV. If you buy at a 1% premium and then later sell at NAV, that's another 1% gone.
If you're looking to maximize your investment, an open-end fund is better in all respects. You invest at NAV, redeem at NAV, have no slippage, and can find lower expense ratios. ETFs are designed for short-term traders, but improperly marketed to long-term investors.
I'm totally with ThePessimist. Think about this question, what determines the current price of ETF -- is it supply & demand of the ETF itself, or the NAV of the underlying securities? By what mechanism do the two meet? The answer is that there's someone constantly trading against you with guaranteed profit that brings the two together. The analog with regular stock is if there were someone who knew for sure what the stock is worth that were trading to make sure that's what it was selling for, deriving profit from each trade. Except that with stocks it's insider trading and is illegal.
ThePessimist said:For anything other than short-term trading, ETFs suck.
Never let it be said that an old dog (me) can't learn new tricks. Thanks for the insights.
The bulk of my investments are already in Fidelity index funds, including FSEMX in an IRA. You guys definitely got me thinking, the best course is probably to expand my FSEMX and even sell off the VB when the time is right.
Not so sure that it's true that etfs are only good for constant trading and not for buy and hold...for example: The Vanguard Total Stock Market Fund is up like 21% year to date and so is the Vanguard Total Stock Market ETF (also 21%)..performance is virtually identical....
As far as losing money when you cash out..well firstly a buy and holder isn't continually making trades and secondly..when you sell, especially with a heavily traded etf like this...you tend to be able to get out within a penny or two of the current NAV....
Etfs are become so popular (even for buy and holders) and since their expenses are lower then mutual funds and mostly do as well as the actively managed mutual funds, there is probably a good chance that Mutual Funds will eventually get totally replaced by ETFs....
craig10x said:there is probably a good chance that Mutual Funds will eventually get totally replaced by ETFs....
I wouldn't go that far, but I would say this: Mutual funds cost more than ETF's for a very similar service. If you're paying more for it, you should have a good reason (and there are some, but it means you must want something other than just diversification within that market segment).
craig10x said:Not so sure that it's true that etfs are only good for constant trading and not for buy and hold...for example: The Vanguard Total Stock Market Fund is up like 21% year to date and so is the Vanguard Total Stock Market ETF (also 21%)..performance is virtually identical....
As far as losing money when you cash out..well firstly a buy and holder isn't continually making trades and secondly..when you sell, especially with a heavily traded etf like this...you tend to be able to get out within a penny or two of the current NAV.... I think you missed my point - go back and read my earlier post.
The fact that Vanguard's ETF and open-ended fund had similar performance based on NAV isn't surprising - they're based on the same index. But, if you qualify for Admiral shares or instead buy Fidelity's equivalent fund, there's no expense ratio savings. And the cost of slippage still applies. You have to buy the shares, and you or your heirs have to sell them. Being within a penny of NAV is still a serious expense compared to any expense ratio savings you may get. And, as I pointed out, ETFs often don't trade at NAV, and it's not unusual to see them 1% off. 1% can easily swamp years of difference on expense ratio.
Etfs are become so popular (even for buy and holders) and since their expenses are lower then mutual funds and mostly do as well as the actively managed mutual funds, there is probably a good chance that Mutual Funds will eventually get totally replaced by ETFs.... As I pointed out, their expenses aren't lower than mutual funds. Plus, you're looking at Vanguard, which has some of the cheapest ETFs in the business. Most ETFs are much more expensive than similar open-ended index funds from the likes of Fidelity and Vanguard. You can't compare an index ETF with an actively-managed open-ended fund; it's apples and oranges. You have to compare index ETFs with index open-ended funds, and in most cases the open-ended funds are better choices. Open-ended funds will never be totally replaced by ETFs.
I'd agree trojan35....certain mutual funds can offer certain advantages...in the way they are managed or/and allocated....but for straight index buying, mostly i don't see any big advantage of a mutual fund over an etf....
For example...i like the Vanguard Index Funds...but through my brokerage i would have to pay a LOT for the Vanguard fund....where as if i buy the etf...it costs me very little...It's different if you actually have a brokerage with Vanguard...then you would be better off with the fund itself...
On the other hand...I hold the Janus Short Term Bond Fund because not only is it more stable in share price value then the equivalent Vanguard etf...but it costs me nothing to buy and sell it (No Transaction Fee Fund)...It's also outperformed the equivalent Vanguard etf....
So...it depends on the particular situation...i don't think you can just make the blanket statement that mutual funds are ALWAYS better then etfs for long term holding...
Message edited by: craig10x on 2009-11-04 17:22:11 CST
Trojan35 said:Mutual funds cost more than ETF's for a very similar service. If you're paying more for it, you should have a good reason (and there are some, but it means you must want something other than just diversification within that market segment). As ThePessimist said, it's not universally true that ETFs are cheaper than regular MFs, even by just looking at the expense ratios. But, one of the reasons ETF expense ratios are low is because the issuing company gets another income stream besides the explicitly stated expense. That's the trading that happens to bring ETF price in line with NAV. To put it another way, you're always losing on slippage. Who wins what you lost? The issuer of the ETF. This is a totally hidden cost of ETFs. Put it third way, there's historical return of any instrument that you can look up. Some traders got better returns than that, some worse. With ETFs you're much more likely to end up in the worse pool than the better one. With regular MFs, it's more balanced. You can't see this from looking at historical returns.
The whole point of ETFs in a sideways market is to trade them in and out. You can't do that with mutual funds. Mutual Funds are better managed, but only for long term.
ETFs require you to play the market. I say this is a great deal if you have the time to put into trading in and out. Buy the valleys, sell the hills.
(I'm new to the forums, but manage hedgefunds for a living.)
Message edited by: StockInfo on 2009-11-04 18:31:22 CST
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