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Sorry, USATODAY, the presence of an expense ratio is not 'cheating' people. We can argue at what point the ER becomes a fleecing of people, but an ER itself isn't cheating. Talk about a clickbait headline.
I don't think the article was suggesting that ERs cheat investors. Rather that ETFs don't cheat investors, but they're not free either. Exactly what you're saying.
That said, I'm not as enthusiastic about ETFs as is the columnist. He says that SPY doesn't come with a market premium. But since its average spread is a penny, either it's got a premium when you buy it, or you're getting shortchanged by a penny when you sell (on average). He also doesn't mention the SEC fee (1.84c/$1K) on sales (not charged on mutual funds).
Nor does he mention that (index-based) ETFs have no legal requirement to be any more transparent than mutual funds. In fact, Vanguard ETFs don't disclose their portfolios any more frequently than do Vanguard mutual funds. While I don't personally see the value in daily transparency, it is hyped, so to the extent you don't get that transparency, you're being cheated.
What I suspect is the thrust of the question is whether another part of the ETF marketing pitch, intraday trading, is as real as advertised. We just saw a day where ETF prices diverged significantly from NAV. It doesn't matter if SPY is usually within a penny of NAV if the one time it deviates (rapid market movement) is the one time that you'd want to take advantage of intraday trading. (Note: I don't know how well SPY in particular behaved during the recent market gyrations.)
There is one last cheat when it comes to SPY in particular. SPY, as an "ancient" ETF, is structured as a UIT. UITs are not allowed to reinvest dividends; they must distribute them. So unlike a mutual fund or modern ETF, SPY holds cash as its underlying stocks pay dividends. Mutual funds immediately purchase more securities.
This creates a "cash drag" on SPY. The only way to put that cash to use as an investor is to reinvest the quarterly dividends as you receive them.
ETFs do have a value which I don't know how to quantify.
If you sell a mutual fund, you get the end of day price - you don't have any control over that.
With a ETF you can put in a limit order and good until canceled. So, if selling you can set your sell price above the current market price and it could get filled. Same with a buy. Study the ETF's interday price action and you can get a good idea of where to set your price.
Fair enough, though at the end of the day you've got something worth, well, the end of day NAV (if buying).
You're betting on a trend reversing - if you set a (sell) limit order above the current price and your price is hit, the ETF is trending up. If the trend continues, you would have been better off waiting until later in the day. If the trend reverses, you did yourself well.
All that aside, there is something to be said for mentally setting a target profit and achieving it. You can come close by selling a mutual fund near closing, but there's always the chance of a last minute drop in the market.
Krantz is pretty solid, and I am glad he remains there now that Waggoner is gone.
Yes, SPY is well-superseded for anyone who does reinvestment. SCHD is one favorite, but if I were not retired I would put a ton into RPG and RPV 50-50, which oddly outperforms RSP.
You're betting on a trend reversing - if you set a (sell) limit order above the current price and your price is hit, the ETF is trending up. If the trend continues, you would have been better off waiting until later in the day. If the trend reverses, you did yourself well.
Not really ... you can get the higher price because someone put in a market buy - my limit price is matched with the market order. Again, if you look at the intra day price of the ETF - it bounces around - it can bounce around to you.
The ETF could be trending down over a period but most times it does not go straight down.
I've learned never to use a market buy or sell - it is a gamble and you usually lose.
Comments
Sorry, USATODAY, the presence of an expense ratio is not 'cheating' people. We can argue at what point the ER becomes a fleecing of people, but an ER itself isn't cheating. Talk about a clickbait headline.
That said, I'm not as enthusiastic about ETFs as is the columnist. He says that SPY doesn't come with a market premium. But since its average spread is a penny, either it's got a premium when you buy it, or you're getting shortchanged by a penny when you sell (on average). He also doesn't mention the SEC fee (1.84c/$1K) on sales (not charged on mutual funds).
Nor does he mention that (index-based) ETFs have no legal requirement to be any more transparent than mutual funds. In fact, Vanguard ETFs don't disclose their portfolios any more frequently than do Vanguard mutual funds. While I don't personally see the value in daily transparency, it is hyped, so to the extent you don't get that transparency, you're being cheated.
What I suspect is the thrust of the question is whether another part of the ETF marketing pitch, intraday trading, is as real as advertised. We just saw a day where ETF prices diverged significantly from NAV. It doesn't matter if SPY is usually within a penny of NAV if the one time it deviates (rapid market movement) is the one time that you'd want to take advantage of intraday trading. (Note: I don't know how well SPY in particular behaved during the recent market gyrations.)
There is one last cheat when it comes to SPY in particular. SPY, as an "ancient" ETF, is structured as a UIT. UITs are not allowed to reinvest dividends; they must distribute them. So unlike a mutual fund or modern ETF, SPY holds cash as its underlying stocks pay dividends. Mutual funds immediately purchase more securities.
This creates a "cash drag" on SPY. The only way to put that cash to use as an investor is to reinvest the quarterly dividends as you receive them.
If you sell a mutual fund, you get the end of day price - you don't have any control over that.
With a ETF you can put in a limit order and good until canceled. So, if selling you can set your sell price above the current market price and it could get filled. Same with a buy. Study the ETF's interday price action and you can get a good idea of where to set your price.
I've done it with ETFs and gotten good prices.
You're betting on a trend reversing - if you set a (sell) limit order above the current price and your price is hit, the ETF is trending up. If the trend continues, you would have been better off waiting until later in the day. If the trend reverses, you did yourself well.
All that aside, there is something to be said for mentally setting a target profit and achieving it. You can come close by selling a mutual fund near closing, but there's always the chance of a last minute drop in the market.
Yes, SPY is well-superseded for anyone who does reinvestment. SCHD is one favorite, but if I were not retired I would put a ton into RPG and RPV 50-50, which oddly outperforms RSP.
The ETF could be trending down over a period but most times it does not go straight down.
I've learned never to use a market buy or sell - it is a gamble and you usually lose.