ETFs vs Funds. Selling.

[Deleted User]

I keep thinking that it will be easier units in a fund (OEIC) compared to an ETF.

Eg Ishares SP500 vs HSBC American Index OEIC. When deciding to sell:

You are selling the ETF share with 500 companies to ONE person.

Whereas with the fund, the fund manager, will sell your share of each company (500 of them) to 500 different buyers.


Does anyone else see this? For example selling 500 cars to one buyer would be harder than selling one car to one buyer x 500 times.

SonOf

Does anyone else see this?

no.

A trade is a trade. Its a single entry point for you. The only differences are that ETFs are real time in pricing and OEICs are once a day and that there are dealing costs with ETFs but not OEICs

Linton

Fund managers dont buy and sell the individual underllying shares each time you buy or sell fund units. The investments are pooled.

bowlhead99

newbinvestor wrote: »

I keep thinking that it will be easier units in a fund (OEIC) compared to an ETF.

Eg Ishares SP500 vs HSBC American Index OEIC. When deciding to sell:

You are selling the ETF share with 500 companies to ONE person.

Whereas with the fund, the fund manager, will sell your share of each company (500 of them) to 500 different buyers.


Does anyone else see this?

I'm feeling this is "like deja vu all over again"

In your thread this time last week, Funds vs Investment Trusts, Liquidity , you said:

"I'm thinking that it would be easier to sell the fund in say 20 years. Assume each fund/trust holds 50 stocks each. When selling the investment trust, I am selling the 50 stock to the SAME person. But with the fund, I am selling each stock to 50 different people. Therefore the fund seems like it will be easier to sell. Does anyone agree/disagree?"

In that case you thought it was easier to sell a fund (where the manager sells the underlying stock to 50 people to raise funds to pay you back) than an investment trust on a stock exchange where you just need to find one person to buy it. It was mentioned to you that there will always be buyer for a whole package of stocks (the audience of investors who like to buy investment trusts) just like there will be an audience for the fund manager to sell off the stocks individually and meet your redemptions, so the fund is not necessarily better. The manager simply has a different audience for the sale of his holdings.

It is the same with ETFs. It is not hard to find an individual or institution who wants to buy a share of an ETF which is a packaged investment product offering exposure to a specific index of stocks. People on this forum talk about buying index ETFs all the time, and the volume of trading in European ETFs last year was a couple of trillion pounds.

As Linton suggests, the fund manager of an open ended fund doesn't necessarily need to sell any shares at all at the time you put in your redemption request as he will run a cash buffer and will typically have cash on hand from (e.g.) subscriptions from other investors, dividend income or the strategic sale of a holding. If he does need to make sales, he won't necessarily sell them in the exact proportion of his total holding - if you want to do a £10,000 redemption he is not going sell to off £50 of his smallest holding to make sure the ratio of stocks held by the fund is all exactly the same before and after, because small trade sizes are inefficient, and certain stocks won't be as efficient to buy and sell anyway (stamp duties, bid-offer spreads etc).

Whereas if you want to sell £10,000 of a mainstream ETF, plenty of people will want it because it's a popular way to invest. So it's not really the case that one is better than the other.

For example selling 500 cars to one buyer would be harder than selling one car to one buyer x 500 times.

It's not a particularly good analogy, but in the first case the target audience would be a fleet purchaser, like a large corporate, or a car rental company or car dealership, who might be happy to buy a 'job lot' of vehicles in a common configuration. In the second case you have to find people who one-at-a-time want to buy the specific cars you still have left in stock that you are trying to sell (a piece of Apple or Macys, McDonalds or Electronic Arts or whatever is left until each of them has been sold down by the exact right amount for the fund manager to continue his strategy).

In your last thread, which addressed this sort of question, someone pointed to your previous thread from June Investing in a small fund OEIC where you had said

if I want to sell the fund, does the fund manager sell the FUND to a new buyer, or can he/she sell the individual stocks in the fund to return my money?

As the person pointed out, is there something you're just not getting about all this because we seem to have done our collective best to help and still going round in circles, "I keep thinking that it will be easier..."

[Deleted User]

Linton wrote: »

Fund managers dont buy and sell the individual underllying shares each time you buy or sell fund units. The investments are pooled.

They must sell them to return cash to me? Edit, just read bowlhead's response above. The fund manager must sell some of the shares in the fund, what if the value I was selling was £1 million.

[Deleted User]

Bowlhead, thanks, although what if, in 30 years time, the demand for index funds has significantly dropped. Then, will a tracker ETF be such a good investment if no one wants to buy it and you can't sell each stock individually. I am aware of the Creation/Redemption Authorised Participant process although it is quite confusing, I believe it's just to keep the NAV and share price close.

SonOf

newbinvestor wrote: »

They must sell them to return cash to me? Edit, just read bowlhead's response above. The fund manager must sell some of the shares in the fund, what if the value I was selling was £1 million.

Every fund will have an allocation to cash to cover routine daily transactions. A £1m transaction in a single fund may be subject to delays in trading to allow cash to be raised without detriment to others.

Do you have £1m in a single fund or intend to place it in a single fund? if not, then dont worry about it.

bowlhead99

newbinvestor wrote: »

Bowlhead, thanks, although what if, in 30 years time, the demand for index funds has significantly dropped. Then, will a tracker ETF be such a good investment if no one wants to buy it and you can't sell each stock individually.

If the ETF was not economically viable such that people wanted to sell it and nobody wanted to buy it, it would sell its assets and wind up, just like an OEIC would do. Or merge into some other existing fund vehicle, providing an exit route for holders.

As a 'newbinvestor', stick to the basics. Thought experiments such as, "what if in three or more decades I have a million pounds in a single index fund or ETF and it turns out that nobody wants to invest in indexes in the 2050s (even though in the 2010s low cost automated index investing was the fastest-growing market for investment products)... so I decide to change my strategy and stop investing by index, and I want to do it all on one day with the whole million" - are probably not productive.

In reality, you don't need a million pounds on one specific day thirty years from now, you probably don't or won't have a million pounds in one product. Any changes to your portfolio (including growth or a strategy change or an exit from the world of investments completely) would be gradual and happen over a period of time. An OEIC or UT investing in a mainstream index is fine. An ETF is probably fine too, if you know how they work.

Prism

newbinvestor wrote: »

They must sell them to return cash to me? Edit, just read bowlhead's response above. The fund manager must sell some of the shares in the fund, what if the value I was selling was £1 million.

It will depend very much on the funds size but for example Fundsmith currently has £190 million in cash which should suffice to cover that request. Other smaller funds might have a borrowing capacity or might indeed delay your withdrawal while they sell some shares

Linton

A fund manager may be receiving 100s of buys and sells every day. In general the buys will broadly match the sells. The fund manager only has to worry about the net effect.


All buy and sell requests in the previous day are processed together and so the shares transactions can be done at the same time.

AnotherJoe

newbinvestor wrote: »

I keep thinking that it will be easier units in a fund (OEIC) compared to an ETF.

Eg Ishares SP500 vs HSBC American Index OEIC. When deciding to sell:

You are selling the ETF share with 500 companies to ONE person.

Whereas with the fund, the fund manager, will sell your share of each company (500 of them) to 500 different buyers.


Does anyone else see this? For example selling 500 cars to one buyer would be harder than selling one car to one buyer x 500 times.

:wall:


So, did you read any of your previous thread? Because if so, none of the replies here are going to help you either.
When you buy or sell an ETF it takes a couple of seconds after pressing "confirm".
When you buy or sell a fund it takes days.

So, ignoring your complete misunderstanding of what happens when you buy or sell an ETF, is that proof enough for you that you must have completely misunderstood because the obviusly dont sell fractions of 500 different companies shares in 2 seconds do they?? (what they do, as said to you till the cows come home, is a combination of matching up buys and sells and a cash buffer) Aside anything else it would be ruinously expensive to buy all 500 different shares and then sell them again a second later for thousands of trades throughout the day.

When two trades come in on opposite sides of the deal they just match them. I get your million pounds worth of shares, you get my cash. And to answer your question about a million pounds, thats peanuts.
If you had £500M, yeh maybe that would give them a problem but then if you had £500M to invest in one index you'd start your own index fund.
Try to crawl before you think about sprinting.