ETFs vs Index Funds

GMNN

Just looking for some opinion from the community on ETFs vs funds for tracking an index, e.g. S&P500, FTSE 100, Nasdaq 100 etc...
Assuming the same charges, why would one pick an ETF over the equivalent index fund, and vice versa? Is it just about the fact that ETFs trade intra-day so you can take advantage of price movements during the day, and do things like place limit orders? If investing for the long-term, doesn't seem particularly relevant...
Am I right in assuming that with both investment vehicles you would expect the exact same return over time (again assuming same charges)?

AnotherJoe

with my broker, HL, it's cheaper to hold ETFs, plus you can buy sell without the faffing about with several days delay wondering what price you will get / buy at. 

Hadn't thought of limit orders but yes another advantage. 

ColdIron

ETFs will usually have a spread and a cost to buy and sell and unlike funds you can't buy a bit of a share. Most funds/OEICs will come in two classes, accumulating and distributing (Acc/Inc). Most ETFs do not and they receive no protection from the FSCS

Thrugelmir

ETF's can be exposed to widened spreads in volatile market conditions. 

AnotherJoe

Yep, pros and cons,  though part owning a share is no biggie  and FSCS is overblown in that its only going to be useful against out and out fraud, not normal (or abnormal) market fluctuations.

Albermarle

I think the reality is that in the end you will get very similar returns from both . Some platforms have different charging structures for funds & ETF's so if you decide to go ETF or fund, then picking the right platform to hold them can be beneficial. 

Sailtheworld

Thrugelmir said:

ETF's can be exposed to widened spreads in volatile market conditions. 

More a function of liquidity than an inherent problem with ETFs. A niche ETF will have a bigger spread but the underlying investments will have a bigger spread in the fund so I'm not convinced this is a problem.

The spread of VWRL (obviously very liquid) has been less than a rounding error through plenty of volatile market conditions. Seeking a price to buy or sell a few seconds earlier or later has more effect on price than the spread.

Thrugelmir

Sailtheworld said:

Thrugelmir said:

ETF's can be exposed to widened spreads in volatile market conditions. 

More a function of liquidity than an inherent problem with ETFs. A niche ETF will have a bigger spread but the underlying investments will have a bigger spread in the fund so I'm not convinced this is a problem.

The spread of VWRL (obviously very liquid) has been less than a rounding error through plenty of volatile market conditions. Seeking a price to buy or sell a few seconds earlier or later has more effect on price than the spread.

With over 3,000 holdings. VWRL will be nigh impossible to price accurately in real time in markets such as we had a few weeks ago.  Hence the widened spread.

Sailtheworld

I didn't check the spread of VWRL a few weeks ago but did when I was working out a few days ago whether it was worth moving to another provider with a lower OCF. The spread was 0.07% - you've got to be pretty cost sensitive for that to matter so much that you'd rather buy a fund and wait two days to see what you bought at.

If minimum spread and accurate pricing is a deal breaker then an investor is looking for super high liquidity and that's got very little to do with whether a tracker is a fund or ETF.

I struggled to get a buy order in on VWRL when I did my one and only trade of the tax year but, again, not a function of being an ETF, share or fund. 

EthicsGradient

AnotherJoe said:

Yep, pros and cons,  though part owning a share is no biggie

If you've got plenty to invest, it isn't; but if, say, you want to regular invest £120 a month in the Vanguard Developed World ETF, with a price of £48 or so, you'll end up with a varying amount of 2 shares one month, and 3 the next (assuming you leave the uninvested amount in the account). This means you're not getting the truly regular investment you desire.

Thrugelmir

Sailtheworld said:

I didn't check the spread of VWRL a few weeks ago but did when I was working out a few days ago whether it was worth moving to another provider with a lower OCF. The spread was 0.07% - you've got to be pretty cost sensitive for that to matter so much that you'd rather buy a fund and wait two days to see what you bought at.

If minimum spread and accurate pricing is a deal breaker then an investor is looking for super high liquidity and that's got very little to do with whether a tracker is a fund or ETF.

I struggled to get a buy order in on VWRL when I did my one and only trade of the tax year but, again, not a function of being an ETF, share or fund. 

VWRL is only tradeable on a daily basis it seems. Interestingly redemption of large holdings can incur an additional charge, i.e. anti dilution levy, though there's no clear indication as to when it's applied.