Vanguard VUSA ETF? Trading hours and value

sebtomato

Hi,

I don't really understand the VUSA ETF. It's in GBP and only traded during UK hours, so how does that reflect the S&P500 index (only made of US companies)?

For instance, if the S&P500 was up by 3% yesterday, should VUSA be up by 3% when it starts trading the next day, UK time? Should the start of UK trading reflect the closing value of the S&P500 the day before?

Also, is the ETF tracking the index, or going up and down based on its own demand? For instance, if lots of people want to buy VUSA, does that increase its value?

masonic

ETFs can trade at premiums and discounts to NAV, but will return to NAV during normal market conditions. When the market of the underlying holdings are closed, then traders are free to speculate what the current value would be if the market was open. If lots of people want to buy VUSA, then it will issue new shares and buy additional assets to accommodate that demand. It is not closed ended, like an investment trust.

If the S&P500 was "up by 3% yesterday" then some of that day would have already been reflected in the closing price of VUSA, since both markets were open in the UK afternoon.

Albermarle

sebtomato said:

Hi,

I don't really understand the VUSA ETF. It's in GBP and only traded during UK hours, so how does that reflect the S&P500 index (only made of US companies)?

For instance, if the S&P500 was up by 3% yesterday, should VUSA be up by 3% when it starts trading the next day, UK time? Should the start of UK trading reflect the closing value of the S&P500 the day before?

Also, is the ETF tracking the index, or going up and down based on its own demand? For instance, if lots of people want to buy VUSA, does that increase its value?

All these points make zero difference if you are invested longer term. They are only really an issue if you are trading in and out of the market short term ( which you may be, but most people on this forum are not doing that)

george4064

Another contributing factor to the difference is that VUSA is priced in GBP whilst the S&P 500 Index itself is based on USD  (the base currency) so any fluctuations in USD/GBP will be reflected in the VUSA price.

sebtomato

Still doesn't make much sense, sorry.

If VUSA is reflecting on US stocks, surely it should start at 08:30 UK time with the value of the previous US day, and stay with that value until the US stock exchange opens again, at 15:30 UK time?

If I look today, VUSA had about a 1% variation between 08:30 UK time and 15:30 UK time, when the underlying stocks didn't change since the US market was closed.

sebtomato

Albermarle said:

sebtomato said:

Hi,

I don't really understand the VUSA ETF. It's in GBP and only traded during UK hours, so how does that reflect the S&P500 index (only made of US companies)?

For instance, if the S&P500 was up by 3% yesterday, should VUSA be up by 3% when it starts trading the next day, UK time? Should the start of UK trading reflect the closing value of the S&P500 the day before?

Also, is the ETF tracking the index, or going up and down based on its own demand? For instance, if lots of people want to buy VUSA, does that increase its value?

All these points make zero difference if you are invested longer term. They are only really an issue if you are trading in and out of the market short term ( which you may be, but most people on this forum are not doing that)

True, I am invested long term. However, I would like to understand how ETFs work, and where the valuation comes from.

masonic

sebtomato said:

Still doesn't make much sense, sorry.

If VUSA is reflecting on US stocks, surely it should start at 08:30 UK time with the value of the previous US day, and stay with that value until the US stock exchange opens again, at 15:30 UK time?

If I look today, VUSA had about a 1% variation between 08:30 UK time and 15:30 UK time, when the underlying stocks didn't change since the US market was closed.

UK markets open at 8am and close at 4:30pm. VUSA, when markets close at 4:30pm, will fully reflect the price of the S&P500 at 11:30 New York time, US markets having been open for 2 hours by that point. The next day, it will only have part of the US trading day to 'catch up' and may also reflect market speculation concerning events that have happened overnight while US markets have been closed. This market speculation is what causes price movements between 8am and 2:30pm. You can just about see the transition from small fluctuations driven by speculation to 'real' tracking of the index driven by actual price data in the chart.

coastline

sebtomato said:

Still doesn't make much sense, sorry.

If VUSA is reflecting on US stocks, surely it should start at 08:30 UK time with the value of the previous US day, and stay with that value until the US stock exchange opens again, at 15:30 UK time?

If I look today, VUSA had about a 1% variation between 08:30 UK time and 15:30 UK time, when the underlying stocks didn't change since the US market was closed.

First chart shows SP500 v VUSA.L  over the 3 month period. VUSA ahead around 4% since April due to currency move of stronger dollar.

Vanguard S&P 500 ETF, UK:VUSA Advanced Chart - (LON) UK:VUSA, Vanguard S&P 500 ETF Stock Price - BigCharts.com (marketwatch.com)

April Pound 1.32 now 1.25 so more or less the same difference.

British Pound - 2022 Data - 1957-2021 Historical - 2023 Forecast - Quote - Chart (tradingeconomics.com)

Set this to 1Day and you can see the SP 500 futures in play since yesterday close. Around 8 am today the SP stood at 4140 and finished 4.30pm around 4150. So I would think todays action is guided by the futures from 4.30 pm yesterday until 1.30 pm when the main market opens. From 1.30 pm you'll be real time.

  US500 | SPX - Index Price | Live Quote | Historical Chart (tradingeconomics.com)

masonic

Deleted_User said:

masonic said:

UK markets open at 8am and close at 4:30pm. VUSA, when markets close at 4:30pm, will fully reflect the price of the S&P500 at 11:30 New York time, US markets having been open for 2 hours by that point. The next day, it will only have part of the US trading day to 'catch up' and may also reflect market speculation concerning events that have happened overnight while US markets have been closed. This market speculation is what causes price movements between 8am and 2:30pm. You can just about see the transition from small fluctuations driven by speculation to 'real' tracking of the index driven by actual price data in the chart.

There might be something to be said for making your purchases and sales of VUSA between 2:30pm and 4:30pm, when both US and UK markets are open, so there is less speculation about what other traders will do affecting the price.

It would be an interesting piece of analysis work to determine the distribution of outcomes from investing before the US market opens vs after.

sebtomato

So the conclusion is that it's speculation between 8:30 in the morning (UK time) when VUSA starts to be traded, and 14:30, when the NYSE opens. Price is then supposed to be set to the S&P500 index price at that point (considering the GBP/USD exchange rate too).
However, does that mean Vanguard keeps adjusting the composition of its ETF? Daily? Hourly? Surely, they have to buy and sell shares to create an index tracker and keep it...tracking?

masonic

sebtomato said:

So the conclusion is that it's speculation between 8:30 in the morning (UK time) when VUSA starts to be traded, and 14:30, when the NYSE opens. Price is then supposed to be set to the S&P500 index price at that point (considering the GBP/USD exchange rate too).
However, does that mean Vanguard keeps adjusting the composition of its ETF? Daily? Hourly? Surely, they have to buy and sell shares to create an index tracker and keep it...tracking?

They will create and destroy units on demand during trading hours, and the money will be pooled so that shares are bought and sold at specific times. Derivatives are used to reduce cash drag and keep the fund fully invested.