Why do people with the knowledge seem to invest more in ETFs?

leosayer

Thanks for the detailed description.

It's clear l there are many processes in place to protect existing investors however I don't think this is understood by the public who buy these funds because they are operate very differently to listed company shares which have fixed shares in issue.

masonic

It would be unreasonable to expect consumer investors to fully understand the inner workings of ETFs. It should suffice to be aware that they are not closed-ended vehicles, but, particularly in stress situations, they are capable of trading at a discount or premium to NAV, which adds a small degree of risk over and above off-exchange open-ended funds where unit issuance and redemption is controlled by a fund house.

This is largely irrelevant though for the buy and hold investor who may make occasional non-time-sensitive trades.

GeoffTF

https://forums.moneysavingexpert.com/discussion/comment/82107233#Comment_82107233

The position with ETFs appears more complex, with the use of multiple
Authorized Participants(APs) that operate intraday with the fund
managers, this opportunity to offset inflows and outflows is much more
limited. The result being that the investor will typically be subject to
a dealing cost to reflect the associated bundling/unbundling of fund
shares into/out of their underlying assets by the AP. This cost being
contained in the bid offer spread of the given fund shares being bought
or sold, which itself can be variable due to the liquidity of the
underlying assets etc.

I had a quick look and found this:

19.1.6 Anti-Dilution Levy
In calculating the subscription or redemption price for the shares in a Sub-Fund the Directors may on any
Dealing Day when there are net subscriptions or redemptions add or deduct an Anti-Dilution Levy to the
subscription and redemption amounts to cover dealing costs and to preserve the value of the underlying
assets of the Sub-Fund.
As the costs of dealing can vary with market conditions, the level of the Anti-Dilution Levy may also vary.
Other limits on subscriptions may be set out in the Supplement for a Sub-Fund

https://hanetf.com/wp-content/assets/Prospectus_HANetf_ICAV.pdf

ICAV stands for Irish Collective Asset-management Vehicle. For both ETFs and OEICs, the dilution levy is determined by the net subscriptions and redemptions.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82106706#Comment_82106706

https://forums.moneysavingexpert.com/discussion/comment/82106717#Comment_82106717

Both good points. I seem to remember a previous article suggesting the demographics of ISA millionaires indicated PEP transfers made up at least a good proportion, though I'd say we're now at the age where pure ISA contributors are likely reaching a million too.

Fidelity fees strongly encourage ETFs these days, but they don't have an exhaustive range - and since the best investors are probably the ones who don't touch their portfolio, leaving funds alone rather than transferring to ETFs since they became available is probably what's happened here.

leosayer

https://forums.moneysavingexpert.com/discussion/comment/82107504#Comment_82107504

Agreed.

My post stems from the occasional post I see where people avoid funds because they think that large redemptions by other unitholders will cause them a loss because the fund manager might need to sell positions at a loss to cover the required cash

jimjames

https://forums.moneysavingexpert.com/discussion/comment/82103556#Comment_82103556

On both ii and iWeb (now SWSD). I have no ETFs but I do have a reasonable proportion of Investment trusts

EthicsGradient

https://forums.moneysavingexpert.com/discussion/comment/82107613#Comment_82107613

I see that L&G transferred its personal investing business to Fidelity in 2021, so it does look very like the inertia of long-term customers sticking with what they know, and who would dominate the "millionaires" through length of contributions.