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Vanguard Launches Three New Global ETFs
Comments
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Interesting - so is there no risk involved for the ETF if the price of the shares within the ETF changes faster than they can buy new ones from every component whilst they are just issuing new shares? The market adjusts instantly to all that?
Curious as I was just repeating something from a podcast that said that for you to buy shares, someone must be willing to sell them, which I guess in this case is still technically true - the authorised participants as you call them just creates more shares that they are willing to sell you.
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There is a continuous stream of investors who will be willing to buy and sell. The price at which they will do this shifts as to the current circumstances, Any "created" shares will be at the market price plus any coats. Unless there is any issue related to the ETF specifically, that market price will be the same market price that you could trade the individual component of the index.
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It is not clear that there is a liquidity issue with VALL. Nearly £13 million of stock was traded yesterday. People seem to have been buying at NAV + 0.3%, which is not bad.
I would like to make a case for swapping the VEVE in my SIPP for VALL, but the numbers are not convincing. Lets do the sums in basis points (hundredths of a percent). VALL is 5 bp cheaper than VEVE. Perhaps I can call that 6 bp or even 7 bp, because it provides cheap small cap and EM exposure. Cost of buying VALL seems to be about 30 bp, but I have to sell VEVE too. Fine if VEVE is at a premium, but nasty if it is at a discount. There could be spreads too. The cost of VEVE will probably come down, but there is less scope for that with VALL. Break even? 5 years maybe, 10+ years may be more likely. Even if I manage to switch on the cheap, the Chancellor could force me to make a hasty retreat. There is a lot to be said for doing nothing.
VSML looks interesting. I have some Vanguard Developed World ex UK in my ISA, which is about 10% of my equity holdings. I could swap that for VSML. Perhaps the extra diversification would justify the cost. VSML seems to have gone down like a lead balloon though. Very little trade. Very near to NAV, but with a spread of about 0.3%.
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Is that fairly typical that you lose about 0.3% or more as a one off loss if you switch from one fund to another just to reduce the charges?
Also - from where can I access all this information about real trades vs Nav price etc?
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It depends on the bid/offer spread. The lower the liquidity, the higher the spread (typically).
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Interesting because I was also reading some articles with a study about momentum investing, and they were assuming an “0.03% drag on performance per transaction for each asset class” which is one tenth of that quoted above - probably this is based on US investing where maybe this is lower?
Edit: - Looking into this a bit more, it looks like the typical spread of VHYL is more like that assumption of 0.03%, so maybe the 0.3% is because it’s a new fund and we need to wait for it to bed in?
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The vanguard site and the LSE sites are good resources.
You can see trade history on LSE.
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Yes, the cost of switching can be 0.3% or more. You will find some information, including trades and the indicative spread for VALL here:
You will find the latest premium / discount to NAV for VALL here:
You can also calculate the premium / discount from the NAV given on the LSE, which also has the RNS in which Vanguard last reported the NAV. The indicative spread is very rough for VALL because of the low share price. You will usually trade within the indicative spread.
If you are selling another ETF, that will also have a premium / discount and a spread. If you are selling an OEIC, the selling cost will be hidden from you, and the price could move while you are out of the market.
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VHYL is was trading at a premium of 0.3% when the NAV was last reported:
You pay the NAV plus 0.3% of the NAV plus half the spread (to mid-market) when you buy VHYL (unless the premium has changed by the time you buy.) If you are selling, the 0.3% works in your favour. If you are switching and both ETFs are trading at 0.3% premium, the two premiums cancel out.
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It's hard to tell a spread for VALL, because that LSE page is only quoting both offer and bid prices to 3 significant figures - both 3.68 at the moment. From the recent trades, it looks like they were 3.682 and 3.679 - which is a spread of about 0.08% (but that may or may not be a true reading of what the trades were). That compares with VEVE, currently shown by LSE as 106.74 and 106.71 - about 0.04%.
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