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It seems the ETF revolution is upon us! More and more are being issued every day, with recent small cap international, large cap value, China equity and other funds coming out. Vanguard is expanding their Viper lineup this year.

ETFs are more tax efficient than mutuals due to a couple of tax loopholes, and Vanguard level expense ratios are the norm, not the exception.

Now that Scottrade is charging for Vanguard trades, I was considering moving my money directly into Big V. But why be locked in to a single provider? I don't like the Vanguard Small Cap Value fund, for example, since half the dividends come from tax unfriendly REITS (if I want REITs, I'll buy REITs). But I have 3-4 small cap value ETFs to choose from.

This guy's constructed an awesome, low fee, highly diversified ETT port:

http://moneycentral.msn.com/content/P102133.asp

Any thoughts? Is anyone going the all ETF route? I mean beyond SPY and QQQQ?

Nick
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Greetings Nick,

ETFs are more tax efficient than mutuals due to a couple of tax loopholes, and Vanguard level expense ratios are the norm, not the exception.

Though Vanguard's funds are able to nab part of the both worlds in terms how they seem to have set up their funds, where the ETF share class is just a separate share class.

Now that Scottrade is charging for Vanguard trades, I was considering moving my money directly into Big V. But why be locked in to a single provider?

http://www.efficientfrontier.com/ef/900/ts.htm does suggest to me that at Vanguard at least they know how to add value with their index offerings. Meanwhile, http://www.efficientfrontier.com/ef/104/stupid.htm does suggest that some ETFs don't necessary do a good job of tracking their indices.

JMHO,
JB
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JB,

Thanks for the reply and great links. I'm a huge fan of Dr. B (just reread TIAA this weekend in fact). However some of my findings regarding Vanguard vs ETF returns differ from his.

Compare Vanguard's small cap value index fund, VSIIX, for example, to the three main small cap value index ETFs: IJS, IWN, and DSV:

http://finance.yahoo.com/q/bc?t=5y&s=VSIIX&l=on&z=m&q=l&c=IJS%2C+IWN%2C+DSV

As you can see, Vanguard doesn't always win (part of the difference is due to Vanguard's higher yield, but only part).

It's hard for me to make the case for 100% Vanguard these days (no foreign bond fund for example). The trend seems to be toward one great fund family...but a lot of great ETFs.

Nick
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Any thoughts? Is anyone going the all ETF route? I mean beyond SPY and QQQQ?

Not all ETF by any means, but some.
Most recently, I went with EEM instead of VG's Emerg'g Mkt fund. VG's fund has a 1/2% fee on the way in and on the way out. It only takes moving a couple grand to make it where the broker comissions are cheaper than VG's fund fee to trade.
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FWIW, Vanguard has many ETF offerings.

Note that you can invest very small amounts in a vanguard mutal fund. The $7 commission at scottrade will eat up $300 trades.
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Update: I noticed Dr. B's comparison: http://www.efficientfrontier.com/ef/104/stupid.htm ended in Apr 2003.

I decided to quickly compare the same funds he did over the last two years. He used iShares as the ETF; there are a lot of new ETFs out there now, but I'll use iShares also. For the 7 funds he was able to compare in 2003:

S&P 500 Index (tie):
http://finance.yahoo.com/q/bc?s=VFINX&t=2y&l=on&z=m&q=l&c=spy

Large Growth (winner: Vanguard):
http://finance.yahoo.com/q/bc?t=2y&s=VIGRX&l=on&z=m&q=l&c=ivw

Large Value (tie):
http://finance.yahoo.com/q/bc?s=VIVAX&t=2y&l=on&z=m&q=l&c=ive

Mid Cap Index (winner: ETF):
http://finance.yahoo.com/q/bc?t=2y&s=VIMSX&l=on&z=m&q=l&c=ijh

Small Cap Index (slight Vanguard win):
http://finance.yahoo.com/q/bc?t=2y&s=NAESX&l=on&z=m&q=l&c=iwm

Small Cap Growth (slight ETF win):
http://finance.yahoo.com/q/bc?t=2y&s=VISGX&l=on&z=m&q=l&c=ijt

Small Cap Value (winner: ETF):
http://finance.yahoo.com/q/bc?t=2y&s=VISVX&l=on&z=m&q=l&c=ijs

Overall, I think the performance is too close to be large factor in my choice between Vanguard and ETFs. Probably will go with a combination. However in 5 years I may be all ETFs, as ETF competition forces the fees down and gives more choices. Unfortunately there aren't many Vanguard competitors...it's kind of the Microsoft of low fee funds.

Nick
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Any thoughts? Is anyone going the all ETF route? I mean beyond SPY and QQQQ?

My portfolio is EEM, ICF, IEV, IJR, IWM, SPY, and some t-bills and cash.

Hedge
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Author: yobria | Date: 1/25/05 12:21 AM | Number: 44167
Is anyone going the all ETF route?

The bulk of my retirement portfolio is in my IRA at Vanguard. The primary reason I chose mutual funds over ETFs is that I am retired and drawing money from my portfolio, and mutual funds offer several life-simplifying withdrawal options. For instance, you can specify to have X amount transfered directly to your checking account each month (or other time period of your choice), and best of all, there is no additional charge for this service. In fact, I have mine set up where I transfer 4% from each of my funds, directly into my checking account, automatically, each December.

With ETFs, you have to do all the withdrawal calculations manually and make the trades with the broker, paying a commission for each trade.

So, I don't think ETFs are cost effective for a retiree who is liquidating regularly for income. However, I think some of the high dividend ETFs do make sense, since dividends are distributed automatically, without cost to you for the transaction. In fact, that is why I own a substantial percentage of DVY in a regular account.

Russ
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ETFs often pay little or no capital gains, either longterm or short.

buzman
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"ETFs often pay little or no capital gains, either longterm or short.

buzman"

buzman, could you give some examples? That's true, if the underlying stocks don't pay a dividend, but that's an obvious situation, and I don't think this was your point.

Hedge
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with recent small cap international

Nick,

Whats the ticker for that?

Thanks,
Joe
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Nick,

Whats the ticker for that?

Thanks,
Joe


Joe, sorry, I can't find the article I read about than one now. Will let you know if I come across it. -Nick
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