an ETF is managed by a “market maker” that ensure that every time you want to sell (at the right price or with a market order) you will have a buyer
There is for sure a market making (the “ET” part of an ETF) but at the end of the day it is still a fund. Which should mean that your share of the fund is equal to the Net Asset Value per share of the ETF.
Generally these funds (especially the ETFs) are obligated by the market authorities to publish daily the current NAV of the fund. So for a potential buyer/seller there is little interpretation to what should be the right price of the fund share.
People can exchange between them their shares of the ETF but, in the end, what goes in/out of the fund is the sum of all the buyings minus all the selling.
So in the hypothetical case where you could not find any other third party who would be willing to buy/sell your share in the ETF, I don’t see why the fund itself should refuse the subscription/redemption.
The good thing about ETFs is that because they are listed on the market, they have more public penetration which leads to less fess thanks to economies of scale (plus, passive decision about what to invest in). But at the end of the day they are still a fund, right?
I have to give in that so far I could never imagine a case where nobody would want to buy/sell their share of an ETF. I’d be interested if someone has more material. One of my former clients was Lyxor, a big french ETF issuer, and I thought that I had a pretty good idea of what is an ETF. But I have to concede that I never thought about what happens when you have no counterparty for an ETF order.
Hi @night,
I had (have ?) the same concern about liquidity. Anyhow, given our Mustachian approach (buy to keep and sell in xx years to finance our FI) and the number of shares we are going to buy each time, also considering the fund total volume (1’100 Mio USD) I’m not sure if the current number of exchanges per day will really be an issue or not.
In the meanwhile (since the beginning of the discussion) I’ve opened an account at Interactive Brokers and bought some VWRD on LSE (until mow three times, each time 15-20k). Each time I’ve been executed in one or two hours…
Hope this helps.
Thanks @weirded!
I agree with you on liquidity, and I’m 100% buy and hold, it was just from the point of view of optimizing what can be. And my orders usually execute fast - so far I’m also buying VWRD @LSE.
Do you convert some CHF to USD before buying (if yes, where and how?) or do you have some USD lying around?
Hi @night,
I convert on IB my CHFs to USD.
I opened the account there mainly 'cause you can convert money buying/selling on forex just paying a fix commission (like 2-3 USD) instead of the big spreads you usually have to take into account through the banks.
This money exchange thing would be worth opening a separate topic… still thinking about it !
“While any market participant may meet the best
bid or best offer at a given time, a market maker
ensures that there is always a bid and offer quote
at which to trade.”
very well explained by this brochure from Vanguard:
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This document is indeed very nice. I was not aware of the primary market mechanism, between the fund and the final investor…
Just last week I was set on investing 60K on VWRL (CHF) on SIX through CornèrTrader, but then I found a couple of threads debating whether investing on VWRD (USD) is better than VWRL (CHF), and then this article (http://www.alvinpoh.com/the-best-index-fund-portfolio-mix-for-non-us-investors/), which argues that accumulating is better than distributing because it avoids receiving dividends that will need to wait before you decide to reinvest them. It’s pretty complicated…
Also, it is mentioned in the article than if you invest in London, you don’t pay stamp duty. Can someone confirm this?
This ETF caught my attention last week too, with a low TER of 0.19%. Unfortunately CT doesn’t sell the SIX-listed version, only the Frankfurt one: https://www.justetf.com/servlet/download?isin=IE00BJ0KDQ92&documentType=MR&country=CH&lang=en
I don’t think it makes any difference at all. Every company pays out dividend when it wants; that means that the fund has always cash on the side, even if accumulating. You can read it on the reports. So if you receive dividends and reinvest them a couple of days after receiving it shouldn’t change anything. I mean vanguard just wait three months and gives you the cash equivalent of all dividends paid out in the 3 months, but this comes from the cash reserve. So I think it’s difficult to see if there are true advantages to accumulating.
Please remember that TER is only one thing. You should look at tracking error and security lending too. For instance I think in 2016 some Vanguard fund were even positive (they made you money instead of costing you) because of securities lending. So it is always helpful to look at the tracking error and see if the ETF is doing even better than the underlying index.
World Accumulating ETF will be traded in USD. You will need to convert CHF to USD which cost between 0.1% to 2% depending on the broker.
Thanks for the answer @Grog. My concern is that while in accumulation phase where dividends will be small, it will take a while to have enough to reinvest while avoiding minimum commissions, but at the same time, I should be putting in more money from savings anyway, right?
Do you happen to know any literature that explains tracking error in an easy way?
Here there is something:
http://www.etf.com/etf-education-center/21030-understanding-tracking-difference-and-tracking-error.html
Cash Drag is what I was referring; that’s why I don’t believe ACC vs DIS ETF makes such a difference.
And yes you should definitely invest your savings with the dividends 
I’ve actually found out that having a 3-month schedule, a tic-tock determined by dividends helps my discipline immensely.
Btw investing in CHF on the SIX has another advantage: it’s way easier to determine the return rate. If you are investing in USD you always have to retransform eveything in CHF to understand your real rate of growth. So it may be more expensive, but investing in CHF has some “transparency” advantages.
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Thanks for the link @Grog and for the info @wapiti.
Right now, although I’d much rather invest in SIX/CHF, I see two drawbacks:
- the daily volume is very low, even for a big fund such as VWRL, leading to a wider spread.
- the added buy/sell costs due to the stamp duty.
I really don’t feel like switching from CornèrTrader since I already have the funds there, but at the same time, better do it now since I don’t currently hold any positions, rather than later.
I’ve pulled out trusty Google Sheets and tried to model a reasonable simplistic scenario during 20 years consisting of 40K yearly purchases with varying stock prices starting at the current 74.- for VWRL and ending at 120.- in 20 years (with some volatility for a more realistic simulation), and in the end the difference between investing in VWRL:xswx with CornerTrader or VWRD:lse with IB with its lower costs (and no stamp duty) is around 2’000.-, so probably not worth worrying so much.
Disclaimer: didn’t consider inflation, dividends reinvestment, currency fluctuation nor conversion costs. Assumed 1 purchase per year (to keep formula complexity down).
Another question regarding volume: does anyone have prior experience purchasing VWRL in the Swiss Exchange? How long did you have to wait?
@pombeirp: do you have a reliable source to think the fact VWRD is in CHF doesn’t hurt the returns of the fund (via some currency operation from the underlying USD fund)? Otherwise, how did you build your comparison?
limit order to the bid price or market order are always immediately confirmed and the stock purchased.
In your calculation did you included the cost of converting your chf into USD to buy it on the LSE? Or did you assume perfect conversion?
I can confirm Grog’s statement, although I have only made one purchase as a market order and it was immediately full-filled (Early January 2017).