Latest news, trends and ideas for investing with exchange traded funds | ETF Commentary

Mutual funds are having a hard time competing with ETFs within the same family.
That’s according to SmartMoney reporter Daren Fonda who looks at Vanguard and State Street as examples in the article Sibling Rivalry: Mutual Funds vs. ETFs.

Mutual funds are a tougher sell because they charge higher expenses than their ETF cousins. For example, Fonda points out that Vanguard recently launched the FTSE All-World ex-US Small Cap ETF (VSS) with an expense ratio of 0.38%. Expenses for the Vanguard mutual fund that tracks the very same index are 32% higher at 0.60%.

Fonda’s example from the fixed income world is State Street’s SPDR Barclays Capital Aggregate Bond ETF (LAG) which carries an expense ratio of 0.13%. That compares to the similar, but actively managed, SSGA Bond Market Fund (SSBMX) with an expense ratio of 0.50%.

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While emerging market ETFs have enjoyed large gains since the beginning of March, investors should note that the majority of new money is going into the most liquid funds.

WSJ reporter Kejal Vyas writes in the column Emerging Markets See Spike in ETFs that exchange traded funds for emerging market stocks have seen net inflows of $3.35 billion since the beginning of last month.

Emerging market ETFs favored by investors include the iShares MSCI Emerging Markets Index Fund (EEM) and the Vanguard ETF Emerging Markets (VWO).

Vyas notes that analysts are questioning the sustainability of the rally because ETFs are very liquid enabling investors to make a quick exit if the market sinks again.

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Variable annuity marketers are moving to ETFs after getting by burned active mutual fund managers.

In the WSJ story Laggards Get the Boot, Journal reporters Leslie Scism and Diasy Maxey write that insurance companies that offer variable annuities are making the switch after experiencing hedging issues with underperforming actively managed mutual funds.

The poor tracking of the funds caused the insurance companies to take billions of dollars in charges and moved them to switch to ETFs because they are easier to hedge and also less expensive.

Dutch insurer Aegon NV is now offering asset allocation portfolios built with Vanguard ETFs while MetLife is using State Street ETFs.

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