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

Ian Salisbury is reporting that a new study finds exchange traded funds missed the indexes they follow by a wider margin in 2009.

In the article ETFs Were Wider Off the Mark in 2009, Salisbury writes that the study suggests investors closely monitor how many stocks or bonds an ETF owns relative to its benchmark as a way to avoid funds that may be subject to higher than average tracking error.

Example funds reporting higher tracking error include the iShares MSCI Emerging Markets Index ETF (EEM), SPDR Barclays Capital High Yield Bond ETF (JNK) and the Vanguard Telecom Services ETF (VOX).

Continue Reading

When buying index funds that cover smaller slices of the market, watch out for the difference between a fund’s performance and the index that the fund is supposed to track.

The performance-index gap isn’t a problem for ETFs tied to broad-market benchmarks according to Sam Mamudi in the article Not All Index Funds Are Built Alike.  However, exchange traded funds that track more volatile sectors can experience tracking error.

For example, Mamudi points out that the iShares MSCI Emerging Markets Index ETF (EEM) and the Vanguard Emerging Markets ETF (VWO) are both linked to the same benchmark — the MSCI Emerging Markets Index — yet delivered different results in 2009 when the Vanguard fund outperformed the iShares fund.

Turns out that Vanguard has a trading advantage because it pools ETF assets with mutual fund assets.  Another example where Vanguard has an edge – the Vanguard Total Bond Market ETF (BND).

Continue Reading

The Wall Street Journal’s Ian Salisbury highlights a key difference between ETFs and closed-end funds:

“Unlike the stock of index-based exchange-traded funds, or ETFs, shares of closed-end funds frequently change hands at premiums or discounts, prices significantly above or below the value of their underlying assets.”

It seems that investors that paid a premium to buy into IPOs of closed-end funds in 2007 now find themselves in a position of selling at a loss, even if the funds’ assets appreciated.

Continue Reading