Tag Archives: vanguard

Vanguard’s CIO Gus Sauter: Agency Execution is our Preference Reply

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  Courtesy of  Gregory Bresiger.. Excerpts from Part 3 of a series of interviews with Vanguard Chief Investment Officer Gus Sauter

How does Vanguard Funds,’ famous for Fred Mertz like trading economy, go about finding the lowest possible costs? The process is detailed in Part Three of Traders Magazine’s Q&A with Vanguard chief investment officer Gus Sauter.

Traders Magazine: Why have you and your company launched this campaign to change what you perceive as an overpriced market structure?
Gus Sauter: I think transaction costs are surprisingly high.

Traders Magazine: You said in an interview that “a large part of indexing is actually being a trader.”  Does mean that, as with most traders, you’re using algos and using agency traders like ITG or Instinet. How does it work out for Vanguard?
Gus Sauter: We do most of our trading through agency brokerage. We will use brokers’ algos as well if we think that is appropriate for trading. We monitor the transaction costs on a broker by broker basis.

Traders Magazine: Even index fund managers need the same trading skills as though who are actively managing funds?
Gus Sauter: Yes, it really is important that our portfolio managers understand how to trade, how to execute, how to find the right strategies and venues. Should it be an algo or something they are using a dark pool.

Traders Magazine: Higher than most investors think?
Gus Sauter: Yes, a lot of people don’t realize how much money you could spend on transactions if you’re not careful. In other words, we trade hundreds of billions of dollars a year. If you lose , just a half a percent, you’re losing a billion dollars.

Traders Magazine: The implication of what you’re saying is the industry, especially in good times, is incredibly sloppy. Is it because it is other people’s money?
Gus Sauter: Yea, hard for me to tell you. Historically, people have never had respect for the magnitude of transaction costs. They really felt they provided so much alpha in their actively managed funds that they really didn’t have to worry about transaction costs.

Traders Magazine: Not over the past decade…
Gus Sauter: Yes, in a lower return environment people really recognize how much costs are.  And they are devoting more time to how they trade.

 

Full article: http://www.tradersmagazine.com/news/vanguard-sauter-brokers-capital-110393-1.html?zkPrintable=true

 

Vanguard Drops MSCI.. Reply

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Widely reported..and excuse our delayed tape i.e. dissemination.

Excerpt courtesy of IndexUniverse

Vanguard, the world’s biggest mutual fund company, has decided to segue away from some MSCI indexes over the next several months in favor of benchmarks created by FTSE. The move was motivated in part by lower index licensing costs and will involve its $67 billion Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO).

Vanguard’s switch affects six international equity funds that had total assets of $170 billion as of Aug. 31, FTSE said today in a press release, noting the transaction was the largest ever international index-provider switch. The switch leaves iShares, the world’s biggest ETF firm, as the ETF firm with the deepest ties to MSCI.

The six funds will change to benchmarks in the FTSE Global Equity Index Series, replacing MSCI, and VWO and the index mutual fund of which it is part will be based on the FTSE Emerging Index, FTSE said. One huge difference is the absence of South Korea from the FTSE index, while the MSCI index weights the country at around 15 percent.

In its own press release, Vanguard said that in addition to the six international benchmarks moving to FTSE indexes, it also plans to switch indexes on 16 U.S. stock and balanced index funds to benchmarks developed by the University of Chicago’s Center for Research in Security Prices (CRSP)—a leading provider of research-quality, historical market data and returns. The existing indexes on these U.S.-focused funds are also provided by MSCI.

Full story: Click Here for IU update

Industry Sounds Off On Paying ETF Market Makers Reply

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Courtesy of James Armstrong

If issuers of exchange-traded funds could pay to attract market makers to their products, would there be more liquidity in ETFs? Or would paying market-makers create a dangerous precedent and harm long-term investors? Or, is Tim Quast, MD of trading analytics firm “Modern Networks IR” correct when suggesting to the SEC in his comment letter “..paying market makers could constitute a racketeering felony and would increase speculative, short-term trading rather than focusing the markets on capital formation..”?

Both Nasdaq and NYSE Arca have proposed programs allowing ETF issuers to pay fees to the exchanges for market-maker support. The proposals are similar to a program already implemented on the BATS exchange, which has a handful of ETF listings. These proposals, according to comment letters to the Securities and Exchange Commission, are drawing strong reactions from key industry figures.

The Investment Company Institute has come out in favor of the measures, arguing they could result in narrower spreads and more liquid markets. In a letter to the SEC, ICI’s general counsel, Ari Burstein, said the organization has long advocated changes to increase the efficiency of markets. “As ETF sponsors, ICI members have a strong interest in ensuring that the securities markets are highly competitive, transparent and efficient,” Burstein said. “Liquid markets are critical for ETFs, particularly smaller and less frequently traded ETFs.”

Vanguard, the mutual fund giant which also offers a number of ETFs, said it neither supports nor opposes the Nasdaq proposal and certainly does not support the NYSE Arca proposal, at least as it is currently structured.

In a letter concerning Nasdaq’s ETF initiative, Vanguard’s chief investment officer, Gus Sauter, said payments to market makers have the potential to distort the markets and create conflicts of interest. Though Nasdaq proposed several safeguards to prevent that from happening, Sauter suggested a longer review and comment period would be a good idea.

BlackRock, the nation’s largest ETF issuer is opposed to the idea of paying market-makers.

More…

SEC Punts on Payments to ETF Market Makers Reply

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Courtesy of Rosalyn Retkwa

 

The Securities and Exchange Commission has decided not to decide yet whether to approve proposals by Nasdaq and the New York Stock Exchange to pay market makers to make better markets in thinly traded ETFs. The proposals would require an exemption from a current prohibition against such payments.

Rather than approving or rejecting the idea, the SEC decided last Wednesday, July 11, to seek another round of comments on pilot projects put forth by Nasdaq and NYSE Arca (the electronic exhange formerly known as Archipelago). In its 83-page order instituting proceedings to determine whether to approve or disapprove the proposed pilots — posted on the SEC’s web site last Thursday — the SEC listed 27 questions asking for more input on specific points. “They’re keying up the issues,” said a source who asked not to be named.

Under the law, the SEC has 45 days to respond to these kinds of regulatory filings by the exchanges, with an automatic right to extend the initial deadline by another 45 days.

July 11 was the 90-day mark for the Nasdaq’s proposal, and while the SEC had until August 14 to respond to NYSE Arca, it decided to consider both proposals with a joint order — a suggestion made by Vanguard, the mutual fund and ETF sponsor headquartered in Valley Forge, Pennsylvania, which filed separate comment letters on both proposals. More…

UBS breaks ETF launch record Reply

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UBS is aiming to break into Europe’s exchange-traded fund big league following the listing of 64 of its funds on the London Stock Exchange, the largest number ever admitted to the LSE on a single day.

According to the LSE, the launch, which follows the listing of a suite of products by Vanguard Asset Management, has taken the total number of ETFs listed in London to 1,000.

The total value of ETF trading on the LSE has exceeded £500bn since the launch of the first fund in 2000, the exchange said.

UBS is carrying out the launch through its UBS Global Asset Management business. Its ETFs offer ‘A’ shares to retail investors and ‘I’ shares to institutional investors. Global head of ETFs Clemens Reuter said the unit size of ‘I” shares is a thousand times larger than ‘A’ shares: “Because they are dealt in bulk, the total cost of ownership becomes smaller.”

Of its London offerings, 17 will replicate the movement of indices through swap arrangements and a further 49 will operate in physical markets through the purchase and sale of underlying stocks. They will cover a range of equity sectors, plus investments in more esoteric areas such as infrastructure, rare earths and hedge funds.

For the full story, click here

ETFs Are Duking It Out Over Fees Reply

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By LIAM PLEVEN

Exchange-traded funds have lured many investors away from mutual funds by offering lower fees. But increasingly, some ETFs are also using fees to compete with other ETFs.

In a handful of high-profile cases, particularly in commodities and stocks, investors can choose between two ETFs that are virtually identical except for their fees. Gold bugs, for instance, can buy into a bar of bullion by holding shares in either SPDR Gold Shares GLD +3.88% or iShares Gold Trust IAU +3.94% . But the SPDR fund charges 0.4% of assets a year in fees, compared with the iShares fund’s 0.25%.

Disparities like that point to the rising importance of price as a distinguishing factor in what has become a crowded and confusing ETF marketplace for many individual investors. It isn’t clear yet how effective the tactic will be in the long run—there may be good reasons in some cases for investors to stick with or buy a higher-priced fund. But it seems to hold promise as a marketing tool.

Bogle Boggles and Balks re: ETFs Reply

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In the category of  “He who speaks with forked tongue…” Index Icon and Vanguard Group founder John Bogle once again threw a curve ball while speaking at today’s Bloomberg Portfolio Manager Mash-Up.

John Bogle, Vanguard Group founder

Stating “ETFs are the greatest trading innovation of the 21st century,” what the Midas of Mutual Funds added with a big (*) was : “But the question is,  ‘Are they the greatest investment innovation?’ and the answer is ‘no.”

According to coverage of the event, fully credited to InvestmentNews, Bogle pulled no punches by calling out BlackRock for “just making a muddy pool muddier” in reference to BlackRock’s aggressive product launches. Bogle, who is also known as the “Midas of  Mutual Funds”, reminded the Bloomberg conference attendees “There’s something like 2000 ETFs now. That’s almost as many stocks as there are.”

One attendee then asked Mr. Bogle, “How many mutual funds are there?” In lieu of replying, he headed to the loo, where the self-proclaimed Buffet-like Market Bull took a bio break.