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I recently learned that index-following ETFs have a mildly concerning problem that could be equivalent to an annual fee approaching 1%. It's caused by rebalanci
by RivieraKid 1y ago
I recently learned that index-following ETFs have a mildly concerning problem that could be equivalent to an annual fee approaching 1%. It's caused by rebalancing that happens by, for example, stock buybacks or equity raises, which typically happen when the trade is beneficial for the active investor side of the trade. See latest video on Ben Felix's channel.
- sea-gold 1y agohttps://www.youtube.com/watch?v=mqIHa6URUPk https://www.youtube.com/watch?v=mqIHa6URUPk
- wing-_-nuts 1y agoYeah, I saw that video. IMHO it's much more of a problem with smaller indexes. If you buy total stock market (VTI) just how often is a company going to be moving in and out of that index? I noticed he didn't really have much in the way of suggestions for the individual beyond suggesting DFA funds. Given those aren't easily available without signing up for their advisor services, I am deeply skeptical that the savings would be enough to pay for their fees.
- lokar 1y agoAlso, Aiui, for a very large index like VTI and fund admins have some flexibility for inclusion and weighting. They look out for obvious problems and try to adjust a bit.
- RivieraKid 1y agoIt's not just company being added or removed from the index but also company selling new shares or buying existing shares.
- kblissett 1y agoDimensional U.S. Equity Market ETF (DFUS) is an ETF freely tradable by many brokerages.
- wing-_-nuts 1y agoComparing the overlap between the two does not convince me it's worth the extra .06 in fees https://www.etfrc.com/funds/overlap.php https://www.etfrc.com/funds/overlap.php
- EE84M3i 1y agoIs there an explainer available that isn't in the form of an 18 minute video?