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ETFs - Now Day-only Orders

Discussion in 'Exchange Traded Funds (ETF)' started by austing, 2nd Jun, 2008.

  1. austing

    austing Well-Known Member

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    Hi Gang,

    Now that the ASX have moved ETFs into the same area as warrants (ie Structured Products) they can only be traded as "day only" orders. So if your order is only partially filled on a given day then you will have to create a new order the next day(s) to have the remainder of your original order filled. This means that two or more lots of brokerage will be payable.

    I have only invested in larger LICs and very liquid stocks in the past and typically use "limit orders" which are good until cancelled. I was about to start investing in ETFs but these changes have thrown me somewhat. Some ETFs are very thinly traded so I would imagine that it is quite possible that an order may only be partially filled on a given day and I certainly don't want to be paying multiple brokerage to get the quantity of share I wanted on the original order.

    It seems the only way around this is to check to see if your order has been filled toward the end of the day and amend your original order to a higher limit or at market to try to get it filled that day. Again given the thin trading volumes at times, would the order still be filled or perhaps would you be forced to accept a high sell quote (or of course if not have to pay another round of brokerage the next day).

    Could someone here who is experienced with this situation please offer some advice on how best to trade ETFs now that they are "day only" orders.

    Thanks - Gordon

    PS: Unlisted Vanguard Index Funds are certainly looking far more appealing given these latest changes.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I'd be interested to know how ETFs are traded in the US - the market there is huge.
     
  3. austing

    austing Well-Known Member

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    Yes, there just doesn't seem to be interest here in ETFs like there is in the US. Trading ETFs with "day only" orders which are very liquid would certainly be much easier I would imagine. The likelihood of having your order filled without any surprises would certainly be much greater.

    Vanguard's unlisted funds seem to have done well here over the years from what I gather. Even though their fee is a bit more, due to certain strategies used they still seem to compare favourably (or perform even better) with Streets ETFs. At least there is no brokerage issues and you can be fairly certainly they will be around many years down the track. Will the ETFs still be here long term?

    Cheers - Gordon
     
  4. venger0

    venger0 Active Member

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    Thanks for the headsup Austini,

    Yes - these changes to ETFs are not encouraging. I'm still not sure what these changes will achieve besides making it more difficult for new ETF investors :(
     
  5. ashwright

    ashwright Well-Known Member

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    I do not think this is really a problem. Unlike LICs, when you buy ETFs off the market maker, they actual create/issue new stock for you to invest in. I believe one of the reasons for moving ETFs to the "structured product" section, was to make this easier (from a technical/computer point). This is also the reason why the market depth for ETFs looks so low.

    Even though it may only so 10 or 100 available, when they are sold, another 10 or 100 are instantly listed, then you can buy these as well. They say that ETFs are as liquid as they underlying security.
     
    Last edited by a moderator: 10th Jun, 2008
  6. austing

    austing Well-Known Member

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    Hey Ashwright,

    Thanks very much for that info. I have gotten over my hasty dummy spit about this and I'm looking at the sector again with interest.

    Cheers - Gordon
     
  7. austing

    austing Well-Known Member

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    Hi Gang,

    Well after some very useful information from Ashwright I purchased $50K of SLF today. I adjusted the price upward a little a couple of times (still well below the lowest asking price in market depth) until the order was mysteriously filled. There were a number of 5000 share lots appearing at times which I assume is the market maker doing his/her thing. At the end of the day as a buy and hold forever, income oriented investor I couldn't care less if I may have paid a few cents more to have the order filled reasonly promptly on the day.

    So I'm quite relaxed about EFTs now. Next shopping session in relation to ETFs will be for STW especially if more doom and gloom sets in. I do get quite excited when doom and gloom in the market abounds - so many great buying opportunities.

    Cheers - Gordon
     
  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Great to hear austini ... I'm looking very closely at ETFs at the moment - although I'm in two minds about whether I'd be better off just sticking my cash in the bank at 8% over the next year or two.
     
  9. austing

    austing Well-Known Member

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    Hi Sim,

    I'm keeping things simple by using somewhat of an asset allocation approach albeit my contrarian investing style tends to have me be overweight on out of favour assets. I don't expect too much excitement from SLF in the near future but there is a lot less downside at the current very low price. And besides the Lpt index allocation is set at around 5 - 10% of the portfolio. SLF is held by the SMSF which holds only LICs and now index ETFs to keep things simple and admin costs down. The older LICs have performed well over time and the SANF is great. I expect the same SANF with the ETFs.

    I also purchased about $100K across the 4 major banks yesterday. I expect there to possibly be lower earnings and more bad debts going forward but in the long term these are still great assets to have. Even if the dividends are reduced the yield will still be good. And being an income oriented investor it is the long term growing income stream that I'm after. In contrast to the SMSF all holdings in the Disc Trust are direct shares. Nowadays I don't touch unlisted managed funds. If at all it would be an unlisted index manager.

    Cheers - Gordon