bgf wrote: ↑Thu Mar 11, 2021 9:23 pm
nisiprius wrote: ↑Thu Mar 11, 2021 8:51 pm
bgf wrote: ↑Tue Mar 09, 2021 4:43 pm
Whether that is the case or not, I think ETFs are fundamentally and structurally designed to be better with respect to illiquidity. Mutual funds suffer from a cascading process whereby the fund has to sell its most liquid assets to meet redemptions, making it increasingly
illiquid.
Give me a specific example of any big, mainstream mutual fund that a normal Boglehead would invest in, in which you can see this effect happening. It's no more a reason to avoid mutual funds than the Flash Crash of 2010 is a reason to avoid ETFs.
The PIMCO Total Return fund suffered huge outflows when star manager Bill Gross left in 2014, dropping from something like $300 billion in assets to $100 billion, in about a year (it's down to $50 billion now). A fair amount of money flowed into competitor Metropolitan West over the same time period...
1) why did you quote me, as you don't seem to be having the same conversation?
2) what's a "normal boglehead" these days?
3) why don't you list all the "big, mainstream mutual funds" yourself so we can go ahead and get this charade over with.
1) I understood you to be saying that mutual funds have a meaningful danger of collapse due to illiquidity and inability to meet redemptions, and that ETFs are fundamentally better because they don't have this problem.
I was illustrating that a mutual fund that had suffered
severe outflows seemed to have had no problem meeting redemptions.
2) I shouldn't have said "normal," but to me a Boglehead is someone who calls themself a Boglehead. I think there are some forum posters who would
not. Have you, personally, ever seriously considered in investing in a mutual fund, or an ETF with a similar mutual fund counterpart, in which the mutual fund collapsed due to illiquidity but the ETF survived?
I'm not listing big, mainstream funds that have collapsed
because I don't believe there have been any. I don't believe it's a real danger, just as on the ETF side I don't believe the "flash crash" of 2010 represents a real danger. By regulation, mutual funds are supposed to invest in adequately liquid assets. I only know of
once case of a mutual fund collapsing due to illiquidity and an investor "run" on the fund, the Third Avenue Focused Credit fund, and I think it's fair to say that it collapsed because 1) it failed to do what it was supposed to do, and also 2) it is a very unusual fund that I can't remember ever being mentioned in the forum before it collapsed.
With regard to liquidity, mutual funds have been pretty safe and ETFs have been pretty safe. There have been unusual situations and unusual specific cases of problems. Trying to make a liquid product out of illiquid assets is bound to create occasional problem of one sort or another, and Rick Ferri, author of
The ETF Book, has specifically
written an article suggesting that mutual funds are preferable for bonds:
This brings us to the two ways to solve the bond ETF discount problem:
1) Don’t buy bond ETFs. Stick with traditional open-ended funds that trade at NAV at the end of the day. You won’t have to worry about ETF price swings due to liquidity issues and other matters.
2) If you do decide to invest in bond ETFs, don’t trade them during volatile days. Wait until prices recover before putting in your order. In the words of someone much wiser than me, this too shall pass.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.