[A quick update on where the bidding stands in the Bloggers for Charity auction. The top bid so far is $288.88 by The Cynical Investor. If you’d like to make a bid, you may want to hurry. Bidding will close on December 16, 2011.]
Vanguard’s initial line up of six exchange-traded funds (ETFs) started trading on the TSX today. Since I am interested in switching one or two of our current holdings over to Vanguard, I was curious to find out if the bid-ask spreads of the newly-listed ETFs are reasonable. Just to refresh your memory, bid-ask spread refers to the difference between the price you’ll pay for buying a security and the price you’ll pay get selling it. For example, you’ll pay $24.68 to buy Vanguard MSCI Canada Index ETF (TSX: VCE) and $24.64 to sell it. Therefore, the bid-ask spread is 4 cents.
| ETF | Ticker | Bid | Ask | Spread in bps |
|---|---|---|---|---|
| Vanguard MSCI Canada ETF | VCE | 24.65 | 24.70 | 20.2 |
| Vanguard Canadian Aggregate Bond ETF | VAB | 25.02 | 25.07 | 19.9 |
| Vanguard Canadian Short-Term Bond ETF | VSB | 24.95 | 25.02 | 28.0 |
| Vanguard MSCI US Broad Market ETF | VUS | 25.16 | 25.19 | 11.9 |
| Vanguard MSCI EAFE ETF | VEF | 25.03 | 25.07 | 16.0 |
| Vanguard MSCI Emerging Markets ETF | VEE | 24.68 | 24.71 | 12.1 |
| iShares S&P/TSX 60 ETF | XIU | 17.21 | 17.22 | 5.8 |
| iShares DEX Universe Bond ETF | XBB | 31.17 | 31.18 | 3.2 |
| iShares DEX Short-Term Bond ETF | XSB | 29.21 | 29.22 | 3.4 |
In the table above, you’ll find bid-ask spreads for Vanguard and comparable iShares ETFs I pulled up at 10:45 EST on December 6, 2011. As you can tell from the table, Vanguard’s new ETFs currently have a much higher spread than equivalent iShares ETFs. If you recall, VCE is about 6 basis points cheaper than XIU. But if you decide to switch today from XIU to VCE, you’ll incur a cost of 13 basis points (3 basis points in selling XIU and 10 basis points in buying VCE), which likely means it is not worth your while. I was interested in replacing XSB with VSB but the steep spread of 16 basis points means that I’m inclined to wait and watch on the sidelines.
Update (December 7, 2011, 10:10 AM EST): Checking the quotes now shows spreads ranging from 1 cent for VSB to 4 cents for VCE. Since the VSB spread is so narrow, it would cost an investor just 4 basis points to switch from XSB to VSB. Obviously, a reasonable spread such as this makes switching to Vanguard worthwhile. However, note that you should consider the tax impact of any switch in a non-registered account.
