AlvinSch:

As I recall, a few years ago Vanguard and S&P sued each other over whether Vanguard's existing license for S&P indexes extended to the Vipers they wanted to add. S&P won and would have charged Vanguard a much higher fee for a viper/etf license. Vanguard evidently didn't think it was economical so there aren't Vanguard etf's for funds using S&P indexes like the S&P500 or the S&P 600 small cap index which the TM small cap fund is based on.

Hi Al,

When you said flush unrealized gains to ETF holders was what I was questioning. Maybe did you mean the investor flushing these gains? I was thinking you were talking about Vanguard flushing the gains, which in hindsight was not too bright, huh?

I actually also use VWO to get some more emerging market (unfortunately, I also have a few legacy actively managed intl funds with EM that I can't sell because so far any additional CG's would push me into the AMT as in 22% CG marginal rate). VWO's ER of 0.25% is also lower than VFWIX and the same as the ETF version VEA.

Seems like most traders would be using the ETF's but yes one does get some diluted gain from later investors paying the 0.25% fee. It would take a lot of new investments to make up that 0.25% (reinvestment doesn't count), and everyone says the purchase fee will ultimately disappear so one can't count on eventually having new investors make up for the fees paid. If they do eventually eliminate the purchase fee and/or lower the ER I would reconsider.

Everyone saying it doesn't make it true, huh? As long as Vanguard sees the need to keep trading down, i.e. keep their expenses down due to excessive trading, this fee will need remain.

It is not like we are getting into the tail end of a pyramid scheme. The fund is less than a year old, so we are not paying the fee to some who have held the fund for many years. In fact, if the fee continues, we would be the ones getting in at the beginning of the pyramid scheme. (jokingly stated)

It doesn't really effect me, as I prefer to hold developed and emerging markets separate, and choose my own asset allocation. For those who believe in total markets, FTSE ex USA offers the better tax treatment, but I also agree with Taylor at current ER it is about a wash between the two as the fund-of-funds treatment would just equalize the tax treatment at current ER. So in your favor, I might be speculating the ER for FTSE ex USA will be going down and the fund's moneys increase.

It's no real big deal.

Chin