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Comment by lifeisstillgood | Hacker News Reader

This looks simple on the outside - is it really necessary to pay a percentage fee when investing this much money? I would suggest that the number of funds in excess of 100bn in the world must fit in a decent sized auditorium. That makes "Unionisation"'of the market quite possible. One could easily see a situation where all the funds just said "50 m pa or fuck off"

So my question to HN is - what is so hard (or not) about making market returns for a fund of this size?

I mean the obvious approach seems to buy 100m worth of shares in the top 1000 companies and just hold?

Perhaps it is worth not being fully invested all the time? Perhaps just making market is not worth it - but if it is, is the saving in fees compensating?

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> So my question to HN is - what is so hard (or not) about making market returns for a fund of this size?

Boggleheads have been asking that question for like 40 years. Vanguard funds (which simply pick the top 500 shares, or all the shares... depending on the fund...) outperform something like 85% of actively managed funds.

One theory is that modern markets are extremely efficient, which means that actively managed funds do not provide a benefit over just "trusting the market price" of various things.

So, and this is a naive question, why on earth does a Vanguard fund charge a percentage for what seems to be very simple administration (sell 1000000 shares in X, buy 100000 shares in Y, make sure VWAP is good).

I mean - if I was a trustee of a million fund let alone billion I would expect to know the baseline level of dumbest simplest possible investing process. That approach seem the simplest.

Larger transactions have higher execution costs. Larger funds have larger transactions. It probably isn't the case that there is a linear correlation between fund -> transaction -> execution cost but it is a close enough approximation that everyone is mostly happy.

Additionally, at least with Vanguard, if you have a lot of money invested you get access to funds with lower costs. For example, for $3,000-$10,000 you can VFINX which costs 0.17%, but if you have more than $10,00 invested you can buy VFIAX, which costs 0.05%. For $5M and up, you can buy VINIXm which costs 0.04%.

> So, and this is a naive question, why on earth does a Vanguard fund charge a percentage for what seems to be very simple administration (sell 1000000 shares in X, buy 100000 shares in Y, make sure VWAP is good).

Because Vanguard's prices are the lowest. Where else are you going to go?

The typical fund charges between 1% to 2%. Vanguard charges 0.05% if you qualify for Admiral Shares ($10,000 minimum). Various ETFs can drop down to that amount, but you still have to deal with tracking error and commissions. $7 per trade typically... while Vanguard doesn't charge commissions if you own a Vanguard account and buy Vanguard Funds (or ETFs).

I suppose my question is better framed as - why is the cost of trading so high? Presumably the stock exchange will charge per transaction, but if I have 100bn invested across 10,000 equities, at a dollar a piece, that's 10M shares. If I make transactions of just 100 stocks per time, that's a whole refresh in 100,000 transactions. Do that 12 times a year at 5 dollars per transaction and I see a mere 6 million cost to look after 100bn in invested funds.

So ... What am I missing. Exchanges all use electronic trading now, Charles Schwann would give me 5 bucks per transaction.

Why does anyone pay percentages?

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