Miller has responded to Smith’s latest broadside against ETFs by comparing Smith’s flagship Fundsmith equity fund offering with the iShares and db X-tracker MSCI World ETFs. Former New Star CIO Miller says that the two ETF vehicles trump the fund in terms of total expense ratios, performance and transparency.
“The iShares and db X-tracker MSCI World ETFs both publish the full breakdown of the holdings within their funds together with the full breakdown of their collateral where applicable,” says Miller, pointing to the fact that FundSmith only publishes ten of the 23 stocks which it holds.
Miller, co-founder of SCM Private, also attempts to address Smith’s concerns around short-selling in ETFs, simply noting that “for someone to short a share requires someone on the other side to buy it”.
“The action of the market makers and hedge funds using ETFs as an efficient, liquid hedge against their exposures increases the trading volume of ETF’s thereby reducing their spread and therefore cost to investors. “
He suggests that the recent slump in silver – a 30% slump in a less than liquid market – is indicative in that none of the related ETFs were suspended as a result of the activity.
“In fact the danger is much greater in several of the largest popular UK mutual funds. One £1 billion+ large UK fund for example has holdings in several small/mid size UK companies where together with other funds internally they hold nearly 30% of these companies’ shares,” Miller says.
“What would happen if this high profile manager were to be run over by the proverbial Clapham omnibus & investors all decided to sell?”
