Both the mutual fund and the ETF are tracking the same index, so why the pricing differential? For example, today Jul 12, VTSMX was up 1.82% while VTI was up 1.51%, on Jun 26, VTI Closed down .81% while VTSMX was down only .33%. I have placed a considerable amount of my portfolio in the ETF under the belief that given the lower expense rates and the ease of enty and exit, I should have a greater overall return on the VTI. But only if they consistantly track the index without significant variation.
OK, I did some research and this from the Vanguard Web Site:
How is the market price of Vanguard ETFs determined?
The price of the securities held by the underlying fund, as well as market supply and demand, determines the price of Vanguard ETFs. The market price can change throughout the trading day and may be above or below the market value of the securities held by each portfolio. Though the difference is usually small, it could be significant when the market is particularly volatile.
Thank you for the additional research...that makes sense...in a perfect world the price would track the index, in the real world, the imperfections give us the spread between the theoretical value and the market value.
For what its worth, I too subscribe to Bob's Market timer (and I am also somewhat sceptical of some of his claims). I have also found alternatives to some of his portfolio recommendations that save a chunk of change, for example, I have substituted QQQQs for his recommended RYOCX...both track the NAZ 100 but RYOCX charges 1.22% while the Qs only charge .2%.
I would think tracking the index would be close, but think about it - if you decide to sell or buy the ETF for what ever reason, regardless of what the index is doing, then you and others of like kind will affect the ETF price. Who are 'they' to make the price track the index? They are YOU!
From the Profile of VTI: "The investment seeks to track the performance of a benchmark index that measures the investment return of the overall stock market. The fund employs a passive management strategy designed to track the performance of the MSCI US Broad Market index, which consists of all the U.S. common stocks traded regularly on the NYSE, AMEX, or OTC markets. It typically invests substantially all of assets in the 1,300 largest stocks in its target index, thus covering nearly 95% of the Index's total market capitalization."
Given the above, I don't think the price is set by supply and demand for the etf, rather it is set (and reset constantly) by the total value of all of the stocks comprising the index. The price is there, and you either buy it at that price or not. The volume of buying or selling the etf does not affect the price in any appreciable way, but the price of all of the underlying stocks clearly does effect the price of the etf.
I believe that this is how it works, but it is jmho.