Shifts in VG Tracking Indexes Announced

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Re: Shifts in VG Tracking Indexes Announced

Postby LadyGeek » Mon Oct 08, 2012 8:58 pm

gkaplan wrote:...Choose from the following list of indexes to download Excel workbooks with the associate constituents for each index. Constituents and weights were effective for September 28, 2012. Dates are Start of Day (SOD).

Thanks. I guess I was expecting to put everything you need with the data. They had no problem inserting a long legal disclaimer (bottom of file).
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Re: Shifts in VG Tracking Indexes Announced

Postby ClosetIndexer » Mon Oct 08, 2012 9:07 pm

LadyGeek wrote:
gkaplan wrote:...Choose from the following list of indexes to download Excel workbooks with the associate constituents for each index. Constituents and weights were effective for September 28, 2012. Dates are Start of Day (SOD).

Thanks. I guess I was expecting to put everything you need with the data. They had no problem inserting a long legal disclaimer (bottom of file).


SOD is a fairly common acronym, although less so than EOD. I don't blame them for not including its definition in the file. (Although I agree that it would have been handy.)

I expect that the delay in them getting the returns data is due to them taking the time to make sure it's right this time. Personally I appreciate their forthrightness.
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Re: Shifts in VG Tracking Indexes Announced

Postby Barry Barnitz » Thu Oct 11, 2012 4:05 pm

HI:

For those of you interested. CRSP has posted corrected spreadsheets providing index return data and index constituent lists for their investable indexes. These can accessed at CRSP - The Center for Research in Security Prices.


The wiki has incorporated the CRSP returns data in the following articles:

Total Market Index Returns - Bogleheads
Mega Cap Index Returns - Bogleheads
Large Cap Index Returns - Bogleheads
Mid Cap Index Returns - Bogleheads
Small Cap Index Returns - Bogleheads


regards,
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Re: Shifts in VG Tracking Indexes Announced

Postby ClosetIndexer » Sat Oct 13, 2012 5:08 am

ClosetIndexer wrote:OK, I did some regressions to compare the size and value loadings of the MSCI indexes Vanguard has been using for its domestic funds for the past decade to the CRSP indexes they are switching to. Here are the results over the 11 years for which the CRSP indexes have data. (Although we should keep in mind that the CRSP index returns are back-tested, based on these results I'm not too concerned about bias there.)

Code: Select all
All 2001/07-2012/06

Small
                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Small Cap               1.02    0.71    0.17    -0.02    -0.15%   R^2 = 0.991
       Std. Error                0.01    0.02    0.02     0.01     0.63%

    CRSP Small Cap               1.01    0.64    0.13    -0.02     0.44%   R^2 = 0.990
       Std. Error                0.01    0.02    0.02     0.01     0.64%

      
    MSCI Small Value             0.91    0.63    0.52    -0.03     0.47%   R^2 = 0.970
       Std. Error                0.02    0.04    0.04     0.02     1.08%

    CRSP Small Value             0.92    0.58    0.48    -0.04     1.22%   R^2 = 0.972
       Std. Error                0.02    0.04    0.03     0.02     1.04%


Mid
                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Mid Cap                 1.04    0.32    0.04     0.01     0.76%   R^2 = 0.969
       Std. Error                0.02    0.04    0.03     0.02     1.04%

    CRSP Mid Cap                 1.03    0.26    0.04     0.02     0.76%   R^2 = 0.976
       Std. Error                0.02    0.03    0.03     0.02     0.89%

    MSCI Mid Value               0.94    0.25    0.39    -0.02     1.93%   R^2 = 0.955
       Std. Error                0.03    0.04    0.04     0.02     1.21%

    CRSP Mid Value               0.92    0.23    0.39    -0.05     0.96%   R^2 = 0.955
       Std. Error                0.03    0.04    0.04     0.02     1.20%


      
Mid-large

                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Prime Market            0.98   -0.11   -0.02    -0.00    -0.19%   R^2 = 0.995
       Std. Error                0.01    0.01    0.01     0.01     0.36%

    CRSP Large Cap               0.98   -0.12   -0.03     0.00    -0.35%   R^2 = 0.994
       Std. Error                0.01    0.01    0.01     0.01     0.37%

      
   MSCI Prime Value             0.92   -0.19    0.32    -0.02     0.17%   R^2 = 0.968
       Std. Error                0.02    0.03    0.03     0.02     0.89%

    CRSP Large Value             0.92   -0.20    0.23    -0.03    -0.48%   R^2 = 0.965
       Std. Error                0.02    0.03    0.03     0.02     0.92%


*Note: CRSP's 'large' indexes correspond to MSCI's 'prime', while CRSP's 'mega' correspond to MSCI's 'large'.


So basically they're so similar it's freaky. The Russell and S&P indexes show much more significant differences. These are about as close as you can get to being drop-in replacements without being identical. The only two noticeable differences are in the Mid and Large value funds, where we see slightly lower value loadings for CRSP in the large cap, and perhaps slightly more negative momentum in the mid-cap. Both differences are small though, and it turns out both are from the earlier years of the sample only. If we just look at 2006/01-2012/06, for example, we get this:

Code: Select all
2006/01-2012/06:

                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Prime Value             0.92   -0.21    0.33    -0.01    -0.16%   R^2 = 0.972
       Std. Error                0.02    0.05    0.04     0.02     1.22%

    CRSP Large Value             0.90   -0.20    0.29    -0.01    -0.25%   R^2 = 0.967
       Std. Error                0.02    0.05    0.05     0.02     1.28%


    MSCI Mid Value               0.97    0.27    0.21    -0.08    -0.14%   R^2 = 0.972
       Std. Error                0.03    0.06    0.05     0.02     1.41%

    CRSP Mid Value               0.96    0.28    0.24    -0.10     0.01%   R^2 = 0.966
       Std. Error                0.03    0.06    0.06     0.03     1.56%



So not only are they statistically identical, they're almost completely identical. I was originally a bit concerned about these changes, but given the similarity between these indexes, I don't think it's going to make any noticable difference (aside from, hopefully, slightly lower fees eventually).

Edit: Just for fun, ran the broad indexes too:

Code: Select all
2001/07-2012/06:

                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Investible Mkt          0.99   -0.02   -0.00    -0.00    -0.24%   R^2 = 0.996
       Std. Error                0.01    0.01    0.01     0.01     0.32%

    CRSP Total Mkt               0.98    0.01    0.00     0.00    -0.28%   R^2 = 0.997
       Std. Error                0.01    0.01    0.01     0.00     0.29%


So as expected, the CRSP index just removes the MSCI 2500's very slight large tilt. Sounds good to me. Also removes that differentiation from the Schwab fund based on the Russell 3000...


As mentioned a page or so back, there was a slight error in the originally posted CRSP back-test data. They've now posted corrected data, so I re-ran the regressions. They're statistically identical though, so the analysis above stands. Here are the updated results:

Code: Select all
All 2001/07-2012/06

Small
                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Small Cap               1.02    0.71    0.17    -0.02    -0.15%   R^2 = 0.991
       Std. Error                0.01    0.02    0.02     0.01     0.63%

    CRSP Small Cap               1.01    0.64    0.13    -0.02     0.44%   R^2 = 0.990
       Std. Error                0.01    0.02    0.02     0.01     0.64%

     
    MSCI Small Value             0.91    0.63    0.52    -0.03     0.47%   R^2 = 0.970
       Std. Error                0.02    0.04    0.04     0.02     1.08%

    CRSP Small Value             0.92    0.58    0.48    -0.04     1.22%   R^2 = 0.972
       Std. Error                0.02    0.04    0.03     0.02     1.04%


Mid
                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Mid Cap                 1.04    0.32    0.04     0.01     0.76%   R^2 = 0.969
       Std. Error                0.02    0.04    0.03     0.02     1.04%

    CRSP Mid Cap                 1.03    0.26    0.04     0.02     0.76%   R^2 = 0.976
       Std. Error                0.02    0.03    0.03     0.02     0.89%

    MSCI Mid Value               0.94    0.25    0.39    -0.02     1.93%   R^2 = 0.955
       Std. Error                0.03    0.04    0.04     0.02     1.21%

    CRSP Mid Value               0.92    0.23    0.39    -0.05     0.96%   R^2 = 0.955
       Std. Error                0.03    0.04    0.04     0.02     1.20%


     
Mid-large

                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Prime Market            0.98   -0.11   -0.02    -0.00    -0.19%   R^2 = 0.995
       Std. Error                0.01    0.01    0.01     0.01     0.36%

    CRSP Large Cap               0.98   -0.12   -0.03     0.00    -0.35%   R^2 = 0.994
       Std. Error                0.01    0.01    0.01     0.01     0.37%

     
    MSCI Prime Value            0.92   -0.19    0.32    -0.02     0.17%   R^2 = 0.968
       Std. Error                0.02    0.03    0.03     0.02     0.89%

    CRSP Large Value             0.92   -0.20    0.23    -0.03    -0.48%   R^2 = 0.965
       Std. Error                0.02    0.03    0.03     0.02     0.92%


*Note: CRSP's 'large' indexes correspond to MSCI's 'prime', while CRSP's 'mega' correspond to MSCI's 'large'.


Code: Select all
2006/01-2012/06:

                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Prime Value             0.92   -0.21    0.33    -0.01    -0.16%   R^2 = 0.972
       Std. Error                0.02    0.05    0.04     0.02     1.22%

    CRSP Large Value             0.90   -0.21    0.29    -0.01    -0.04%   R^2 = 0.967
       Std. Error                0.02    0.05    0.05     0.02     1.28%


    MSCI Mid Value               0.97    0.27    0.21    -0.08    -0.14%   R^2 = 0.972
       Std. Error                0.03    0.06    0.05     0.02     1.41%

    CRSP Mid Value               0.95    0.28    0.24    -0.11    -0.25%   R^2 = 0.968
       Std. Error                0.03    0.06    0.05     0.02     1.52%


Code: Select all
2001/07-2012/06:

                                Mkt-Rf    SmB     HmL     Mom     Alpha
    MSCI Investible Mkt          0.99   -0.02   -0.00    -0.00    -0.24%   R^2 = 0.996
       Std. Error                0.01    0.01    0.01     0.01     0.32%

    CRSP Total Mkt               0.98    0.01    0.00     0.00    -0.18%   R^2 = 0.997
       Std. Error                0.01    0.01    0.01     0.00     0.29%
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Re: Shifts in VG Tracking Indexes Announced

Postby MuteHorse » Fri Dec 28, 2012 2:18 pm

As a TSP investor, I use the I-Fund (follows the MSCI EAFE index) for the bulk of my international holdings, with some additional investments to approximate the total international stock market.

With South Korea being moved out of the Vanguard Emerging Markets funds, will I need to add a small allocation to South Korean fund (a la Canada), possibly EWY?

If so, how large? According to the 2012 Annual Report for Vanguard Total International Stock Index Fund, South Korea was 3.6% of the fund.
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Keep investing simple

Postby Taylor Larimore » Fri Dec 28, 2012 2:52 pm

MuteHorse wrote:As a TSP investor, I use the I-Fund (follows the MSCI EAFE index) for the bulk of my international holdings, with some additional investments to approximate the total international stock market.

With South Korea being moved out of the Vanguard Emerging Markets funds, will I need to add a small allocation to South Korean fund (a la Canada), possibly EWY?

If so, how large? According to the 2012 Annual Report for Vanguard Total International Stock Index Fund, South Korea was 3.6% of the fund.


MuteHorse:
You may be "overthinking" your asset-allocation. Whether or not 3.6% of your international exposure is in Korea will have virtually no impact on your portfolio. Adding a Korea fund will, however, probably increase your cost, paperwork, tax-preparation, taxes, and fund maintenance (rebalancing etc.. Strive for simplicity; not complexity.

"The enemy of a good plan is the dream of a perfect plan." -- Jack Bogle

Best wishes.
Taylor
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