Vanguard Information Technology - VGT or VITAX

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TheTimeLord
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Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Thu May 11, 2017 8:22 am

Does anyone hold either the mutual fund or the ETF?
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Thu May 11, 2017 4:38 pm

Wow, sort of shocked. I know people have discussed owning Vanguard Healthcare and Vanguard Energy but no one owns Vanguard Information Technology, quite surprising.
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Re: Vanguard Information Technology - VGT or VITAX

Post by Tyler Aspect » Thu May 11, 2017 11:35 pm

The largest companies by market capitalization in the United States are Apple, Alphabet, and Microsoft. You can't escape them if you already have the total stock index fund. No need to buy VGT or VITAX.
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 12, 2017 7:27 am

Tyler Aspect wrote:The largest companies by market capitalization in the United States are Apple, Alphabet, and Microsoft. You can't escape them if you already have the total stock index fund. No need to buy VGT or VITAX.


Some people tilt to small cap or small cap value, so why not sector tilt in things like Technology and Healthcare? I am taking the lack of responses to my post as a very bullish sign, showing this isn't an area people have piled into yet.
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Re: Vanguard Information Technology - VGT or VITAX

Post by asif408 » Fri May 12, 2017 7:50 am

Those would be the last 2 sector funds I would go into if I was investing in sector funds. They've been 2 of the best performers over the last 5 years. Reversion to the mean awaits..........

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Re: Vanguard Information Technology - VGT or VITAX

Post by aristotelian » Fri May 12, 2017 8:04 am

I am pretty sure most of us are aware of the success of tech stocks. Most of us are also aware of what happened in the 1990's tech bubble. Amazon has a 178 P/E. It's hard to make the case that tech stocks are undervalued right now.

The only sector I weight as a long term hold is Consumer Staples (VDC). It held up relatively well in 2008 while matching S&P in other periods. I do think Health Care is a good choice due to demographics. For a value buy right now, I would look at Energy.

From what I have read here, most of the research supports long term premiums for small cap value but VGT doesn't fit that. I held PSCT (Powershares Small Cap Tech, ER 0.29%) for a while.

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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 12, 2017 8:24 am

asif408 wrote: Reversion to the mean awaits..........


If you believe that reversion to the mean would means since they have outperformed the market they will revert to market returns then you are also assuming all sectors grow at the same rate are you not. I do not believe that is true.
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 12, 2017 8:31 am

aristotelian wrote:I am pretty sure most of us are aware of the success of tech stocks. Most of us are also aware of what happened in the 1990's tech bubble. Amazon has a 178 P/E. It's hard to make the case that tech stocks are undervalued right now.



Comparing the nascent tech sector of the 1990's to the integral large tech companies we have today is really comparing and emerging industry to it mature survivors.
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Re: Vanguard Information Technology - VGT or VITAX

Post by aristotelian » Fri May 12, 2017 8:39 am

TheTimeLord wrote:
asif408 wrote: Reversion to the mean awaits..........


If you believe that reversion to the mean would means since they have outperformed the market they will revert to market returns then you are also assuming all sectors grow at the same rate are you not. I do not believe that is true.


I believe in buying low and selling high. Information Technology is not low right now.

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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 12, 2017 8:41 am

aristotelian wrote:
TheTimeLord wrote:
asif408 wrote: Reversion to the mean awaits..........


If you believe that reversion to the mean would means since they have outperformed the market they will revert to market returns then you are also assuming all sectors grow at the same rate are you not. I do not believe that is true.


I believe in buying low and selling high. Information Technology is not low right now.


I am not a market timer, so I am not capable of knowing when something is low or high.
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheJoker » Fri May 12, 2017 8:42 am

17% of my portfolio is in VGT. Can anyone deny that information tech is the wave of the future ? As someone previously mentioned, look at the size of those companies. 40% of the fund investment is in the top 10 mega companies. Businesses spend a lot of the earnings to purchase information about you. The government and businesses want to know all about you.

Is it a bubble or the future ?

On the other hand, 70% of my portfolio is in VDC (consumer staples). My thinking there is that humans will not easily give up...................... tooth paste or ....................toilet paper. The p/e is lower and the dividend is higher in VDC then the 500 index (my next choice). Also compare the 500 index and VDC during the 2008 crash. Which went down farther ?

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Re: Vanguard Information Technology - VGT or VITAX

Post by DaftInvestor » Fri May 12, 2017 8:44 am

I learned my tech-tilt lesson back in 2000.

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Re: Vanguard Information Technology - VGT or VITAX

Post by aristotelian » Fri May 12, 2017 8:58 am

TheTimeLord wrote:Some people tilt to small cap or small cap value, so why not sector tilt in things like Technology and Healthcare? I am taking the lack of responses to my post as a very bullish sign, showing this isn't an area people have piled into yet.


TheTimeLord wrote:I am not a market timer, so I am not capable of knowing when something is low or high.


Really? Seems like your rationale for a sector tilt is all about market timing. At the very least, you seem to think you can beat the market by tilting in this way.

I have no wish to get into an argument, just stating my reasons for staying away from a Tech tilt.

I am not a market timer nor market beater. But if I was, I would not be betting on tech on at the moment.

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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 12, 2017 9:01 am

DaftInvestor wrote:I learned my tech-tilt lesson back in 2000.


So you view those companies you invested in back then as playing the same role in our lives as the technology companies today? BTW, do you think you would be worse off today if you had held that tilt? VGT came into existence in January of 2004 and since the is up 179% according to Morningstar, SPY over the same period is up 109% (VOO didn't exist until 2010). looking at the cash hoarded these companies have today, demonstrates the futility of comparing them to the negative cash flow companies that first emerged from the primortial internet ooze of the late 1990s and early 2000s.

While Apple has a commanding lead when it comes to cash, Microsoft (NASDAQ: MSFT) was a clear second at $102.6 billion, followed by Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), which was known as Google for much of 2015, at $73.1 billion. Cisco (NASDAQ: CSCO) was fourth with $60.4 billion, while Oracle (NYSE: ORCL) took fifth with $52.3 billion. Tech companies Intel (NASDAQ: INTC) and Qualcomm (NASDAQ: QCOM) came in ninth and 10th with $31.3 billion and $30.6 billion, respectively.

"While the concentration of cash among the top-rated cash holders continues to grow, so, too, has the portion held by the technology sector, which accounted for a record 46% of total cash in 2015, up from 41% in 2014," Lane said.

https://www.fool.com/investing/2016/05/ ... -cash.aspx
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 12, 2017 9:09 am

aristotelian wrote:
TheTimeLord wrote:Some people tilt to small cap or small cap value, so why not sector tilt in things like Technology and Healthcare? I am taking the lack of responses to my post as a very bullish sign, showing this isn't an area people have piled into yet.


TheTimeLord wrote:I am not a market timer, so I am not capable of knowing when something is low or high.


Really? Seems like your rationale for a sector tilt is all about market timing. At the very least, you seem to think you can beat the market by tilting in this way.

I have no wish to get into an argument, just stating my reasons for staying away from a Tech tilt.

I am not a market timer nor market beater. But if I was, I would not be betting on tech on at the moment.


The reason for a sector tilt is the belief that over the long all that sector will outperform the broader market, just as that is the reason for a small cap value tilt. It has nothing to do with current valuation, i.e. is the price high or low, because proper valuation is impossible to know without knowledge of future earnings. Sure a concentration in anything brings an increase in risk reward versus the broader market. Personally, I have no desire to debate whether it is a good investment or not, I merely asked if anyone invested in VGT not if it was a good investment. So if we stick to the original question I will find out who is invested in VGT and why and we can avoid the discussion about whether it is a good or bad time to buy technology which as someone has pointed out is being done hand over fist by anyone buying the Total Market anyway.
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Re: Vanguard Information Technology - VGT or VITAX

Post by DaftInvestor » Fri May 12, 2017 10:26 am

TheTimeLord wrote:
DaftInvestor wrote:I learned my tech-tilt lesson back in 2000.


So you view those companies you invested in back then as playing the same role in our lives as the technology companies today?


I don't which is exactly the point - look at the top 10 lists of companies in IT over time. That list changes DRASTICALLY. Back in the 80's, if this index existed, you would have seen companies like Wang, DEC, and Compaq on the top-ten holdings list (if you aren't old enough you may not even know who these companies are now). In 2000 some of the companies that may have been on that list (Lucent, Nortel, Sun Microsystems, Sycamore) no longer exist or have been consumed by others while some have survived or thrived (Intel, Microsoft). Now you see companies like CISCO, Microsoft, Intel and IBM are in the top 10 - having survived since 2000 but companies like AOL/Netscape, Sycamore, Sun that would have been there are gone. Maybe Alphabet will be here in 10 years - maybe it will become the next AOL - we don't really know. Maybe Apple becomes the next Sun or DEC.
I'm babbling - but the point I'm trying to make is some of the largest IT companies fall REALLY hard when they fall and there are periods of time when the entire sector falls REALLY hard - if you are okay with this volatility then go for VGT.
Personally - the 179% run-up since 2004 (compared to SPY) you mention would be a reason to stay away from the sector - perhaps it is ready for a pull-back.
(EDIT ADD: Note I haven't done any deep analysis with this sector or the holdings I'm throwing out there so some one can certainly come in and correct my facts if so desired - they aren't facts actually - I'm simply expanding upon my statement of why I would never invest heavily into this sector in response to TimeLord's question).

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Re: Vanguard Information Technology - VGT or VITAX

Post by dbr » Fri May 12, 2017 10:44 am

A better question than "Does anyone own VGT" would be to ask "Does anyone know the expected risk and return properties of VGT so I can decide if it is a good idea to hold a concentration to that in a portfolio that would otherwise be x, y, or z?" I personally don't know enough about that to advise you. It would be a good topic for you to research and let the forum know what you find out. I would say that the rationale for factor investing might be a little better developed than a rationale for sector investing is, but I could be wrong. Also one might consider the incentive fund companies might have to sell a product.

PS The market is notorious for pricing in suppositions about what businesses will flourish in any period of time resulting in little opportunity to take advantage of naive "advance knowledge." Comment have already been made about RTM of one kind or another and about market timing.

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Re: Vanguard Information Technology - VGT or VITAX

Post by nisiprius » Fri May 12, 2017 11:09 am

TheTimeLord wrote:Some people tilt to small cap or small cap value, so why not sector tilt in things like Technology and Healthcare?
Because small cap and small cap value are not sectors. They are asset classes based on general characteristics, not what kind of business a company is in.

Larry Swedroe, who certainly is a strong advocate of factor-based investing, has written:
In 'The Quest for Alpha,' Larry Swedroe wrote: Rules for Prudent Investing
...#17: Owning individual stocks and sector funds is more akin to speculating, not investing. The market compensates investors for risks that cannot be diversified away, like the risk of investing in stocks versus bonds. Investors shouldn't expect compensation for diversifiable risk--the unique risks related to owning one stock or sector or country fund. Prudent investors only accept risk for which they will be compensated with higher expected returns.
TheTimeLord wrote: I am taking the lack of responses to my post as a very bullish sign, showing this isn't an area people have piled into yet.
I don't think you should take it as a bullish sign given that you are asking people whose investment philosophy says in so many words
Rather than trying to pick the specific securities or sectors of the market (US stocks, international stocks, and US bonds) that will outperform in the future, Bogleheads buy funds that are widely diversified, or even approximate the whole market,
are not picking specific securities or sectors of the market.

You might as well ask people in Utah about whether they've been drinking coffee lately, and conclude from their responses that "people" are not "piling into" coffee.

And of course the next question is whether you've created any serious, objective criterion for determining which sectors people are "not piling into," and tested whether systematically investing in those sectors has actually created an improvement in risk-adjusted return.

Do what you like, of course, but I think you would, seriously, be a fool to make a concentrated investment in VGT or VITAX based on responses you've gotten within 48 hours of asking in this forum.
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Sat May 13, 2017 8:30 am

nisiprius wrote:
TheTimeLord wrote:Some people tilt to small cap or small cap value, so why not sector tilt in things like Technology and Healthcare?
Because small cap and small cap value are not sectors. They are asset classes based on general characteristics, not what kind of business a company is in.


What is the difference between buying sector fund and buying REITs? And if REITs are okay then why not MLPs? Using the term characteristics is a very slippery slope because large tech companies probably share more characteristics than Small Cap companies. Perhaps if you qualify it and say financial characteristics but then large tech coalesces again especially in their extreme amount of cash help overseas.
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Re: Vanguard Information Technology - VGT or VITAX

Post by nisiprius » Sat May 13, 2017 10:22 am

TheTimeLord wrote:
nisiprius wrote:
TheTimeLord wrote:Some people tilt to small cap or small cap value, so why not sector tilt in things like Technology and Healthcare?
Because small cap and small cap value are not sectors. They are asset classes based on general characteristics, not what kind of business a company is in.
What is the difference between buying sector fund and buying REITs? And if REITs are okay then why not MLPs? Using the term characteristics is a very slippery slope because large tech companies probably share more characteristics than Small Cap companies. Perhaps if you qualify it and say financial characteristics but then large tech coalesces again especially in their extreme amount of cash help overseas.
Sure, it's a slippery slope, definitions are imprecise. People fling around names of asset classes as if naming them made them objective, and yet nobody even knows which countries qualify as "emerging markets." I think you know the answer on REITs. They are stocks. They are a sector. They were recently promoted to being a top-level category in the GICS sector classification. The reason why some authorities think it is legitimate to break them out as a different asset class is that they are legally recognized as different from other stocks and need to follow different regulations, notably about paying out all (most?) earnings as dividends.

So, just as stocks and bonds are different in a big, fundamental, nature-of-the-beast way--not just empirical observations of how they sorta-kinda-tend-to-behave--REITS and other stocks are different in a small, but fundamental nature-of-the-beast way. They aren't just some random sector that somebody likes.

Another detail is that although the typical "slice-and-dice" portfolios of a decade or so ago generally included a REIT allocation, they are not, as far as I know, part of any of the "factor-based" models, so that while the inclusion of small value tilts are justified on the basis of academic research, REITs don't seem to rest on the same pillars. Larry Swedroe, in The Quest for Alpha, has an illustration of how to build up a slice-and-dice factor-based portfolio by adding successive layers of diversification, and the final result does not include a REIT allocation. There's a similar exercise in Reducing the Risk of Black Swans and again, REITS are not included.

Image

Since I don't do any of this stuff, I can only look at it from outside, but it seems clear enough to me. "Small value" is an asset class, not a sector, and it figures into all the presentations of factor-based investing. "Information technology" and "basic materials" and "consumer discretionary" are sectors, not asset classes; don't seem to have regulatory-based distinguishing characteristics; and don't seem to be discussed in presentations of factor based investing.

And REITs are somewhere in between. They're not just a sector someone happens to like, they do have a fundamental difference from the rest--but they don't seem to be a full-fledged "asset class" nor do they take part, under that name, in presentations of factor-based investing.
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Re: Vanguard Information Technology - VGT or VITAX

Post by dbr » Sat May 13, 2017 10:25 am

Would someone like to come up with definitions of such terms as "sector," "asset class," and "factor" in order to clarify which is what?

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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Sat May 13, 2017 10:51 am

nisiprius wrote:and yet nobody even knows which countries qualify as "emerging markets."



And let's not forget frontier markets. Frankly most of my holdings have been very vanilla up until this point. In equities heavy Total US with a dash of small cap then a small amount of International Developed with a slice of Emerging Markets to make me feel cool. Outside of that I have a closed end MLP fund that I picked up during the financial crisis and stock in a company that has an IPO this year and some in another pre-IPO company that maybe worthless. I think for the most part I am probably more risk adverse than average which has served me well up until this point so now I feel I am in a position to take a little more risk with any new savings dollars I accumulated between here and retirement.
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Re: Vanguard Information Technology - VGT or VITAX

Post by tennisplyr » Sat May 13, 2017 11:01 am

TheTimeLord wrote:
Tyler Aspect wrote:The largest companies by market capitalization in the United States are Apple, Alphabet, and Microsoft. You can't escape them if you already have the total stock index fund. No need to buy VGT or VITAX.


Some people tilt to small cap or small cap value, so why not sector tilt in things like Technology and Healthcare? I am taking the lack of responses to my post as a very bullish sign, showing this isn't an area people have piled into yet.


I know it's not very Boglehead-ish but I've held the Fidelity equivalent for a number of years....no complaints here.
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Re: Vanguard Information Technology - VGT or VITAX

Post by nisiprius » Sat May 13, 2017 11:12 am

dbr wrote:Would someone like to come up with definitions of such terms as "sector," "asset class," and "factor" in order to clarify which is what?
How about this for "sector?"

Global Industry Classification Standard (GICS)
The Global Industry Classification Standard (GICS) is an industry taxonomy developed in 1999 by MSCI and Standard & Poor's (S&P) for use by the global financial community. The GICS structure consists of 11 sectors, 24 industry groups, 68 industries and 157 sub-industries [1] into which S&P has categorized all major public companies.
A "sector," then, is one of these:
10 Energy
15 Materials
20 Industrials
25 Consumer Discretionary
30 Consumer Staples
35 Health Care
40 Financials
45 Information Technology
50 Telecommunications
55 Utilities
60 Real Estate
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Re: Vanguard Information Technology - VGT or VITAX

Post by dbr » Sat May 13, 2017 11:18 am

nisiprius wrote:
dbr wrote:Would someone like to come up with definitions of such terms as "sector," "asset class," and "factor" in order to clarify which is what?
How about this for "sector?"

Global Industry Classification Standard (GICS)
The Global Industry Classification Standard (GICS) is an industry taxonomy developed in 1999 by MSCI and Standard & Poor's (S&P) for use by the global financial community. The GICS structure consists of 11 sectors, 24 industry groups, 68 industries and 157 sub-industries [1] into which S&P has categorized all major public companies.
A "sector," then, is one of these:
10 Energy
15 Materials
20 Industrials
25 Consumer Discretionary
30 Consumer Staples
35 Health Care
40 Financials
45 Information Technology
50 Telecommunications
55 Utilities
60 Real Estate


Thank you. That is a start. Eventually we will determine why it isn't the same thing to concentrate in a sector, concentrate in an asset class, or have a portfolio with a certain loading on various factors. Also, we will have to define what "concentrate" means other than being the opposite of "diversify," which we will also have to define. All of those things being accomplished we can decide if we care. But wait, a lot of that has already been discussed elsewhere, so this thread should probably only address the characteristics of concentrating in sectors.

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Re: Vanguard Information Technology - VGT or VITAX

Post by nisiprius » Sat May 13, 2017 11:21 am

"Asset class" and "factor" are a little slippery, but I think this distinction, from Jared Kizer, is very helpful:
Factor portfolio: A portfolio that goes “long” high expected return securities and “short” low expected return securities. Going “long” a security simply means using cash to purchase a security. Going “short” a security requires the investor borrow the security and sell it in the marketplace. In this case, the investor hopes the security falls in value. Since factor portfolios are long/short portfolios, they will typically have minimal exposure to equity market risk since the short positions effectively cancel out the market risk in the long positions.
So, regardless of what defines an "asset class," it is, in any case, a long-only portfolio of securities that are believed to be a part of the asset class. "Factor portfolios" are long-short portfolios that attempt to cross-weight securities, using both positive and negative weights, so as to remove everything about the stock that doesn't "load on" the factor and create a portfolio that includes the factor in a pure state.

Investopedia--and I'm not at all sure I know who or what it is, or how authoritative it is--says:
An asset class is a group of securities that exhibits similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main asset classes are equities, or stocks; fixed income, or bonds; and cash equivalents, or money market instruments. Some investment professionals add real estate and commodities, and possibly other types of investments, to the asset class mix.
The point is that an asset class is "behaves similarly" and "is subject to the same laws and regulations." Therefore, to conclude that "information technology" is an asset class, one would have to explain what different laws and regulations it is subject to and how it behaves differently. But that's all pretty fuzzy, because I don't think there are any laws and regulations that apply specifically to small value stocks, for example.

I think there's a fairly clear distinction in that asset classes are defined by behavior of a security, while sectors apply to the nature of the business that issues the security--and since only stocks represent participation in the business, "sectors" apply only to stocks.

Obviously one can assert that the stocks of similar businesses have similar characteristics, but one should still be basing the category on the characteristics of the stock, not the business.
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Sat May 13, 2017 11:41 am

nisiprius wrote:"
Investopedia--and I'm not at all sure I know who or what it is, or how authoritative it is--says:
An asset class is a group of securities that exhibits similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main asset classes are equities, or stocks; fixed income, or bonds; and cash equivalents, or money market instruments. Some investment professionals add real estate and commodities, and possibly other types of investments, to the asset class mix.
The point is that an asset class is "behaves similarly" and "is subject to the same laws and regulations." Therefore, to conclude that "information technology" is an asset class, one would have to explain what different laws and regulations it is subject to and how it behaves differently. But that's all pretty fuzzy, because I don't think there are any laws and regulations that apply specifically to small value stocks, for example.

I think there's a fairly clear distinction in that asset classes are defined by behavior of a security, while sectors apply to the nature of the business that issues the security--and since only stocks represent participation in the business, "sectors" apply only to stocks.

Obviously one can assert that the stocks of similar businesses have similar characteristics, but one should still be basing the category on the characteristics of the stock, not the business.


Not to be argumentative but what we call a sector fits the definition of an asset class better than what we call an asset class especially when you consider the laws and regulations portion of the definition. The laws and regulations for Technology are in many cases are very different from Utilities, Healthcare or Energy. Also, if you consider taxation, which are laws, each sector has different types of tax laws it has to navigate.
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Re: Vanguard Information Technology - VGT or VITAX

Post by nisiprius » Sat May 13, 2017 2:43 pm

(I enjoy being argumentative and have no problem with it).

For a working definition of what are generally understood to be "asset classes,"--when it means anything other than "stocks, bonds, and short-term reserves"--I suggest the "Callan Periodic Table,". See also the Bogleheads' Wiki, [url=https://www.bogleheads.org/wiki/Callan_periodic_table_of_investment_returns]"Callan Periodic Table of Investment Returns."

According to Callan and to the wiki, it "depicts annual returns for 10 asset classes." They specify actual indexes for the returns of the asset class, followed by a fairly detailed description of the asset class, so I'll take the liberty of translating them into phrases. "United States" is understand unless otherwise specified.

Barclays Aggregate Bond Index: "Investment-grade bonds."
Barclays High Yield Bond Index: "Non-investment-grade or 'high yield' bonds."
MSCI EAFE: "International--developed markets."
MSCI Emerging Markets: "International--emerging markets."
Russell 2000: "Small-caps"
Russell 2000 Value: "Small-cap value"
Russell 2000 Growth: "Small-cap growth"
S&P 500: "Large-caps"
S&P 500 Growth: "Large-cap growth"
S&P 500 Value: "Large-cap value"

It's worth noting that their description of two of the classes says: "The indices are constructed by dividing the market capitalization of the Russell 2000 Index into Growth and Value indices, using style “factors” to make the assignment. The Value Index contains those Russell 2000 securities with a greater-than-average value orientation, while the Growth Index contains those securities with a greater-than-average growth orientation."

Notice that a) REITs are not considered and asset class, and therefore
b) none of them correspond to sectors;
c) A clear relationship to factors is spelled out. The small-cap value asset class consists of stocks that have greater-than-average loading on the value factor.
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Sat May 13, 2017 2:51 pm

tennisplyr wrote:
TheTimeLord wrote:
Tyler Aspect wrote:The largest companies by market capitalization in the United States are Apple, Alphabet, and Microsoft. You can't escape them if you already have the total stock index fund. No need to buy VGT or VITAX.


Some people tilt to small cap or small cap value, so why not sector tilt in things like Technology and Healthcare? I am taking the lack of responses to my post as a very bullish sign, showing this isn't an area people have piled into yet.


I know it's not very Boglehead-ish but I've held the Fidelity equivalent for a number of years....no complaints here.


FCSCX? I bought a tiny pinch of that also.
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Re: Vanguard Information Technology - VGT or VITAX

Post by sabhen » Sat May 13, 2017 3:19 pm

I owned VGT since 2006 and I am glad I did. my first ETF purchase after dumping mutual funds. The ETF gives exposure to smaller and mid-cap technology stocks who may become the next Facebook or Apple.

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Re: Vanguard Information Technology - VGT or VITAX

Post by nisiprius » Sat May 13, 2017 8:24 pm

For a definition of "asset class" and "factor," I looked at Berkin and Swedroe, Your Complete Guide to Factor-Based Investing. They say:
Asset Class: A group of assets with similar risk and expected return characteristics. Cash, debt instruments, real estate, and equities are examples of asset classes. Within a major asset class, such as equities, there are more specific classes, such as large- and small-cap company stocks and domestic and international stocks.
Factor: A numerical characteristic or set of characteristics common across a broad set of securities.


The "factors" they say meet their criteria for being worth considering when building portfolis--are:
  • Market beta
  • The size factor
  • The value factor
  • The momentum factor
  • The profitability factor
  • The quality factor
  • The term factor (in fixed income)
  • The carry factor
We should perhaps add the "investment" factor simply because it is part of the Fama-French five-factor model.
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Re: Vanguard Information Technology - VGT or VITAX

Post by dbr » Sun May 14, 2017 8:41 am

nisiprius wrote:For a definition of "asset class" and "factor," I looked at Berkin and Swedroe, Your Complete Guide to Factor-Based Investing. They say:
Asset Class: A group of assets with similar risk and expected return characteristics. Cash, debt instruments, real estate, and equities are examples of asset classes. Within a major asset class, such as equities, there are more specific classes, such as large- and small-cap company stocks and domestic and international stocks.
Factor: A numerical characteristic or set of characteristics common across a broad set of securities.


The "factors" they say meet their criteria for being worth considering when building portfolis--are:
  • Market beta
  • The size factor
  • The value factor
  • The momentum factor
  • The profitability factor
  • The quality factor
  • The term factor (in fixed income)
  • The carry factor
We should perhaps add the "investment" factor simply because it is part of the Fama-French five-factor model.


The bottom line is probably that sectors do not define groups with similar within group risk and return characteristics and/or do not result in a defined factor that is useful for portfolio construction. It could be some sectors do qualify as asset classes. What the outcome is regarding usefulness as a factor I am not sure, while it is true none of the factor gurus have identified sectors as such. If sectors are as much asset classes as the more standard definitions, what use would be made of that fact? Would that change if one could find explanatory power for sectors in factor models?

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Re: Vanguard Information Technology - VGT or VITAX

Post by Gadget » Sun May 14, 2017 10:42 am

Personal Capital's advisers recommend equal weighting sectors. Not that I know enough to recommend or not recommend that (but I don't like their .85 ER). But if you use Personal Capital's free portfolio tool, take a look at how much of your allocation is already in the tech sector. It's the largest by quite a bit already. Mine is at 18% of my US allocation.

If I was a market timer, I'd bet on Energy. We're always one war in the middle east or something similar away from oil skyrocketing. But then again, we're also one renewable energy breakthrough away from the Energy sector tanking. I just personally believe we're still decades away from such a breakthrough that will eliminate oil dependence. In a few years, we'll probably be talking about how environmentally unfriendly all these giant batteries are and how we should go back to oil/gas for all I know.

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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 19, 2017 10:46 am

I went ahead and purchased some Vanguard Information Technology ETF (VGT) and Fidelity Select Software & IT Svcs Port (FSCSX). Also, the tiniest pinch of iShares US Consumer Services (IYC). I think I am just a lot more comfortable with large multinational growth companies than international funds.
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Re: Vanguard Information Technology - VGT or VITAX

Post by sharpjm » Fri May 19, 2017 11:19 am

I have a small tilt into VHT/VGHCX and was just looking at VGT earlier this week. I would like to tilt a bit but am struggling with the price given its very recent performance. I had hoped we'd go into correction after Wednesdays turmoil when it dropped almost 3% but things are moving right back up...

My main concern is: I believe the 1 year growth of the sector doesn't match its 1 year return and I do think the price is inflated. But I am playing with less than 5% of my portfolio so in the end it will have very little impact.

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Re: Vanguard Information Technology - VGT or VITAX

Post by Ellie » Fri May 19, 2017 12:06 pm

I have been in VITAX for almost 18 months, and buy new tranches periodically. It represents around 10% of my overall investment portfolio, and is my "fun money". VITAX (together with some megacorp stock from a former employer) is the only deviation from my otherwise vanilla 4-fund portfolio.

I came across the fund when I was looking to put together an ad hoc tech sector portfolio for myself. I know it is not a Boglehead-approved investment method, but I am familiar with the industry, and think that people continue to underestimate the growth remaining/value to be captured in the tech industry. This fund actually is more conservative than what I would put together as a tech investment for myself, as VITAX includes some "safer" bets (like IBM) than what I would buy. In the end, I decided VITAX accomplished my goals, even if it is not exactly what I would choose.

The investment has paid off thus far, significantly outperforming everything else I have held for the same time period. Time will tell whether it will continue outperforming in the future, but I am in for the long haul.

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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 19, 2017 12:11 pm

Ellie wrote:I have been in VITAX for almost 18 months, and buy new tranches periodically. It represents around 10% of my overall investment portfolio, and is my "fun money". VITAX (together with some megacorp stock from a former employer) is the only deviation from my otherwise vanilla 4-fund portfolio.

I came across the fund when I was looking to put together an ad hoc tech sector portfolio for myself. I know it is not a Boglehead-approved investment method, but I am familiar with the industry, and think that people continue to underestimate the growth remaining/value to be captured in the tech industry. This fund actually is more conservative than what I would put together as a tech investment for myself, as VITAX includes some "safer" bets (like IBM) than what I would buy. In the end, I decided VITAX accomplished my goals, even if it is not exactly what I would choose.

The investment has paid off thus far, significantly outperforming everything else I have held for the same time period. Time will tell whether it will continue outperforming in the future, but I am in for the long haul.

~Ellie


I wish they would boot IBM out and add Amazon to their top 10 holdings. I am somewhat baffled by the exclusion of Amazon from their top 25 holdings.
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Re: Vanguard Information Technology - VGT or VITAX

Post by Ellie » Fri May 19, 2017 12:17 pm

TheTimeLord wrote:I wish they would boot IBM out and add Amazon to their top 10 holdings. I am somewhat baffled by the exclusion of Amazon from their top 25 holdings.


Completely agree. Amazon is the one major company omission from what I was looking to buy 18 months ago. It is the top holding in the Vanguard Consumer Discretionary Index Fund (VCDAX), which is full of other stuff I am not interested in. I am guessing Vanguard the GICS classification system isn't sophisticated enough to understand the Amazon technology play.
Last edited by Ellie on Fri May 19, 2017 4:57 pm, edited 1 time in total.
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 19, 2017 12:24 pm

Ellie wrote:
TheTimeLord wrote:I wish they would boot IBM out and add Amazon to their top 10 holdings. I am somewhat baffled by the exclusion of Amazon from their top 25 holdings.


Completely agree. Amazon is the one major company omission from what I was looking to buy 18 months ago. It is the top holding in the Vanguard Consumer Discretionary Index Fund (VCDAX), which is full of other stuff I am not interested in. I am guessing Vanguard isn't sophisticated enough to understand the Amazon technology play.


My solution was to google ETF with large percentage of Amazon in their holdings. Personally, I found IYC an interesting choice to fill the void for me. But that is a personal decision each individual needs to make for themselves because they are the ones who will live with the consequences.
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Re: Vanguard Information Technology - VGT or VITAX

Post by JoMoney » Fri May 19, 2017 12:42 pm

I would go back to picking individual stock before picking a sector fund.
Almost 60% of VGT is in 10 stocks, and other than broadly being classified as 'Information Technology', if there was some business I wanted more exposure to, it seems to me like Visa and Oracle offer fundamentally different products that will be impacted differently by different changes in the marketplace...
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 19, 2017 1:58 pm

JoMoney wrote:I would go back to picking individual stock before picking a sector fund.
Almost 60% of VGT is in 10 stocks, and other than broadly being classified as 'Information Technology', if there was some business I wanted more exposure to, it seems to me like Visa and Oracle offer fundamentally different products that will be impacted differently by different changes in the marketplace...


I don't disagree if you are playing with enough money, well into the 6 figures. But I think if you are fiddling around the edges of your portfolio or are just looking for simplicity, sector funds where you are in agreement with the majority of the top 10 holdings maybe good enough.
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Re: Vanguard Information Technology - VGT or VITAX

Post by ANC » Fri May 19, 2017 2:47 pm

I still have stock from 2 IT companies I worked for 15-20 years ago and a house in the Bay Area, so I have no need to add more (or also to overweight EM at the expense of developed Europe).

TheTimeLord wrote:Some people tilt to small cap or small cap value, so why not sector tilt in things like Technology and Healthcare? I am taking the lack of responses to my post as a very bullish sign, showing this isn't an area people have piled into yet.

I am a little contrarian and see BH as generally representative of the investing world right now. This has made me more comfortable with the growth tilt in my portfolio which comes from the above and an SCG quant fund (with 20% in IT vs the average of 25% per M*)

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Re: Vanguard Information Technology - VGT or VITAX

Post by nisiprius » Fri May 19, 2017 3:06 pm

TheTimeLord wrote:...I wish they would boot IBM out and add Amazon to their top 10 holdings. I am somewhat baffled by the exclusion of Amazon from their top 25 holdings...
???? What are you talking about, and who should do the "booting," and why?

Not Vanguard. It's an index fund, they don't choose what's in it. They say
The fund employs a “passive management”—or indexing—investment approach designed to track the performance of the MSCI US Investable Market Information Technology 25/50 Index, an index of stocks of large, medium-size, and small U.S. companies in the information technology sector, as classified under the Global Industry Classification Standard (GICS).
So, what is Amazon's GICS sector? Consumer Discretionary.

So we should find it in the Vanguard Consumer Discretionary Index Fund, VCDAX. And there it is.
Image
It's the #1 holding... in the Consumer Discretionary fund. It's 11% of the fund, all by itself.

It's not Vanguard's judgement call. The put it in the fund it belongs in, based on its GICS classification, which isn't determined by Vanguard.

So what are you saying?

Do you want Vanguard you change VITAX from an index fund into an actively managed fund, and make a judgement call that Amazon should go in the Information Technology fund even though it's a Consumer Discretionary stock?

Do you want MSCI to create a brand-new index called "the MSCI US Investable Market Information Technology 25/50 New! Improved! Now with Amazon" index?

Do you want Jeff Bezos to change the business Amazon is in, so that it will be included in your fund?

The GICS classification is made by S&P and MSCI, jointly:
Standard & Poor’s and MSCI jointly assign a company to a single GICS sub-industry according to the definition of its principal business activity as determined by the two companies. Revenues are a significant factor in determining principal business activity; however, earnings analysis and market perception are also important criteria for classification.
Do you want them to change it?

What do you want?
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 19, 2017 3:17 pm

nisiprius wrote:
TheTimeLord wrote:...I wish they would boot IBM out and add Amazon to their top 10 holdings. I am somewhat baffled by the exclusion of Amazon from their top 25 holdings...
???? What are you talking about, and who should do the "booting," and why?

Not Vanguard. It's an index fund, they don't choose what's in it. They say
The fund employs a “passive management”—or indexing—investment approach designed to track the performance of the MSCI US Investable Market Information Technology 25/50 Index, an index of stocks of large, medium-size, and small U.S. companies in the information technology sector, as classified under the Global Industry Classification Standard (GICS).
So, what is Amazon's GICS sector? Consumer Discretionary.

So we should find it in the Vanguard Consumer Discretionary Index Fund, VCDAX. And there it is.
Image
It's the #1 holding... in the Consumer Discretionary fund. It's 11% of the fund, all by itself.

So what are you saying?

Should Vanguard turn VITAX into an actively managed fund put Amazon in the Information Technology fund even though it's a Consumer Discretionary stock?

Do you want MSCI to create a brand-new index called "the MSCI US Investable Market Information Technology 25/50 New! Improved! Now with Amazon" index?

Do you want Jeff Bezos to change the business Amazon is in, so that it will be included in your fund?

What do you want?


I guess I am saying Amazon is misclassified which I believe is in agreement with Ellie. Like I said I picked IYC to make the desired adjustment. I also agree with JoMoney that I would actually prefer to pick my stocks but I am not currently playing with enough money that I find this a valid option..
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Re: Vanguard Information Technology - VGT or VITAX

Post by nisiprius » Fri May 19, 2017 3:22 pm

In other words, you don't mean
...I wish they would boot IBM out and add Amazon to their top 10 holdings...
You mean "I wish S&P and MSCI would reclassify IBM as not being in the information technology sector, and Amazon as being in the information technology sector." What sector do you think IBM belongs in?
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Re: Vanguard Information Technology - VGT or VITAX

Post by TheTimeLord » Fri May 19, 2017 3:31 pm

nisiprius wrote:In other words, you don't mean
...I wish they would boot IBM out and add Amazon to their top 10 holdings...
You mean "I wish S&P and MSCI would reclassify IBM as not being in the information technology sector, and Amazon as being in the information technology sector." What sector do you think IBM belongs in?


I am pretty sure I could live with them just adding Amazon since the index is cap weighted. IBM could stay. But as a holding of mine, yes I would prefer not to have any IBM and have Amazon, but that isn't how indexes work, you can't always get what you want and what you want might not be best anyway.
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Re: Vanguard Information Technology - VGT or VITAX

Post by Ellie » Fri May 19, 2017 4:50 pm

nisiprius wrote:Do you want Jeff Bezos to change the business Amazon is in, so that it will be included in your fund?


I don't know anything about the classification system, so I will stay away from that. But, Amazon considers itself (and has for a long time has considered itself) a technology company first and foremost. A quick google search provides many examples; just one: https://thenextweb.com/insider/2011/10/05/amazons-cto-amazon-is-a-technology-company-we-just-happen-to-do-retail/#.tnw_5DF0UGiw. Also, if you talk to people at Amazon, they talk about themselves as a technology/platform company, and how technological innovation will drive its future. Amazon is most definitely a member of the tech community. Apparently the powers that manage stock classifications disagree....so be it....but I believe Jeff Bezos already thinks he is in the technology business, and has been for a long time.
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Re: Vanguard Information Technology - VGT or VITAX

Post by anil686 » Fri May 19, 2017 5:14 pm

Also thought of an IT tilt but thought the addition of Amazon and Tesla would be good too - question for the OP - why not VG growth index - it pretty much copies the IT index minus Microsoft but adds Amazon - of course you also get Disney and down the list Tesla?

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Re: Vanguard Information Technology - VGT or VITAX

Post by nisiprius » Fri May 19, 2017 6:25 pm

For a company as conspicuous as Amazon, there might be some public information about how S&P and MSCI arrived at their classification. It might be interesting to track it down. For a company that big, they probably gave it some thought. It's just vague blarney but they do say in an FAQ that
Standard & Poor’s and MSCI jointly assign a company to a single GICS sub-industry according to the definition of its principal business activity as determined by the two companies. Revenues are a significant factor in determining principal business activity; however, earnings analysis and market perception are also important criteria for classification.
and
There are two approaches to industry classification: production-oriented and market-oriented. The emergence of the service era and the availability of global communications have changed the market focus from producers to consumers.

In today’s economy, for example, drawing the line between goods and services is increasingly difficult and arbitrary, as almost all goods are sold with a service. Thus, the distinction between consumer goods and services has been replaced by the more market-oriented sectors of “Consumer Discretionary” and “Consumer Staples,” which both contain goods and services sub-industries.
And I wouldn't necessarily give Jeff Bezos the final authority, because company CEOs often want to frame the way in which their company is regarded... and, in the terms of the FAQ, "technology" sounds like a production-oriented description--it's how they do what they do--while "consumer discretionary" is their market. Maybe.

Or maybe not.

I wouldn't assume instantly that S&P and MSCI are being casual, dumb, or wrong. I wonder if they'd respond if you wrote to them and asked?
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Re: Vanguard Information Technology - VGT or VITAX

Post by Ellie » Fri May 19, 2017 6:53 pm

nisiprius wrote:(I enjoy being argumentative and have no problem with it).


Confirmed.
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