Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

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GaryA505
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Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by GaryA505 » Tue Aug 01, 2017 3:23 pm

Hey all,

I'm considering VMVFX Vanguard Minimum Volatility fund to get some international exposure, in an IRA.
So far, the downsides I have determined are:
1. It's a managed fund, and not a total international index fund like VGSTX Vanguard Total International Stock.
2. It doesn't have much of a proven rack record (3 years).

I've read the other threads on this, but I'm wondering if anyone provide any more negatives on this fund.

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SpringMan
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Re: Using VMVFX Vanguard Minimum Volatility fund for international.

Post by SpringMan » Tue Aug 01, 2017 3:57 pm

I like the fund. Count it as 60% North America, 40% international. At .17 expense ratio for admiral shares, .25% for investor shares it is a bargain for active management IMO.
Best Wishes, SpringMan

retiredjg
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Re: Using VMVFX Vanguard Minimum Volatility fund for international.

Post by retiredjg » Tue Aug 01, 2017 4:00 pm

I don't recall every hearing of this fund before.

Costs are higher (but not terribly high). The number of stocks is very low (less than 400). Half of the fund is US stocks.

I'm not seeing any reason to use this fund instead of an international fund.

GaryA505
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Re: Using VMVFX Vanguard Minimum Volatility fund for international.

Post by GaryA505 » Tue Aug 01, 2017 4:07 pm

From what I have found, it's a quant fund, and the MV algorithm is black box. Apparently the algorithm tries to find anti-correlated funds from anywhere in the world.

JBTX
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Re: Using VMVFX Vanguard Minimum Volatility fund for international.

Post by JBTX » Tue Aug 01, 2017 4:10 pm

A few years ago I threw some money ( not a terribly material amount relative to total investments but not chump change either) into a couple of these low volatility etfs because there seemed to be some merit in the approach. The theory is historically minimum volatily funds are less risky, but also tend to outperform over time for various reasons. Whether that still holds out going forward I'm not sure.

In terms of emerging markets one potential upside is these funds tend to invest less in government sponsored entities compared to indices

I guess the downsides could be:

1. You are paying some nominal fees which may not do anything for you
2. You are in effect making bets on a particular slice of the market
3. If all of a sudden this style comes in vogue it could become overvalued relative to the total market.

beardsworth
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Re: Using VMVFX Vanguard Minimum Volatility fund for international.

Post by beardsworth » Tue Aug 01, 2017 4:18 pm

I like the fund.

I like its quant-driven effort to dampen volatility. As the prospectus and reports say, this is intended to produce smaller losses in down markets, even if it also means reduced gains in boomy-markets. That's fine with me. "Slow(er) but steady(er)" suits me fine.

I like the fact that its tendency to avoid megastocks that are heavily owned and traded by institutions (i.e., subject to substantial price swings) means that it has substantial holdings in mid-cap and small-stocks, which may be less followed by those same parties. It's like an all-cap global fund.

I like the fact that, unlike Vanguard's other global and foreign stock funds, it hedges its currency exposure to the dollar. I realize that this may help it at some times and hinder it at others. But my spending is in dollars, and currency games don't really interest me.

I like the fact that it has larger-than-market-weight allocations to consumer staples, health, and utilities, which are things that people need almost all the time regardless of the economic climate of the moment. And I like that it has lower–than–market-weight allocations to energy (which I view as a troubled sector) and financials (where I won't be at all surprised to see another widespread blow-up because of ongoing fast-and-loose lending practices and other "creative" shenanigans).

hirlaw
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Re: Using VMVFX Vanguard Minimum Volatility fund for international.

Post by hirlaw » Tue Aug 01, 2017 4:18 pm

I have some. One thing to be aware of is that it hedges its foreign currency. That is one of the reasons for a higher cost vs. the index.

GaryA505
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by GaryA505 » Thu Aug 03, 2017 1:27 pm

Thanks for all the replies.

jalbert
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by jalbert » Thu Aug 03, 2017 5:06 pm

As long as you stay the course and don't punt and go to a traditional int'l fund if global min vol underperforms, it is a reasonable idea.

Also don't do it to chase returns. Minimum volatility funds tend to have interest rate term exposure so that falling/low interest rates have been a tailwind for the fund. The same could be said for the fact that the fund is currency-hedged-- a strong dollar means currency-hedged int'l funds have overperformed ones that are unhedged in recent years. Both trends may be on the verge of reversal right now.
Risk is not a guarantor of return.

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GreatOdinsRaven
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by GreatOdinsRaven » Thu Aug 03, 2017 7:09 pm

jalbert wrote:As long as you stay the course and don't punt and go to a traditional int'l fund if global min vol underperforms, it is a reasonable idea.
Last year at the Bogleheads meeting Gus Sauter briefly talked about the quant fund run in house with real money (Vanguard seed money). One was/is a min vol fund. Might even be this fund I don't know. Gus said the fund worked and did what it was supposed to do. The index beat it in the run up to the tech bubble and when the bubble burst the quant fund did spectacularly relative to the rest of the market.

He did mention something along the lines of people might have a hard time holding it when they're seeing the market soar because it won't fly as high, but in the end it will do well with lower volatility. Or something along those lines. Forgive me it's been almost a year since I heard him speak.

If you want to hear for yourself.

https://www.bogleheads.org/w/index.php? ... iladelphia

Scroll down to 2016 (Bogleheads Conference 15). Near the bottom you'll see Gus's lecture audio 'What Really Is Smart Beta'. Link to his lecture slides in case you're interested (they don't address min vol). IIRC he discussed this much later on- perhaps during the QA session at the end.
"The greatest enemies of the equity investor are expenses and emotions." -John C. Bogle, Little Book of Common Sense Investing. | | "Winter is coming." Lord Eddard Stark.

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Portfolio7
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by Portfolio7 » Thu Aug 03, 2017 11:17 pm

GreatOdinsRaven wrote:
jalbert wrote:As long as you stay the course and don't punt and go to a traditional int'l fund if global min vol underperforms, it is a reasonable idea.
Last year at the Bogleheads meeting Gus Sauter briefly talked about the quant fund run in house with real money (Vanguard seed money). .
VMNVX Volatility Measures AS OF 6/30/2017
Beta 0.48 R2 0.59 Sharpe Ratio 1.48 Standard Deviation 6.76

I'm going to have to listen to that talk this weekend. As OP said, the fund hasn't been around that long... but it's been remarkably stable over it's relatively short history. Per Morningstar: "The downside of this type of "Minimum Volatility" fund is that it won't have the larger highs of a strong bull run. The upside is that it won't have the large losses of a bear market." Mutual Fund Observer writes: The nearly 3-year old fund is a top quintile performer by every measure in MFO's rating system: Martin Ratio, maximum drawdown, recovery time, standard deviation, downside deviation, Ulcer Index, Sharpe and Sortino.

FWIW, I initially staked 10% of my portfolio in sister fund VMNVX when I found it among my 401K offerings; it filled a bit of a gap in my AA. I figured that this fund might allow me to hold more equities (vs bonds) while taking on the same volatility risk as my then AA. I upped VMNVX to 20% of my portfolio about 3 months ago. I'd love to see someone more up on their stat background take a stab at how the much the risk profile should reduce drawdown in a bear. I stuck to my plan in 2000-2002 and in 2008, so I don't doubt that I can hold to this AA.

BTW, it's in the small/mid world stock category, yet in the style box it's 'Large Blend'. My guess is they don't limit their scope.
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GaryA505
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by GaryA505 » Fri Aug 04, 2017 11:39 am

Portfolio7 wrote:
GreatOdinsRaven wrote:
jalbert wrote:As long as you stay the course and don't punt and go to a traditional int'l fund if global min vol underperforms, it is a reasonable idea.
Last year at the Bogleheads meeting Gus Sauter briefly talked about the quant fund run in house with real money (Vanguard seed money). .
VMNVX Volatility Measures AS OF 6/30/2017
Beta 0.48 R2 0.59 Sharpe Ratio 1.48 Standard Deviation 6.76

I'm going to have to listen to that talk this weekend. As OP said, the fund hasn't been around that long... but it's been remarkably stable over it's relatively short history. Per Morningstar: "The downside of this type of "Minimum Volatility" fund is that it won't have the larger highs of a strong bull run. The upside is that it won't have the large losses of a bear market." Mutual Fund Observer writes: The nearly 3-year old fund is a top quintile performer by every measure in MFO's rating system: Martin Ratio, maximum drawdown, recovery time, standard deviation, downside deviation, Ulcer Index, Sharpe and Sortino.

FWIW, I initially staked 10% of my portfolio in sister fund VMNVX when I found it among my 401K offerings; it filled a bit of a gap in my AA. I figured that this fund might allow me to hold more equities (vs bonds) while taking on the same volatility risk as my then AA. I upped VMNVX to 20% of my portfolio about 3 months ago. I'd love to see someone more up on their stat background take a stab at how the much the risk profile should reduce drawdown in a bear. I stuck to my plan in 2000-2002 and in 2008, so I don't doubt that I can hold to this AA.

BTW, it's in the small/mid world stock category, yet in the style box it's 'Large Blend'. My guess is they don't limit their scope.
I'm considering going maybe 10% on this as well. Maybe more. Even though I didn't sell anything in 2000 or 2008, I find myself thinking more about potential drawdown as I get closer to retirement. Sure, more bonds would reduce portfolio volatility too, but this HAS to be better than bonds.

JBTX
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by JBTX » Fri Aug 04, 2017 4:59 pm

http://news.morningstar.com/articlenet/ ... ?id=816974

Apparently investors are bailing on low vol funds because they are underperforming even though that is what you would expect in an up market.

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Portfolio7
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by Portfolio7 » Fri Aug 04, 2017 6:35 pm

JBTX wrote:http://news.morningstar.com/articlenet/ ... ?id=816974

Apparently investors are bailing on low vol funds because they are underperforming even though that is what you would expect in an up market.
I consider that good news for anyone invested. The question 4-12 months ago was whether low vol was in bubble territory.

Long term, returns would be expected to be just as good as as the asset class that these stocks are selected from.... the net of under and over performance has been reported in some forums as historically better for large cap lo vol vs the S&P (though definitely not in 1999.) I like these funds for their purported investing efficiency (which seems born out so far), but worry that the very funds I invest in will result in an over-valuation of low vol. If these funds are difficult to stick with, it gives the committed investor an advantage
An investment in knowledge pays the best interest.

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GreatOdinsRaven
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by GreatOdinsRaven » Fri Aug 04, 2017 6:58 pm

JBTX wrote:http://news.morningstar.com/articlenet/ ... ?id=816974

Apparently investors are bailing on low vol funds because they are underperforming even though that is what you would expect in an up market.
Agreed. As you would expect that was Gus's point. Hard to hold when you're watching everyone else make $$$, especially if one doesn't really understand how they work or can't hold tight and do nothing...

GOR
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GaryA505
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by GaryA505 » Tue Aug 29, 2017 12:25 am

Can anyone comment on the amount of the foreign tax credit you might get for VMVFX if held in a taxable account? It's less tax efficient than a total US stock index fund, but this might be offset somewhat by the foreign tax credit.

lack_ey
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by lack_ey » Tue Aug 29, 2017 12:40 am

GaryA505 wrote:
Tue Aug 29, 2017 12:25 am
Can anyone comment on the amount of the foreign tax credit you might get for VMVFX if held in a taxable account? It's less tax efficient than a total US stock index fund, but this might be offset somewhat by the foreign tax credit.
Here's 2015's info:
https://advisors.vanguard.com/VGApp/iip ... MinVol2015

GaryA505
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by GaryA505 » Tue Aug 29, 2017 11:10 am

Cool, thanks. Now I do the math and get a result, let's say about $800. What does that mean?

GaryA505
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Re: Using VMVFX Vanguard [Global] Minimum Volatility fund for international.

Post by GaryA505 » Tue Aug 29, 2017 11:11 am

Ah, it looks like it is deducted from taxable income, right?

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