Tax efficiency of VFMF US Multifactor ETF?

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Snert
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Tax efficiency of VFMF US Multifactor ETF?

Post by Snert » Thu Feb 15, 2018 8:30 pm

I like the idea of Vanguard's new US Multifactor ETF (VFMF). Based on the fund's published goals and the fact that it is structured as an ETF, it seems reasonable to believe that VFMF will be tax-efficient.

Any tax-efficiency concerns about holding VFMF in a taxable account?
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whodidntante
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Re: Tax efficiency of VFMF US Multifactor ETF?

Post by whodidntante » Thu Feb 15, 2018 8:45 pm

LRGF iShares Edge MSCI Multifactor USA ETF has never distributed capital gains, and it is the most similar fund to this new kid on the block. Some people think Vanguard is good at running mutual funds, too.

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jhfenton
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Re: Tax efficiency of VFMF US Multifactor ETF?

Post by jhfenton » Thu Feb 15, 2018 8:59 pm

I moved some of my large cap allocation into the Admiral Share Class (VFMFX) today, but I did it in my wife's rollover IRA.

It should be fairly tax-efficient. The dividend yield will probably be similar to the 1.8% yield of the Vanguard U.S. Value (VUVLX), the closest pre-existing Vanguard equivalent to the new fund. (Or the 1.6% of LRGF.) With the ETF share class, however, I would expect no capital gains distributions.

I'd be reluctant to buy it--or any new fund--in taxable too soon is not knowing what the portfolio will look like over time. (You can look at the ETF holdings today, but you'd have to calculate the portfolio statistics yourself.) I'd hate to buy it in taxable, have it run up 10%, and then decide that I don't like the way the portfolio is constructed.

But it should be OK. As whodidtante said, Vanguard isn't bad at running these things.

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grabiner
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Re: Tax efficiency of VFMF US Multifactor ETF?

Post by grabiner » Thu Feb 15, 2018 9:00 pm

None of Vanguard's diversified stock ETFs have distributed capital gains other than just after getting started. Therefore, I would expect VFMF to be tax-efficient after its first year. (If it starts in a rising market, it won't be able to avoid capital gains in the first year, this is what happened with VSS, which started in April 2009.)
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Re: Tax efficiency of VFMF US Multifactor ETF?

Post by lack_ey » Thu Feb 15, 2018 9:44 pm

Similar funds include iShares Edge MSCI Multifactor USA ETF (LRGF), JPMorgan Diversified Return U.S. Equity ETF (JPUS), and Xtrackers
Russell 1000 Comprehensive Factor ETF (DEUS), which have yet to distribute capital gains in the couple of years since inception. These are all long-only US equity funds with multifactor investing styles that stray significantly from market-cap weighting within selected stocks.

The Vanguard fund's turnover may be fairly significant based on the management style, quite possibly higher than the previously mentioned ETFs, which track strategy indexes (so a limited amount of rebalancing/churn based on index reconstitution), some I think limiting turnover. I wouldn't be surprised to see capital gains distributions even though it's an ETF, especially as any flows from the mutual fund shares are not going to help.

I think it's hard to say and I'm not as confident on zero every year like some above seem to be. Zero seems likely at least sometimes, possibly most of the times, but I don't think always.

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Snert
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Re: Tax efficiency of VFMF US Multifactor ETF?

Post by Snert » Fri Feb 16, 2018 3:06 pm

Appreciate the thoughts. Thanks, all.
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AndrewXnn
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Re: Tax efficiency of VFMF US Multifactor ETF?

Post by AndrewXnn » Mon Mar 12, 2018 7:24 pm

Wish I had noticed this thread earlier...

Just bought a nice chunk of VFMFX (Admiral Shares) in a taxable account.
My thoughts are that since it's a relatively new fund, that the tax efficiency should be relatively good.
Also thought that Admiral shares would have lower expenses, but now see that expenses between VFMFX and VFMF are the same 0.18%.

I'm not very experienced with ETFs in a taxable accounts.
I'm already ahead though, as at the time I put my order in (early this morning), VFMF (the ETF) was trading at the higher end of it's range for the day. So, I got a better price with the fund simply because the market trended lower for the day.

Also, over the entire course of the day, the ETF traded lower 0.24% while the fund traded down 0.31%.

Since I bought the fund instead of the ETF, I do not know what the spread is. Also, volume appears light with the ETF as my order could have potentially pushed the market.

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