Mutual Fund Drift (Style Perspective)

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
MindTheGAAP
Posts: 277
Joined: Fri Jan 31, 2014 12:44 am

Mutual Fund Drift (Style Perspective)

Post by MindTheGAAP » Mon Aug 20, 2018 11:46 am

All,

Wanted to get feedback from those with more years under the belt playing this investment game than I. I just did a quick check of the style boxes per Morningstar for the funds I'm in and noticed some reasonable style drift since I last updated them. For example, Vanguard Total Stock Market (VTSAX) is now significantly more heavily skewed to Large Growth (not a surprise given the recent results).

My question - I intentionally overweight to Mid-Cap and Small-Cap using VIMSX (Mid Cap Index) and VTMSX (TM S&P 600 Small Cap) at the moment - should I be considering tweaking them to compensate. Another example - Mid-Cap Index now has 19% in LG! I knew it was a mid-large fund, but 38% in LC funds seems excessive, especially since the Mid Cap Value fund is 'only' 31%.

Welcome any feedback. Current portfolio is currently skewed as such:

Domestic (54|26|21):
16 18 20
08 09 09
06 09 08

Int'l (43|33|25):
15 15 13
11 10 12
10 08 07

Combined (50|28|22):
16 17 18
09 09 10
07 08 07

Thanks all
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: Mutual Fund Drift (Style Perspective)

Post by PFInterest » Mon Aug 20, 2018 2:03 pm

you can aim for whatever you like. its all a bet anyways.

User avatar
jhfenton
Posts: 3539
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: Mutual Fund Drift (Style Perspective)

Post by jhfenton » Mon Aug 20, 2018 2:59 pm

None of the funds you list are going to suffer from style drift, but there were several threads back in the spring about M*'s "Style Box Drift".

NAESX - is not really Small Cap?!
Dramatic decline in VTSMX small cap holdings?
Change in Morningstar size buckets?

Vanguard's main CRSP-index funds uses different breakpoints than M*:

Mega Cap - Top 70% of market cap
Large Cap - Top 85% of market cap (Large = Mega + Mid)
Mid Cap - 70-85% of market cap
Small Cap - 85%-98% of market cap

I'm still not clear where M* is drawing the lines. This is what they claim, but I think it's out of date. By the definitions on that M* page--40% Giant, 30% Large, 20% Mid, 7% Small, 3% Micro--VIMSX should be 100% mid cap, but M* shows it as 37% large, 63% mid.

The value/growth breakdown is supposed to be segment-wide, so I don't know why they show so much more growth in VIMSX. I don't have much faith in that aspect of M*'s data lately. They even say that they should be roughly 1/3 value, 1/3 core, 1/3 growth. (And it's not as if the missing value stocks show up in small cap or large cap.)
Last edited by jhfenton on Mon Aug 20, 2018 3:05 pm, edited 1 time in total.

MindTheGAAP
Posts: 277
Joined: Fri Jan 31, 2014 12:44 am

Re: Mutual Fund Drift (Style Perspective)

Post by MindTheGAAP » Mon Aug 20, 2018 3:05 pm

jhfenton wrote:
Mon Aug 20, 2018 2:59 pm
None of the funds you list are going to suffer from style drift, but there were several threads back in the spring about M*'s "Style Box Drift".

NAESX - is not really Small Cap?!
Dramatic decline in VTSMX small cap holdings?
Change in Morningstar size buckets?

Vanguard's main CRSP-index funds uses different breakpoints than M*:

Mega Cap - Top 70% of market cap
Large Cap - Top 85% of market cap (Large = Mega + Mid)
Mid Cap - 70-85% of market cap
Small Cap - 85%-98% of market cap

I'm still not clear where M* is drawing the lines. This is what they claim, but I think it's out of date. By the definitions on that M* page--40% Giant, 30% Large, 20% Mid, 7% Small, 3% Micro--VIMSX should be 100% mid cap, but M* shows it as 37% large, 63% mid.
So basically mark it down as a non-issue and continue on my merry way?
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

User avatar
jhfenton
Posts: 3539
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: Mutual Fund Drift (Style Perspective)

Post by jhfenton » Mon Aug 20, 2018 3:08 pm

MindTheGAAP wrote:
Mon Aug 20, 2018 3:05 pm
So basically mark it down as a non-issue and continue on my merry way?
The "drift" is a non-issue, except as it shows inconsistency on M*'s part. You can still use the data to decide how much you want to tilt to small, value, etc. You just can't take the style box at face value.

Post Reply