DFA, iShares edge Factor, Vanguard decisions

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caklim00
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DFA, iShares edge Factor, Vanguard decisions

Post by caklim00 » Tue Mar 26, 2019 12:56 pm

39 Year old here with an IPS that is 85/15 Equity/Fixed Income, 50/50 Domestic/Foreign, 75/25 Dev/EM (for funds that are split between Dev/EM) and tilt as much to SCV as possible given 401k constraints/costs. Ultimately based on 401k contraints I hold a lot of S&P 600 and MSCI ACWI (similar to VEU). I've been tilting to US SCV with VBR, VIOV/SLYV, and DFFVX (via prior employer 401k). I've been tilting on the International side using FNDC for Developed and DGS for EM (I do have a small amount of DFA Intl SC (DFISX) and DFA EM Value (DFEVX).

Utimately my portfolio seems heavy in US SCV and International Large cap. I've been monitoring the multifactor fund space for awhile now and am considering the jump. Also, I would like to smooth out my Small/Large distribution a bit between US and Foreign. I'm really trying to think about everything in totality and want to see what others think about the following:

1) International SC
I've been focused on FNDC, but ISCF appears to potentially be a better option. I also have access to DFS Intl Small (not Value). Bid/Ask on ISCF stil frightens me a bit, but this would be an IRA holding so I would not be selling in and out. Or I could just throw in the towel on Value tilting due to costs and just use VSS with an ER of .12

2) EM
I've been focused on DGS to this point. I'm starting to wonder if Small Cap Em is really needed. I have access to DFA EM Value (DFEVX) which appears to be really an all cap Value fund. I'm also considering iShares edge EM Multifactor (EMGF) but as with ISCF have reservations. Or I could just throw in the towel on Value tilting due to costs and just use VSS with an ER of .12 Or I could just stick with DGS since while it has been a poor performer its still been better than non-tilted EM small.

3) US
I've been using S&P 600 (not value) in wife's 401k. I have access to R2K Index in my 401k with an ER <.10. I've always tried to avoid R2K due to previous issues with frontrunning. I also use VBR and VIOV/SLYV in taxable and IRAs. I'm heavily interested in the Vanguard Multifactor (VFMF) and Vanguard Value Factor (VFVA) funds but not sure whether either would be worth it over just using S&P 600V (SLYV) in IRAs. I'd prefer Vanguard over iShares all else equal so haven't done too much research into iShares US Multifactor Small (SMLF) but it appears light on factors and I already have plenty of US Small availability for cheap.

4) Fixed Income
Have cheap intermediate Bond access in both our 401ks so just rebalance here to stay relatively close to 15%.

What I am thinking of doing:
1) Move from FNDC to ISCF. Possibly move some of DFISX to ISCF (since DFISX is not value tilted)
2) Move DGS allocation to DFEVX (and possibly some EMGF). DFEVX seems slightly smaller than EMGF but this seems like a toss up.
3) Move my 401k portion from mostly ACWI to US R2K
4) Move some of US SCV in IRAs to ISCF (to keep targets)
5) Start using VFMF/VFVA in taxable since it appears to be more tax efficient than S&P600V. VFMF would be target and VFVA would be tax loss harvest partner since VFMF has lower dividend yield which might make it slightly more tax efficient.
6) TBD: Potentially move from SCV in IRAs to VFMF/VFVA to help smooth out equity distribution. This is a big if for me since S&P600V is so cheap and its a known commodity unlike the factor funds.

I know this is a lot of thoughts here, but figured it would be easiest to paint my entire picture. Anyone have any thoughts on my strategy? This would be so much easier if Vanguard had Value/Multifactor for international.

klaus14
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Re: DFA, iShares edge Factor, Vanguard decisions

Post by klaus14 » Tue Mar 26, 2019 10:14 pm

Here is what i do:

ISCF underweights Europe. I hold VGK to correct this. 4:1 ISCF:VGK
EMGF overweights China. I hold equal amounts of FNDE. Also for further value tilt.
I hold equal amounts of VFMF and NTSX. I think VFMF is better than small value indexes since it also has a quality filter. i like NTSX because it's easy and cheap leverage (treasury futures) for someone in their 30s. Improves risk parity.
I use IUSB as my US bond holding. It's the broadest total market fund. Doesn't have arbitrary BBB line.
I also hold VEGBX and LEMB for EM Bonds which brings better geographical diversity (EM equities are dominated by China and Taiwan)

comeinvest
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Re: DFA, iShares edge Factor, Vanguard decisions

Post by comeinvest » Tue Mar 26, 2019 11:08 pm

I split my EM small cap value between DGS, GVAL, and EYLD, just for the sake of diversification between issuers, as it is impossible to reverse-engineer which ETF has lower implicit trading cost. Unsurprisingly, they seemed to behave very similarly over the past 2 years, but DGS was the winner over the lifetime. GVAL and EYLD have lower turnover than DGS, which is better. I also have some EMGF.

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whodidntante
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Re: DFA, iShares edge Factor, Vanguard decisions

Post by whodidntante » Tue Mar 26, 2019 11:21 pm

Fundamental weighting is not value. They hang out together, they go to the same gym, and sometimes share a whiskey, but they are not the same thing. So a fundamental weighted fund like FNDC is not going to have a reliable value loading. Rob Arnott has said that fundamental weighting tends to overweight value strongest when it is cheap. Maybe it does and you get some quasi value factor timing thingy built in to fundamental weighting. High dividend is also not value. I'm not saying you need to avoid high dividend and fundamental funds, but well, did you see Forrest Gump? They're like a box of chocolates.

Topic Author
caklim00
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Re: DFA, iShares edge Factor, Vanguard decisions

Post by caklim00 » Wed Mar 27, 2019 11:19 am

Right now I'm leaning towards getting rid of DGS and using DFEVX instead. And, moving from FNDC to ISCF. I'm not sure either of these moves are groundshattering.

KyleAAA
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Re: DFA, iShares edge Factor, Vanguard decisions

Post by KyleAAA » Wed Mar 27, 2019 11:30 am

The ishares edge ETFs seem to have relatively small factor loads, maybe because of the sector guardrails. Because of that, I don't know if it's worth owning one of them unless it is your only holding in that segment. Otherwise, you dilute the factor loadings too much. The Vanguard multifactor fund seems much better, albeit it doesn't have the sector guardrails so you will probably see more tracking error. I would hold VFMF as my only US stock fund if it were a bit older (waiting a few years to see how it shakes out) based on what I've seen so far, and a combination of intf, iscf, emgf for international. But again, the ishares ETFs don't have a particularly long track record. I think they will end up being fine but I really hope Vanguard enters the international multifactor space. The other complicating factor for me is I'm still not sure how tax-efficient these multifactor funds will be, and a large portion of my equity allocation will need to be in taxable. Right now I hold total stock and total international ETFs in taxable for that reason.

Topic Author
caklim00
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Re: DFA, iShares edge Factor, Vanguard decisions

Post by caklim00 » Wed Mar 27, 2019 2:24 pm

KyleAAA wrote:
Wed Mar 27, 2019 11:30 am
The ishares edge ETFs seem to have relatively small factor loads, maybe because of the sector guardrails. Because of that, I don't know if it's worth owning one of them unless it is your only holding in that segment. Otherwise, you dilute the factor loadings too much. The Vanguard multifactor fund seems much better, albeit it doesn't have the sector guardrails so you will probably see more tracking error. I would hold VFMF as my only US stock fund if it were a bit older (waiting a few years to see how it shakes out) based on what I've seen so far, and a combination of intf, iscf, emgf for international. But again, the ishares ETFs don't have a particularly long track record. I think they will end up being fine but I really hope Vanguard enters the international multifactor space. The other complicating factor for me is I'm still not sure how tax-efficient these multifactor funds will be, and a large portion of my equity allocation will need to be in taxable. Right now I hold total stock and total international ETFs in taxable for that reason.
The Vanguard US Value and US Multifactor funds appear very tax efficient and both had 100% QDI last year. That's why I point under #5 of my proposed strategy:
5) Start using VFMF/VFVA in taxable since it appears to be more tax efficient than S&P600V. VFMF would be target and VFVA would be tax loss harvest partner since VFMF has lower dividend yield which might make it slightly more tax efficient.

I have to figure out if EMGF is worth it over DGS or whether I should just move my DGS allocation to DFEVX.

KyleAAA
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Re: DFA, iShares edge Factor, Vanguard decisions

Post by KyleAAA » Wed Mar 27, 2019 3:39 pm

caklim00 wrote:
Wed Mar 27, 2019 2:24 pm
KyleAAA wrote:
Wed Mar 27, 2019 11:30 am
The ishares edge ETFs seem to have relatively small factor loads, maybe because of the sector guardrails. Because of that, I don't know if it's worth owning one of them unless it is your only holding in that segment. Otherwise, you dilute the factor loadings too much. The Vanguard multifactor fund seems much better, albeit it doesn't have the sector guardrails so you will probably see more tracking error. I would hold VFMF as my only US stock fund if it were a bit older (waiting a few years to see how it shakes out) based on what I've seen so far, and a combination of intf, iscf, emgf for international. But again, the ishares ETFs don't have a particularly long track record. I think they will end up being fine but I really hope Vanguard enters the international multifactor space. The other complicating factor for me is I'm still not sure how tax-efficient these multifactor funds will be, and a large portion of my equity allocation will need to be in taxable. Right now I hold total stock and total international ETFs in taxable for that reason.
The Vanguard US Value and US Multifactor funds appear very tax efficient and both had 100% QDI last year. That's why I point under #5 of my proposed strategy:
5) Start using VFMF/VFVA in taxable since it appears to be more tax efficient than S&P600V. VFMF would be target and VFVA would be tax loss harvest partner since VFMF has lower dividend yield which might make it slightly more tax efficient.

I have to figure out if EMGF is worth it over DGS or whether I should just move my DGS allocation to DFEVX.
Yes, it's been tax efficient so far. I want to see that continue over a period of time before I buy it in taxable. I will probably be comfortable buying in my IRA soon.

klaus14
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Re: DFA, iShares edge Factor, Vanguard decisions

Post by klaus14 » Sun Apr 14, 2019 4:33 pm

caklim00 wrote:
Wed Mar 27, 2019 2:24 pm
I have to figure out if EMGF is worth it over DGS or whether I should just move my DGS allocation to DFEVX.
EMGF is cheapest among all three. Also DGS dividend focus is bad for taxable.

palaheel
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Re: DFA, iShares edge Factor, Vanguard decisions

Post by palaheel » Sun Apr 14, 2019 5:26 pm

I own DFEVX (via 401k) and DGS. DFEVX is large cap, and DGS is mid-to-small. They both have value tilts (though with DGS, it's more coincidental than intentional). Using both, I can construct a Morningstar style box that has a value tilt, but doesn't put too many eggs in either the large value or mid/small value baskets. I wouldn't be comfortable with either one alone.
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