Vanguard Factor ETFs 2 Year Birthday!

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sunnywindy
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Vanguard Factor ETFs 2 Year Birthday!

Post by sunnywindy » Thu Feb 13, 2020 10:17 pm

Last year I posted the one-year assets under management (AUM) for the Vanguard actively managed factor ETFs. Overall, I thought AUM was very low. Their two year birthday has shown some AUM improvement, but IMHO it is still very low.

Here is the data with 1-year numbers in (); also included are ETF.com's quantitative "Fund Closure Risk" scores (High - Medium - Low):

Vanguard US Value Factor ETF (VFVA) - $95 million - Low ($56 million - Low)
Vanguard US Momentum Factor ETF (VFMO) - $34 million - Medium ($33 million - Medium)
Vanguard US Minimum Volatility ETF (VFMV) - $110 million - Low ($26 million - Medium)
Vanguard US Quality Factor ETF (VFQY) - $22 million - High ($22 million - High)
Vanguard US Liquidity Factor ETF (VFLQ) - $45 million - medium ($16 million - High)

Vanguard US Multifactor ETF (VFMF) - $102 million - Low ($83 million - Low)
Vanguard US Multifactor Mutual Fund (VFMFX) - $31 million ($33 million - no score, not an ETF!)

Again, these are very very low numbers for a mega-giant like Vanguard.
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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by nisiprius » Thu Feb 13, 2020 10:39 pm

Average annual return since 2/13/2018. All values from the fund's performance page on the Vanguard website, e.g. VFVA, "Average Annual Returns" table, "Market price" row, "Since inception 2/13/2018" column:

Vanguard US Value Factor ETF (VFVA): 0.63%
Vanguard US Momentum Factor ETF (VFMO) 8.74%
Vanguard US Minimum Volatility ETF (VFMV) 13.98%
Vanguard US Quality Factor ETF (VFQY) 7.00%
Vanguard US Liquidity Factor ETF (VFLQ) 9.00%
Vanguard US Multifactor ETF (VFMF) 3.71%

Vanguard Total Stock Market Index Fund (VTI), average annual return since 2/13/2018: 14.46%
(based on Morningstar showing growth of $10,000 to $13,097.90

Not a single one of these six funds outperformed Total Stock. Only one of them even came close.

If each of them had had an even chance of outperforming total stock, the chance of all six of them underperforming would only be 1 in 64 or 1.6%.
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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by muffins14 » Thu Feb 13, 2020 10:52 pm

Given that many have similar factor loadings, you’d expect that we’re similar to have correlated performance, so not just a 1/64 chance.

Also clearly we should not be making sections about what strategy is best using two years of tech-bull market data

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by HippoSir » Fri Feb 14, 2020 12:04 am

nisiprius wrote:
Thu Feb 13, 2020 10:39 pm
If each of them had had an even chance of outperforming total stock, the chance of all six of them underperforming would only be 1 in 64 or 1.6%.
The problem with this argument is that all 6 of them share the same size weighting scheme. That being 1/3 small, 1/3 medium, 1/3 large, vs total stock which is driven nearly entirely by large cap blend. Considering how poorly size has done over the last 2 years, I don't think the performance is particularly surprising.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Forester » Fri Feb 14, 2020 6:15 am

HippoSir wrote:
Fri Feb 14, 2020 12:04 am
nisiprius wrote:
Thu Feb 13, 2020 10:39 pm
If each of them had had an even chance of outperforming total stock, the chance of all six of them underperforming would only be 1 in 64 or 1.6%.
The problem with this argument is that all 6 of them share the same size weighting scheme. That being 1/3 small, 1/3 medium, 1/3 large, vs total stock which is driven nearly entirely by large cap blend. Considering how poorly size has done over the last 2 years, I don't think the performance is particularly surprising.
I think this is it, plus perhaps Vanguard's inexperience at factor investing. Every single Vanguard factor fund is beaten by its iShares counterpart. Two of the four iShares factor funds listed here beat the S&P 500.

VFVA +2.90%
VLUE +13.02%

VFMO +20.36%
MTUM +27.55%

VFMV +29.01%
USMV +36.69%

VFQY +17.08%
QUAL +28.51%

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Uncorrelated » Fri Feb 14, 2020 6:46 am

For reference here are the size, value and momentum premiums in the last 3 years, according to data from Ken French:

Code: Select all

     year      MKT       SMB       HML       MOM
     2017     21.50     -4.80     -13.91      5.05
     2018     -6.93     -3.56      -9.22      9.43
     2019     28.28     -5.92     -12.15     -1.8
It should come as no surprise that vanguard's funds have underperformed iShares during this time period, as vanguard's funds load much more heavily on size and much less on value than iShares funds. Vanguard's value fund has much deeper value exposure and a size exposure of .43, iShare's value fund only has 0.01 size exposure. Vanguard's momentum fund has positive exposure on size and value and iShares has negative exposure on size and value (!), making MTUM essentially a bet against FF 3-factor model. We see the same negative exposure with min-vol and quality.

Vanguard's funds are doing exactly what they are supposed to be doing: betting on FF factors. Meanwhile, I continue to have no clue what iShares' factor funds are supposed to be doing and who they are for.
Last edited by Uncorrelated on Fri Feb 14, 2020 8:17 am, edited 1 time in total.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by MotoTrojan » Fri Feb 14, 2020 8:10 am

Forester wrote:
Fri Feb 14, 2020 6:15 am

I think this is it, plus perhaps Vanguard's inexperience at factor investing.
To the contrary, VFVA’s deviation from a true index which requires less frequent rebalancing has allowed it to maintain a much more consistent and deep value tilt, much the way a DFA or Avantis fund which has no index does. Vanguard has done exceptionally well at targeting these factors, and the funds underperformance compared to the market is further proof of that.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Forester » Fri Feb 14, 2020 8:30 am

MotoTrojan wrote:
Fri Feb 14, 2020 8:10 am
Forester wrote:
Fri Feb 14, 2020 6:15 am

I think this is it, plus perhaps Vanguard's inexperience at factor investing.
To the contrary, VFVA’s deviation from a true index which requires less frequent rebalancing has allowed it to maintain a much more consistent and deep value tilt, much the way a DFA or Avantis fund which has no index does. Vanguard has done exceptionally well at targeting these factors, and the funds underperformance compared to the market is further proof of that.
Yes to be fair that would be expected.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by jhfenton » Fri Feb 14, 2020 8:59 am

The funds have continued to hold portfolios with exactly the characteristics they are supposed to hold.

I'm not surprised the assets are modest. Vanguard has wisely never promoted them to retail investors, because the funds are practically guaranteed to have significant tracking error vs a broad market fund. And even most advisors, unless you're a Larry Swedroe type, are going to be looking for funds with lower-tracking error for use in client portfolios. (And if you are looking to invest client funds, 2 years is really not a long track-record.)

The closure risk ratings seem a bit pessimistic, considering that Vanguard has never closed an ETF. Vanguard launched the funds as a package, and I'm sure they had a long-term focus. If VFQY still has $22 MM in assets after 5 years, I might start to question its future, but I don't think it's going anywhere for a while.
Uncorrelated wrote:
Fri Feb 14, 2020 6:46 am
Vanguard's funds are doing exactly what they are supposed to be doing: betting on FF factors. Meanwhile, I continue to have no clue what iShares' factor funds are supposed to be doing and who they are for.
Agreed. :beer

Disclaimer: VFVA is our second largest holding. It's pretty close to the value fund I would design if I were designing a value fund. I don't own any of the others.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by DB2 » Fri Feb 14, 2020 9:50 am

I was not even aware of these ETFs. I only knew about their Global Min Vol mutual fund. Interesting.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 10:15 am

2017-2020
Total Market(VTI): 14.06%
Small Growth(VBK): 14.57%

Where is the Small Cap underperformance?
Link

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by jhfenton » Fri Feb 14, 2020 10:21 am

Elysium wrote:
Fri Feb 14, 2020 10:15 am
2017-2020
Total Market(VTI): 14.06%
Small Growth(VBK): 14.57%

Where is the Small Cap underperformance?
It was counterbalanced by the growth outperformance during the period.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by nisiprius » Fri Feb 14, 2020 10:37 am

muffins14 wrote:
Thu Feb 13, 2020 10:52 pm
Given that many have similar factor loadings, you’d expect that we’re similar to have correlated performance, so not just a 1/64 chance.

Also clearly we should not be making [decisions] about what strategy is best using two years of tech-bull market data
Yes, fair points, both.

When asked years ago about their also semi-hidden ETFs based on S&P and Russell indexes, Vanguard representatives at one point suggested that they had introduced them due to demand from unnamed large "advisors," just satisfying customer demand but not really promoting them themselves. I wonder if the same thing is true of these factor ETFs?
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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 11:11 am

nisiprius wrote:
Fri Feb 14, 2020 10:37 am
When asked years ago about their also semi-hidden ETFs based on S&P and Russell indexes, Vanguard representatives at one point suggested that they had introduced them due to demand from unnamed large "advisors," just satisfying customer demand but not really promoting them themselves. I wonder if the same thing is true of these factor ETFs?
Vanguard has several funds aimed at such advisor community. Market neutral, alternative strategy, managed payout, commodity strategy, factors, so on.. The advisors get to play around with other people's money on their favored theory of the season until the cows come home, if the clients get frustrated with their money trailing market then more patience will be demanded of them as they should trust the research from the favorite academic. It is up to the individual investors to figure out what these investments are and stay away from them, and goes without saying stay away from these advisors.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by HippoSir » Fri Feb 14, 2020 11:59 am

Elysium wrote:
Fri Feb 14, 2020 10:15 am
2017-2020
Total Market(VTI): 14.06%
Small Growth(VBK): 14.57%
Note that VBK is a growth fund:

Large Growth(VUG): 19.80%
Small Growth(VBK): 14.57%

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 12:13 pm

HippoSir wrote:
Fri Feb 14, 2020 11:59 am
Elysium wrote:
Fri Feb 14, 2020 10:15 am
2017-2020
Total Market(VTI): 14.06%
Small Growth(VBK): 14.57%
Note that VBK is a growth fund:

Large Growth(VUG): 19.80%
Small Growth(VBK): 14.57%
Great! So moral of the story is growth is/was the factor to be in, and when you omit one factor and favor others (active decision making) instead of holding it all, you end up trailing.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by lassevirensghost » Fri Feb 14, 2020 12:37 pm

Elysium wrote:
Fri Feb 14, 2020 11:11 am


Vanguard has several funds aimed at such advisor community. Market neutral, alternative strategy, managed payout, commodity strategy, factors, so on.. The advisors get to play around with other people's money on their favored theory of the season until the cows come home, if the clients get frustrated with their money trailing market then more patience will be demanded of them as they should trust the research from the favorite academic. It is up to the individual investors to figure out what these investments are and stay away from them, and goes without saying stay away from these advisors.
Or stay in the investments if they like them. You seem fundamentally confused about factor investing in thread after thread. Maybe you should read more on the topic before continuing to misinform novice investors on the forum who might grow to be interested in and benefit from factor focused products.
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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by HippoSir » Fri Feb 14, 2020 1:14 pm

Elysium wrote:
Fri Feb 14, 2020 12:13 pm
Great! So moral of the story is growth is/was the factor to be in, and when you omit one factor and favor others (active decision making) instead of holding it all, you end up trailing.
Yes, factor products risk tracking error for a premium that may never show up.

As Vanguard states prominently on their page for these products:

"Factor returns can be cyclical, so you could experience sharp and lengthy periods of underperformance compared with the broader stock market."

This should not be a surprise to anyone.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 2:37 pm

lassevirensghost wrote:
Fri Feb 14, 2020 12:37 pm
Elysium wrote:
Fri Feb 14, 2020 11:11 am


Vanguard has several funds aimed at such advisor community. Market neutral, alternative strategy, managed payout, commodity strategy, factors, so on.. The advisors get to play around with other people's money on their favored theory of the season until the cows come home, if the clients get frustrated with their money trailing market then more patience will be demanded of them as they should trust the research from the favorite academic. It is up to the individual investors to figure out what these investments are and stay away from them, and goes without saying stay away from these advisors.
Or stay in the investments if they like them. You seem fundamentally confused about factor investing in thread after thread. Maybe you should read more on the topic before continuing to misinform novice investors on the forum who might grow to be interested in and benefit from factor focused products.
After 20 years of following and debating factor investing, having had better results than the tilters, I am not about take misguided advice from newcomers to the idea without the experience.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 2:43 pm

HippoSir wrote:
Fri Feb 14, 2020 1:14 pm
Elysium wrote:
Fri Feb 14, 2020 12:13 pm
Great! So moral of the story is growth is/was the factor to be in, and when you omit one factor and favor others (active decision making) instead of holding it all, you end up trailing.
Yes, factor products risk tracking error for a premium that may never show up.

As Vanguard states prominently on their page for these products:

"Factor returns can be cyclical, so you could experience sharp and lengthy periods of underperformance compared with the broader stock market."

This should not be a surprise to anyone.
It is surprise to anyone who went into with expectation of a premium prior to 2010. Just ask those who were tilting back in 2004-07 time frame, after 3 years of run up from 2000-03, they surely believed there is a 3% premium there for the taking. They weren't thinking they were investing for a premium that may never show up. Plenty of evidence here that most value tllters thought the premium was a given, and the tracking error is supposed to last a few years but not decades.

It is possible that those investing today may be doing so with different expectations and taking a more balanced approach towards it, and if so that's a good thing.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Uncorrelated » Fri Feb 14, 2020 3:09 pm

Elysium wrote:
Fri Feb 14, 2020 2:43 pm
HippoSir wrote:
Fri Feb 14, 2020 1:14 pm
Elysium wrote:
Fri Feb 14, 2020 12:13 pm
Great! So moral of the story is growth is/was the factor to be in, and when you omit one factor and favor others (active decision making) instead of holding it all, you end up trailing.
Yes, factor products risk tracking error for a premium that may never show up.

As Vanguard states prominently on their page for these products:

"Factor returns can be cyclical, so you could experience sharp and lengthy periods of underperformance compared with the broader stock market."

This should not be a surprise to anyone.
It is surprise to anyone who went into with expectation of a premium prior to 2010. Just ask those who were tilting back in 2004-07 time frame, after 3 years of run up from 2000-03, they surely believed there is a 3% premium there for the taking. They weren't thinking they were investing for a premium that may never show up. Plenty of evidence here that most value tllters thought the premium was a given, and the tracking error is supposed to last a few years but not decades.

It is possible that those investing today may be doing so with different expectations and taking a more balanced approach towards it, and if so that's a good thing.
According to Fama & French in "volatility lessons", there is a 9% chance of the value premium being negative over a period of 10 years and a 3% chance of the value premium being negative over 20 years. If anyone is surprised about the poor performance since 2010 then they tiled for the wrong reasons.

There is a 16% chance that the market premium is negative over a period of 10 years and an 8% change over 20 years. Plenty of 1929 investors that tilted away from b-bills into total stock market thought that the market premium was a given. It's called a risk premium for a reason. It it was certain, there wouldn't be a risk premium.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 3:41 pm

Uncorrelated wrote:
Fri Feb 14, 2020 3:09 pm
Elysium wrote:
Fri Feb 14, 2020 2:43 pm
HippoSir wrote:
Fri Feb 14, 2020 1:14 pm
Elysium wrote:
Fri Feb 14, 2020 12:13 pm
Great! So moral of the story is growth is/was the factor to be in, and when you omit one factor and favor others (active decision making) instead of holding it all, you end up trailing.
Yes, factor products risk tracking error for a premium that may never show up.

As Vanguard states prominently on their page for these products:

"Factor returns can be cyclical, so you could experience sharp and lengthy periods of underperformance compared with the broader stock market."

This should not be a surprise to anyone.
It is surprise to anyone who went into with expectation of a premium prior to 2010. Just ask those who were tilting back in 2004-07 time frame, after 3 years of run up from 2000-03, they surely believed there is a 3% premium there for the taking. They weren't thinking they were investing for a premium that may never show up. Plenty of evidence here that most value tllters thought the premium was a given, and the tracking error is supposed to last a few years but not decades.

It is possible that those investing today may be doing so with different expectations and taking a more balanced approach towards it, and if so that's a good thing.
According to Fama & French in "volatility lessons", there is a 9% chance of the value premium being negative over a period of 10 years and a 3% chance of the value premium being negative over 20 years. If anyone is surprised about the poor performance since 2010 then they tiled for the wrong reasons.

There is a 16% chance that the market premium is negative over a period of 10 years and an 8% change over 20 years. Plenty of 1929 investors that tilted away from b-bills into total stock market thought that the market premium was a given. It's called a risk premium for a reason. It it was certain, there wouldn't be a risk premium.
Nothing to argue there. I have no qualms with Fama-French, they have been unequivocal about the risks, both in terms of tracking error and the possible reasons for why there was a premium historically, Fama especially so.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by lassevirensghost » Fri Feb 14, 2020 3:49 pm

Elysium wrote:
Fri Feb 14, 2020 2:37 pm
lassevirensghost wrote:
Fri Feb 14, 2020 12:37 pm
Elysium wrote:
Fri Feb 14, 2020 11:11 am


Vanguard has several funds aimed at such advisor community. Market neutral, alternative strategy, managed payout, commodity strategy, factors, so on.. The advisors get to play around with other people's money on their favored theory of the season until the cows come home, if the clients get frustrated with their money trailing market then more patience will be demanded of them as they should trust the research from the favorite academic. It is up to the individual investors to figure out what these investments are and stay away from them, and goes without saying stay away from these advisors.
Or stay in the investments if they like them. You seem fundamentally confused about factor investing in thread after thread. Maybe you should read more on the topic before continuing to misinform novice investors on the forum who might grow to be interested in and benefit from factor focused products.
After 20 years of following and debating factor investing, having had better results than the tilters, I am not about take misguided advice from newcomers to the idea without the experience.
US SCV has smashed US TSM by every measure over that timeframe, including rolling returns of various durations.
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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by HippoSir » Fri Feb 14, 2020 4:17 pm

lassevirensghost wrote:
Fri Feb 14, 2020 3:49 pm
US SCV has smashed US TSM by every measure over that timeframe, including rolling returns of various durations.
Even though I'm an admitted factor tilter, I didn't actually believe you, but you are correct:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

I used SPY as a frame of reference, since it's essentially equivalent to total market performance wise and I wasn't aware of a total market fund starting from 2000 (although I'm sure one exists).

DFA US Small Cap Value I: 9.47% CAGR
SPDR S&P 500 ETF Trust: 5.94% CAGR

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 5:12 pm

lassevirensghost wrote:
Fri Feb 14, 2020 3:49 pm
Elysium wrote:
Fri Feb 14, 2020 2:37 pm
lassevirensghost wrote:
Fri Feb 14, 2020 12:37 pm
Elysium wrote:
Fri Feb 14, 2020 11:11 am


Vanguard has several funds aimed at such advisor community. Market neutral, alternative strategy, managed payout, commodity strategy, factors, so on.. The advisors get to play around with other people's money on their favored theory of the season until the cows come home, if the clients get frustrated with their money trailing market then more patience will be demanded of them as they should trust the research from the favorite academic. It is up to the individual investors to figure out what these investments are and stay away from them, and goes without saying stay away from these advisors.
Or stay in the investments if they like them. You seem fundamentally confused about factor investing in thread after thread. Maybe you should read more on the topic before continuing to misinform novice investors on the forum who might grow to be interested in and benefit from factor focused products.
After 20 years of following and debating factor investing, having had better results than the tilters, I am not about take misguided advice from newcomers to the idea without the experience.
US SCV has smashed US TSM by every measure over that timeframe, including rolling returns of various durations.
No it hasn't. Wrong information. Check before you speak, MWR of SCV trailed TSM over last 20 years. MWR closely matches experience of someone who is in accumulation phase contributing regular amounts (as I were).

VTSMX has larger ending balance compared VISVX 2000-2020: See here.

In end, TSM investor has larger ending balance and is better positioned for retirement glidepath (reduce risk by lowering equity exposure). A SCV tilted investor by contrast has lower balance and have to maintain higher equity allocation in hope of break even (forget outperformance), and that just means continue to take more risk (chance of more losses).

Complexity doesn't mean better results. When you bet against the market expect to get lower returns sometimes.
Last edited by Elysium on Fri Feb 14, 2020 5:39 pm, edited 1 time in total.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 5:21 pm

HippoSir wrote:
Fri Feb 14, 2020 4:17 pm
lassevirensghost wrote:
Fri Feb 14, 2020 3:49 pm
US SCV has smashed US TSM by every measure over that timeframe, including rolling returns of various durations.
Even though I'm an admitted factor tilter, I didn't actually believe you, but you are correct:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

I used SPY as a frame of reference, since it's essentially equivalent to total market performance wise and I wasn't aware of a total market fund starting from 2000 (although I'm sure one exists).

DFA US Small Cap Value I: 9.47% CAGR
SPDR S&P 500 ETF Trust: 5.94% CAGR
Again, the devil is in the details. See here MWR with SPY having larger ending balance.

DFA US Small Cap Value I: 8.29% MWR
SPDR S&P 500 ETF Trust: 9.58% MWR

$100K more to TSM/S&P 500 investor. Not a small amount.

Sequence of returns matters, a lot. The large tracking error is not in favor of SCV investor in accumulation phase making it almost a very poor long only buy & hold strategy.

Second, DFA fund cannot be bought without an advisor fee on top of whatever you earned, making it even poorer when counting final balance.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by jhfenton » Fri Feb 14, 2020 5:39 pm

Some of have been investing long enough in factor tilts--or emerging markets--not to worry about the naysayers or to feel the need to convince anyone else that we have the One True Investment Strategy™. We just stick to what we've been investing in for more than two decades, and express our appreciation when a new fund comes along that fits with our strategy.

The first two non-401(k) investments I made in my Roth IRA in 1998 were small cap value and emerging markets. I think I'll stay the course.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Uncorrelated » Fri Feb 14, 2020 5:40 pm

Elysium wrote:
Fri Feb 14, 2020 5:21 pm
HippoSir wrote:
Fri Feb 14, 2020 4:17 pm
lassevirensghost wrote:
Fri Feb 14, 2020 3:49 pm
US SCV has smashed US TSM by every measure over that timeframe, including rolling returns of various durations.
Even though I'm an admitted factor tilter, I didn't actually believe you, but you are correct:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

I used SPY as a frame of reference, since it's essentially equivalent to total market performance wise and I wasn't aware of a total market fund starting from 2000 (although I'm sure one exists).

DFA US Small Cap Value I: 9.47% CAGR
SPDR S&P 500 ETF Trust: 5.94% CAGR
Again, the devil is in the details. See here MWR with SPY having larger ending balance.
Try this one: https://www.portfoliovisualizer.com/bac ... ion2_2=100 infinitely higher ending balance for DFSVX. Obviously 100% small cap value was the superior choice for retirees.

I'm not sure what your point is. In all your posts you're just fudging the time periods or specific benchmarks until the numbers fit your narrative. It comes across as if you're giving poor arguments on purpose.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 6:00 pm

Uncorrelated wrote:
Fri Feb 14, 2020 5:40 pm
Elysium wrote:
Fri Feb 14, 2020 5:21 pm
HippoSir wrote:
Fri Feb 14, 2020 4:17 pm
lassevirensghost wrote:
Fri Feb 14, 2020 3:49 pm
US SCV has smashed US TSM by every measure over that timeframe, including rolling returns of various durations.
Even though I'm an admitted factor tilter, I didn't actually believe you, but you are correct:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

I used SPY as a frame of reference, since it's essentially equivalent to total market performance wise and I wasn't aware of a total market fund starting from 2000 (although I'm sure one exists).

DFA US Small Cap Value I: 9.47% CAGR
SPDR S&P 500 ETF Trust: 5.94% CAGR
Again, the devil is in the details. See here MWR with SPY having larger ending balance.
Try this one: https://www.portfoliovisualizer.com/bac ... ion2_2=100 infinitely higher ending balance for DFSVX. Obviously 100% small cap value was the superior choice for retirees.

I'm not sure what your point is. In all your posts you're just fudging the time periods or specific benchmarks until the numbers fit your narrative. It comes across as if you're giving poor arguments on purpose.
This post doesn't even merit a reply because of the absurd argument it makes about starting with a 100% Equity portfolio in withdrawal stage :shock:

But I replied so that these mistakes aren't left unchallenged. Moral of story is do not try to prove your points with an example of a $1MM portfolio invested 100% SCV equities during withdrawal phase. Even if the end result may look good, this is the classic case of extremely bad strategy to say the least.
You might as well have used a 3x leveraged portfolio for the retiree :oops:

Second, I did not twist any data. I said over the last 20 years that I have been investing and debating the merits of factor investing, better results were for non-tilted portfolio. I showed numbers that closely matches experience of an investor like me in accumulation. There is nothing sinister there, just plain old sequence of returns favoring those who invested in TSM.

Third, There is evidence now forming long only buy & hold can be a poor strategy for factor investing. Time will tell further.
Last edited by Elysium on Fri Feb 14, 2020 6:13 pm, edited 6 times in total.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 6:04 pm

jhfenton wrote:
Fri Feb 14, 2020 5:39 pm
Some of have been investing long enough in factor tilts--or emerging markets--not to worry about the naysayers or to feel the need to convince anyone else that we have the One True Investment Strategy™. We just stick to what we've been investing in for more than two decades, and express our appreciation when a new fund comes along that fits with our strategy.

The first two non-401(k) investments I made in my Roth IRA in 1998 were small cap value and emerging markets. I think I'll stay the course.
I have no problem with that, if you have invested and stayed the course long enough, do have the conviction to stay there regardless of results and have the means to get to your goals. As Taylor often says, there are many roads to Dublin.

But what we are discussing is whether the new found factor products are suited for everyone or not as someone pointed out they may be created based on demand from large advisors. There is evidence is that it isn't suitable for most investors. There is probably 1% who can stay the course with a factor tilted portfolio over 20+ years, and that too doesn't guarantee better results. To those who did despite results, and are happy with it, by all means continue because after all you know what you are doing.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Uncorrelated » Fri Feb 14, 2020 7:24 pm

Elysium wrote:
Fri Feb 14, 2020 6:00 pm
Uncorrelated wrote:
Fri Feb 14, 2020 5:40 pm
Elysium wrote:
Fri Feb 14, 2020 5:21 pm
HippoSir wrote:
Fri Feb 14, 2020 4:17 pm
lassevirensghost wrote:
Fri Feb 14, 2020 3:49 pm
US SCV has smashed US TSM by every measure over that timeframe, including rolling returns of various durations.
Even though I'm an admitted factor tilter, I didn't actually believe you, but you are correct:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

I used SPY as a frame of reference, since it's essentially equivalent to total market performance wise and I wasn't aware of a total market fund starting from 2000 (although I'm sure one exists).

DFA US Small Cap Value I: 9.47% CAGR
SPDR S&P 500 ETF Trust: 5.94% CAGR
Again, the devil is in the details. See here MWR with SPY having larger ending balance.
Try this one: https://www.portfoliovisualizer.com/bac ... ion2_2=100 infinitely higher ending balance for DFSVX. Obviously 100% small cap value was the superior choice for retirees.

I'm not sure what your point is. In all your posts you're just fudging the time periods or specific benchmarks until the numbers fit your narrative. It comes across as if you're giving poor arguments on purpose.
This post doesn't even merit a reply because of the absurd argument it makes about starting with a 100% Equity portfolio in withdrawal stage :shock:

But I replied so that these mistakes aren't left unchallenged. Moral of story is do not try to prove your points with an example of a $1MM portfolio invested 100% SCV equities during withdrawal phase. Even if the end result may look good, this is the classic case of extremely bad strategy to say the least.
You might as well have used a 3x leveraged portfolio for the retiree :oops:

Second, I did not twist any data. I said over the last 20 years that I have been investing and debating the merits of factor investing, better results were for non-tilted portfolio. I showed numbers that closely matches experience of an investor like me in accumulation. There is nothing sinister there, just plain old sequence of returns favoring those who invested in TSM.

Third, There is evidence now forming long only buy & hold can be a poor strategy for factor investing. Time will tell further.

Obviously the suggestion that retirees should hold 100% SVC was sarcasm. It's completely idiotic to suggest such a portfolio to a retiree based on a single backtest that heavily emphasizes the first few years of returns. But so is your backtest, because it heavily emphasizes the last few years of returns. That is what I would call sinister. Can we please go back to academically accepted measures of return, such as average return and standard deviation?

There is no "evidence now forming" that long only buy and hold can be a poor strategy. That is recency bias. There is no concrete evidence that the size and value premium are lower in the last 30 years than in the 30 years before (source: Fama & French in "the value premium", 2019).

The things that you say have nothing do do with tilts or factor investing, but are an inherent property of risk premiums. Your arguments apply equally to the equity risk premium.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by caklim00 » Fri Feb 14, 2020 8:20 pm

I've been on this forum awhile now. The same arguemnets being made by the TSM crowd were being made by the tilters about 10 years ago. I still see the rationale for a factor driven portfolio that is diversified and at a low cost. I'm sure the same arguements are going to be made again in 2030.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Fri Feb 14, 2020 8:34 pm

Uncorrelated wrote:
Fri Feb 14, 2020 7:24 pm
Obviously the suggestion that retirees should hold 100% SVC was sarcasm. It's completely idiotic to suggest such a portfolio to a retiree based on a single backtest that heavily emphasizes the first few years of returns. But so is your backtest, because it heavily emphasizes the last few years of returns. That is what I would call sinister. Can we please go back to academically accepted measures of return, such as average return and standard deviation?
The period I used was 2000-2020 to show specifically that an investor in accumulation phase during this period would have come out ahead with higher ending balance in TSM vs SCV. This is specifically in response to a poster who made this uninformed claim:

US SCV has smashed US TSM by every measure over that timeframe, including rolling returns of various durations.

I used MWRR because it was in response to my personal experience, showing that using MWRR, which is what mattered to someone who is investing periodically. My response is that TSM investor in accumulation ended up with more dollars in this 20 year period. There is no reason to use any other period for this case, and nothing sinister about it. In fact what you are doing is taking it out of context. If we are discussing Value premium in general, there are hundreds of threads on this forum, and we can keep litigating that in separate threads.
Uncorrelated wrote:
Fri Feb 14, 2020 7:24 pm
There is no "evidence now forming" that long only buy and hold can be a poor strategy. That is recency bias. There is no concrete evidence that the size and value premium are lower in the last 30 years than in the 30 years before (source: Fama & French in "the value premium", 2019).
I am referring to the fact that FF model portfolios are long-short, not long only. There is no real life implementation of the FF models. The long only value portfolios may not be good enough.
Uncorrelated wrote:
Fri Feb 14, 2020 7:24 pm
The things that you say have nothing do do with tilts or factor investing, but are an inherent property of risk premiums. Your arguments apply equally to the equity risk premium.
This is a long standing quibble. ERP is not same as value premium. I have not heard FF ever make this argument. Even the most recent FF paper raises the question whether Value premium has disappeared or has been arbitraged away, although the paper didn't say so. There is no such question on ERP.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by nisiprius » Sat Feb 15, 2020 7:17 am

muffins14 wrote:
Thu Feb 13, 2020 10:52 pm
Given that many have similar factor loadings, you’d expect that we’re similar to have correlated performance, so not just a 1/64 chance.

Also clearly we should not be making [choices] about what strategy is best using two years of tech-bull market data
Putting aside return, I looked at correlations. "In a crisis all correlations go to 1.0," but what about a bull market? Do we expect all factors to correlation in a bull market? Factor advocates often use phrases like "diversifying across independent risk factors;" is this only expected to be effective when we are not in a bull market?

I asked PortfolioVisualizer to calculate the correlations between VTI (the Vanguard Total Market Index Fund) and these six factor ETFs (VFVA,VFMO,VFMV,VFQY,VFLQ,VFMF). I then added an older, shall I say "traditional" factor, VBR (Vanguard Small-Cap Value Index fund); two other "traditional" diversifiers, REITS (VNQ) and international (VXUS); and, the granddaddy, bonds (BND).

muffins14 is correct, the multifactor ETFs have had high correlations, with each other.

Source

Image

I made the data for correlations with VTI into a bar chart:

Image
Last edited by nisiprius on Sat Feb 15, 2020 3:07 pm, edited 1 time in total.
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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by whodidntante » Sat Feb 15, 2020 7:49 am

Nisi, I don't think one should draw any conclusions about correlations or portfolio construction based on data beginning in March 2018. So your post is interesting noise if I'm being polite. You probably need to use factor data to get:
a) enough data
b) consistent data
c) data that isn't overwhelmed by market or other factors

B is important because Vanguard has shown they are perfectly willing to change their funds based on slight indigestion.

There might also be something done with more rigor in one of Larry's books or one of his posts. So I would look for that before reinventing the wheel.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by actuallyxy » Sat Feb 15, 2020 8:26 am

whodidntante wrote:
Sat Feb 15, 2020 7:49 am
B is important because Vanguard has shown they are perfectly willing to change their funds based on slight indigestion.
Please can you tell us more about this? I hold the Vanguard Global Value Factor ETF and I wouldn't like to see it change its factor exposures.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by actuallyxy » Sat Feb 15, 2020 8:27 am

whodidntante wrote:
Sat Feb 15, 2020 7:49 am
B is important because Vanguard has shown they are perfectly willing to change their funds based on slight indigestion.
Please can you tell us more about this? I hold the Vanguard Global Value Factor ETF and I wouldn't like to see it change its factor exposures.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Anon9001 » Sat Feb 15, 2020 8:33 am

The issue with multifactor funds is that the single factor funds already have very high loading on market beta and all the factors Size Quality Value Volatility Momentum are inversely correlated to each other so you are paying higher expense ratios for essentially something that tracks a normal float adjusted cap-weighed index fund. They are a very nice mouse trap though I will admit.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by lassevirensghost » Sat Feb 15, 2020 8:52 am

Elysium wrote:
Fri Feb 14, 2020 5:12 pm
lassevirensghost wrote:
Fri Feb 14, 2020 3:49 pm
Elysium wrote:
Fri Feb 14, 2020 2:37 pm
lassevirensghost wrote:
Fri Feb 14, 2020 12:37 pm
Elysium wrote:
Fri Feb 14, 2020 11:11 am


Vanguard has several funds aimed at such advisor community. Market neutral, alternative strategy, managed payout, commodity strategy, factors, so on.. The advisors get to play around with other people's money on their favored theory of the season until the cows come home, if the clients get frustrated with their money trailing market then more patience will be demanded of them as they should trust the research from the favorite academic. It is up to the individual investors to figure out what these investments are and stay away from them, and goes without saying stay away from these advisors.
Or stay in the investments if they like them. You seem fundamentally confused about factor investing in thread after thread. Maybe you should read more on the topic before continuing to misinform novice investors on the forum who might grow to be interested in and benefit from factor focused products.
After 20 years of following and debating factor investing, having had better results than the tilters, I am not about take misguided advice from newcomers to the idea without the experience.
US SCV has smashed US TSM by every measure over that timeframe, including rolling returns of various durations.
No it hasn't. Wrong information. Check before you speak, MWR of SCV trailed TSM over last 20 years. MWR closely matches experience of someone who is in accumulation phase contributing regular amounts (as I were).

VTSMX has larger ending balance compared VISVX 2000-2020: See here.

In end, TSM investor has larger ending balance and is better positioned for retirement glidepath (reduce risk by lowering equity exposure). A SCV tilted investor by contrast has lower balance and have to maintain higher equity allocation in hope of break even (forget outperformance), and that just means continue to take more risk (chance of more losses).

Complexity doesn't mean better results. When you bet against the market expect to get lower returns sometimes.
That’s the last 19 years.
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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Sat Feb 15, 2020 9:28 am

The following graph shows two portfolios almost identical to each other over the last 20 years.

Image

Portfolio 1 is the 3-fund Portfolio of 60% Total Stock/15%Total Intl/25% Total Bond.
Portfolio 2 is slice & dice into 4 corners with 15% S&P 500, 15% LCV, 15% Small, 15% SCV, 15% Total Intl, and 25% Total Bond.

Both started with initial investment of $10K on Jan 1 2000, contributed $10K annually, and re-balanced annually. Growth and returns nearly identical over this period. Portfolio 1 had slightly better returns given the end point is stronger for market portfolio, other periods may show slightly better for slice & dice portfolio. In the end both approaches resulted in capturing the returns available from the market in a passive manner at lowest cost available.

Portfolio 1 is simple, easy to maintain, easy to explain, and will never trail the broad market. Portfolio 2 adds more complexity, more difficult to maintain (for some), will trail the market occasionally, and not easy to explain to novices.

In the end too much ink is still spilled over what really doesn't move the needle too much.

Link

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Forester » Sat Feb 15, 2020 9:43 am

Elysium wrote:
Sat Feb 15, 2020 9:28 am
The following graph shows two portfolios almost identical to each other over the last 20 years.

Image

Portfolio 1 is the 3-fund Portfolio of 60% Total Stock/15%Total Intl/25% Total Bond.
Portfolio 2 is slice & dice into 4 corners with 15% S&P 500, 15% LCV, 15% Small, 15% SCV, 15% Total Intl, and 25% Total Bond.

Both started with initial investment of $10K on Jan 1 2000, contributed $10K annually, and re-balanced annually. Growth and returns nearly identical over this period. Portfolio 1 had slightly better returns given the end point is stronger for market portfolio, other periods may show slightly better for slice & dice portfolio. In the end both approaches resulted in capturing the returns available from the market in a passive manner at lowest cost available.

Portfolio 1 is simple, easy to maintain, easy to explain, and will never trail the broad market. Portfolio 2 adds more complexity, more difficult to maintain (for some), will trail the market occasionally, and not easy to explain to novices.

In the end too much ink is still spilled over what really doesn't move the needle too much.

Link
4 funds is no harder to rebalance than 3 funds. Your two portfolios didn't move the needle much because they're both similar - and even if the end point was the same that's not the only goal of diversification; who wants to be solely US megacap in the 2000s?

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by Elysium » Sat Feb 15, 2020 10:56 am

Forester wrote:
Sat Feb 15, 2020 9:43 am
Elysium wrote:
Sat Feb 15, 2020 9:28 am
The following graph shows two portfolios almost identical to each other over the last 20 years.

Image

Portfolio 1 is the 3-fund Portfolio of 60% Total Stock/15%Total Intl/25% Total Bond.
Portfolio 2 is slice & dice into 4 corners with 15% S&P 500, 15% LCV, 15% Small, 15% SCV, 15% Total Intl, and 25% Total Bond.

Both started with initial investment of $10K on Jan 1 2000, contributed $10K annually, and re-balanced annually. Growth and returns nearly identical over this period. Portfolio 1 had slightly better returns given the end point is stronger for market portfolio, other periods may show slightly better for slice & dice portfolio. In the end both approaches resulted in capturing the returns available from the market in a passive manner at lowest cost available.

Portfolio 1 is simple, easy to maintain, easy to explain, and will never trail the broad market. Portfolio 2 adds more complexity, more difficult to maintain (for some), will trail the market occasionally, and not easy to explain to novices.

In the end too much ink is still spilled over what really doesn't move the needle too much.

Link
4 funds is no harder to rebalance than 3 funds. Your two portfolios didn't move the needle much because they're both similar - and even if the end point was the same that's not the only goal of diversification; who wants to be solely US megacap in the 2000s?
First of all it isn't 4 funds vs 3, but 6 funds vs 3. It is hard for many reasons, most investors do not have fund availability in all accounts, especially sub-classes like Small and Value. Finding the right match and allocating across multiple accounts is very hard as we see from the His/Her accounts posts from people asking for portfolio advice all the time. It is also not possible to get correct allocations and re-balance between 4-5 accounts with 6 funds, instead of 3 broad market funds.

Second, portfolios are different, not similar. The 4 fund portfolio sliced & diced TSM into 4 corners equally, way overweight in Value and Small. This was the recommended portfolio by people like Larry Swedroe back in 2000-03 timeframe. We've had several discussions around this on the old forum, and Larry even has books published with recommended allocations across 4 corners. Only, he did it with DFA funds (which requires advisor access and 1% to 1.5% AUM fees and large accounts) and did the same across Intl. Recommended portfolios with Vanguard funds back then looked similar to what I posted. As more ETFs/funds became available, people started adding more complexity and smaller chunks, with poorer results, as soon value & small started underperforming.

Third, diversification is what you are getting with the broad market portfolio, that was the whole point of the graph, showing they tracked each other almost identically over the last 20 years, not just the end point. There is no additional diversification from 4 corners portfolio you are getting. You cannot by definition further diversify a total market portfolio. Everyone including Nobel Laureates, Eugene Fama and Willam Sharpe among them, has unequivocally stated this on multiple occasions. Don't see why the myth of diversification continue to be brought up, it is an idea promoted by fund industry/wall street.

Last, I already said there would be periods where you would find one slightly better than other, but in the long run it's just tracking each other with the variations along the way just market noise.

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Re: Vanguard Factor ETFs 2 Year Birthday!

Post by afan » Sat Feb 15, 2020 11:37 pm

Paying an adviser 1% of assets will kill the hypothetical gain from their advice.
But some retirement plans offer DFA funds without advisers. Still not sure they are worth it, since the funds still have higher expenses than the Vanguard alternatives. You are not getting an expected higher risk adjusted return, so it does not seem worth buying the DFA special sauce.
If you do have to pay an adviser, then rule them out on that basis alone.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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