Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

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overthought
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Re: Vanguard To Introduce First Actively Managed ETFs With Suite Of Factor Funds

Post by overthought » Tue Nov 28, 2017 6:28 pm

tetractys wrote:
Tue Nov 28, 2017 11:52 am
Most interesting I think, is mention of this Vanguard paper:
https://americas.vanguard.com/docs/lite ... -guide.pdf
I like how the bottom of each page states:
For Institutional or Accredited Investor Use Only. Not For Public Distribution.

8-)

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by peppers » Tue Nov 28, 2017 8:55 pm

nisiprius wrote:
Tue Nov 28, 2017 3:48 pm


I betcha a nickel, even money, that they don't put any of these new funds in their Target Retirement or LifeStrategy funds.
Let's see.......it's been about four years since the introduction of international bonds.
I can see it now:

Your new Life Strategy fund will still be 80% indexed, but we've decided to add a 20% "factor flavor."

hmmm........
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by denovo » Tue Nov 28, 2017 9:05 pm

peppers wrote:
Tue Nov 28, 2017 8:55 pm
nisiprius wrote:
Tue Nov 28, 2017 3:48 pm


I betcha a nickel, even money, that they don't put any of these new funds in their Target Retirement or LifeStrategy funds.
Let's see.......it's been about four years since the introduction of international bonds.
I can see it now:

Your new Life Strategy fund will still be 80% indexed, but we've decided to add a 20% "factor flavor."

hmmm........
I think that's one of the understated risks of using LifeStrategy or Target Retirement Funds in taxable accounts. You may not want agree with the changes in asset allocation, but be stuck with it or get reamed with a big tax hit.
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Re: Vanguard To Introduce First Actively Managed ETFs With Suite Of Factor Funds

Post by TheHouse7 » Tue Nov 28, 2017 10:10 pm

mindboggling wrote:
Tue Nov 28, 2017 11:26 am
Now, we'll all be able to outperform!
Yay I can be average again!
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by CULater » Tue Nov 28, 2017 10:21 pm

Just wondering -- who takes the other side of the trade on factor funds and why are they so dumb? Oh, I guess it's us market index fund investors...
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by sunnywindy » Tue Nov 28, 2017 10:24 pm

If these are successful (say at least $500 million AUM each within a few years + outperform within reason) then the high-cost active managers who poo-poo active ETFs because they would reveal their 'secret sauce' and claim to need a non-transparent ETF structure, their arguments would be less convincing. So, even if you don't like these ETFs, they represent one more potential nail-in-the-coffin to high-cost active management and that is good for everyone.

I am interested in the multifactor ETF, but will wait at least two years before investing in it as I'll want to see a track record and see how it stacks up to LRGF (which I think is the best multifactor ETF so far).

Lastly, if these are successful, I wonder if iShares will kick itself for closing their 'Enhanced' active ETFs a few years ago. They performed very well but only lasted ~2 years. Maybe they bring them back?
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by Jebediah » Tue Nov 28, 2017 10:47 pm

It's the end of the mutifactor era. Thank you Larry for all the books, Robert T for all the posts. It was good times. :sharebeer

I'll let my DFA and AQR funds stick around as keepsakes, but it's all about VTI and VXUS from here on out.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by Longtermgrowth » Tue Nov 28, 2017 11:09 pm

Is the multifactor ETF going to be a combo of all the other factor ETFs?

I'll be keeping an eye on the value factor ETF...

Morningstar's talk about it: http://beta.morningstar.com/videos/8385 ... anger.html

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by triceratop » Tue Nov 28, 2017 11:13 pm

CULater wrote:
Tue Nov 28, 2017 10:21 pm
Just wondering -- who takes the other side of the trade on factor funds and why are they so dumb? Oh, I guess it's us market index fund investors...
No, total market investors are not taking the other side. It is investors who wish to hold e.g. the growth stocks, either individually to take a position in the market that they are incorrectly priced or as part of an overall growth strategy. Those studies you read that state the rise of "factor" or "smart beta" include both growth and value stocks as crowding out the factor space. That, along with the lackluster performance of value stocks leads me to be skeptical about the much-rumored "death" of Value.
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by ftobin » Tue Nov 28, 2017 11:20 pm

CULater wrote:
Tue Nov 28, 2017 10:21 pm
Just wondering -- who takes the other side of the trade on factor funds and why are they so dumb? Oh, I guess it's us market index fund investors...
Larry Swedroe mentions research showing that hedge funds looking for home runs go for high-volatility due to their compensation mechanics:
http://www.etf.com/sections/index-inves ... nopaging=1

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by Dale_G » Tue Nov 28, 2017 11:47 pm

I'll take a pass, but if I were tempted at all I would buy an equal weight in each of the single factor funds and rebalance in a year and a day.

I began investing with Vanguard in 1982. According to a June 18, 1982 article in the Christian Science Monitor, Vanguard had 21 funds and a total of 4 billion in assets at the time. The Windsor fund was by far the largest fund at 900 million. No surprise, I owned Windsor fund - to the tune of .04% of assets. I wasn't smart enough to buy the S&P500 index fund.

My how times have changed. Next up - a Venture Capital fund, a Manganese Nodule fund and an Asteroid Retirement Home Index fund.

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Here they come: new Vanguard Factor Based ETFs

Post by CRTR » Wed Nov 29, 2017 8:13 am

[merged CRTR's post into this existing thread - moderator prudent]

My Flagship Rep mentioned these were coming this summer. Forgot about them until today when I got the official notice. Better late than never??

Vanguard U.S. Value Factor ETF—Long-term capital appreciation by investing in stocks with relatively lower share prices relative to fundamental values as determined by the advisor.
Vanguard U.S. Quality Factor ETF—Long-term capital appreciation by investing in stocks with strong fundamentals as determined by the advisor.
Vanguard U.S. Momentum Factor ETF—Long-term capital appreciation by investing in stocks with strong recent performance as determined by the advisor.
Vanguard U.S. Liquidity Factor ETF—Long-term capital appreciation by investing in stocks with lower measures of trading liquidity as determined by the advisor.
Vanguard U.S. Minimum Volatility ETF—Long-term capital appreciation with lower volatility relative to the broad U.S. equity market.
Vanguard U.S. Multifactor ETF and Vanguard U.S. Multifactor Fund Admiral™ Shares—Long-term capital appreciation by investing in stocks with relatively strong recent performance, strong fundamentals, and low prices relative to fundamentals as determined by the advisor.

https://advisors.vanguard.com/VGApp/iip ... 85550&st=R

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by jhfenton » Wed Nov 29, 2017 8:20 am

triceratop wrote:
Tue Nov 28, 2017 5:54 pm
Most of the factor nuts here (myself included) prefer IJS/VIOV, the S&P600 Value index etfs, to VBR for purer exposure to both Value and Small. Why don't you?
VIOV is definitely smaller than VBR/VSIAX, but it's only slightly more value-y or not at all depending on what measure of value you use.

So, I own VIOV in taxable, because…taxes. And I own a ton of VSIAX in tax-advantaged because its good enough and cheap. (I also own a bunch of VMVAX/mid-cap value in my 401(k) because it's the only attractive option.)

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by nisiprius » Wed Nov 29, 2017 8:29 am

CULater wrote:
Tue Nov 28, 2017 10:21 pm
Just wondering -- who takes the other side of the trade on factor funds and why are they so dumb? Oh, I guess it's us market index fund investors...
One theory is that it is big money managers, both in funds and in institutional investing accounts, who "know better" and would like to use factors, but can't because of, in effect, behavioral errors forced on them by career considerations.

To me, another likely theory is that a lot of them are indeed small retail investors who have gotten sucked in by the latest article in money magazines, radio shows, or the magazine-like thingies some brokers sen quarterly, who are not indexers. I honestly believe that I would get sucked in myself if I weren't indexing. So, there may be such a thing as investing skill, and who can indeed get a (small, occasional) edge out of a non-indexing strategy... but I'm not one of them, and if I didn't index I'd be in the crowd that gets money taken away from me by factor and active investors. (If I did factor investing myself, I suspect it wouldn't work for me and after the fact I'd get told that I'd been doing it wrong).
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by dkturner » Wed Nov 29, 2017 8:36 am

I don't think Vanguard's move into factor investing will cause this board to burn down, but we may be treated to periodic food fights between the Swedroites and the Know Nothings ("we invest in total market funds, because we can know nothing about the future"). It will be interesting to see what actually transpires over the next few years.
Last edited by dkturner on Wed Nov 29, 2017 9:29 am, edited 1 time in total.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by Da5id » Wed Nov 29, 2017 8:42 am

dkturner wrote:
Wed Nov 29, 2017 8:36 am
I don't think Vamguard's move into factor investing will cause this board to burn down, but we may be treated to periodic food fights between the Swedroites and the Know Nothings ("we invest in total market funds, because we can know nothing about the future"). It will be interesting to see what actually transpires over the next few years.
I don't think one can judge factors over the next few years. I kind of like factors, but haven't gone there myself as I like the simplicity of 3-fund and am not a total believer in the factor strategy. But if one does go for factors, it can't be for "a few years", as even the strongest factor advocates would acknowledge that factors can and will have periods of significant underperformance compared to the overall market...

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by CULater » Wed Nov 29, 2017 9:20 am

Now that Vanguard is in the game, going forward, if factor funds underperform, investors will be faced with the dilemma of figuring out whether it is cyclical (keep investing more by rebalancing in) or "factors" are broken because of over-grazing. Most, including me, will end up eventually flinching and bailing out. The reason that investing in plain old market cap index funds will win (even if they are actually inferior to factors) is behavioral -- it is simply easier for most people to stick with index funds over the long haul than with any form of actively managed fund, including factors. The tracking error will get you. It's an old story isn't it?
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by triceratop » Wed Nov 29, 2017 9:45 am

CULater wrote:
Wed Nov 29, 2017 9:20 am
Now that Vanguard is in the game, going forward, if factor funds underperform, investors will be faced with the dilemma of figuring out whether it is cyclical (keep investing more by rebalancing in) or "factors" are broken because of over-grazing. Most, including me, will end up eventually flinching and bailing out. The reason that investing in plain old market cap index funds will win (even if they are actually inferior to factors) is behavioral -- it is simply easier for most people to stick with index funds over the long haul than with any form of actively managed fund, including factors. The tracking error will get you. It's an old story isn't it?
Wouldn't we need to see substantial outperformance of value or any of these factors due to the crowding before the underperformance? Have we seen that yet?

I think there are more people pricing securities in the market than passive buyers for mutual funds.
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Re: Vanguard To Introduce First Actively Managed ETFs With Suite Of Factor Funds

Post by knpstr » Wed Nov 29, 2017 9:47 am

mindboggling wrote:
Tue Nov 28, 2017 11:26 am
Now, we'll all be able to outperform!
Hahahahaha! What a great comment!
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by grap0013 » Wed Nov 29, 2017 10:35 am

triceratop wrote:
Tue Nov 28, 2017 5:54 pm
Most of the factor nuts here (myself included) prefer IJS/VIOV, the S&P600 Value index etfs, to VBR for purer exposure to both Value and Small. Why don't you?
1. I think the differences between IJS and VBR are small.

2. VG would not charge me to buy VBR but it charges $7 for IJS.

3. I don't even own any US large caps in any fashion. My portfolio is tilted to the gills. I'm willing to sacrifice some minor factor loads in IJS for more holdings in VBR.

4. I already have lots of VSIAX so when the time comes VBR is the closest equivalent. Makes sense just to stick with it to keep things simple.
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by Doc » Wed Nov 29, 2017 11:09 am

grap0013 wrote:
Wed Nov 29, 2017 10:35 am
I think the differences between IJS and VBR are small.
Image
http://quotes.morningstar.com/chart/etf ... ture=en_US
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by triceratop » Wed Nov 29, 2017 11:21 am

Doc wrote:
Wed Nov 29, 2017 11:09 am
grap0013 wrote:
Wed Nov 29, 2017 10:35 am
I think the differences between IJS and VBR are small.
Image
http://quotes.morningstar.com/chart/etf ... ture=en_US
He meant to say that the differences between IJS and VBR are SmB, I think. :wink:

And yeah, I don't believe the differences are "small"; I do know I was lucky to switch from VBR (which I held due to being commission-free in the past) to IJS on 08/17. You can see the same effect in IJS-VBR divergence in November 2016.
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by CULater » Wed Nov 29, 2017 11:26 am

The biggest threat to backtesting is the future...
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by White Coat Investor » Wed Nov 29, 2017 11:39 am

bowest wrote:
Tue Nov 28, 2017 9:55 am
Vanguard's filed registration for six US smart beta ETFs. This will be a fun thread to watch.


https://pressroom.vanguard.com/news/Pre ... 12817.html

VALLEY FORGE, PA (November 28, 2017)—Vanguard today filed a registration statement for six new factor-based ETFs and one factor-based mutual fund, representing Vanguard’s first introduction of actively managed ETFs in the U.S. The company currently offers suites of active factor ETFs in Canada and the United Kingdom. The new factor funds are expected to begin trading in the first quarter of 2018.

Five single factor funds are designed for financial advisors and institutional investors seeking to achieve specific risk or return objectives through targeted factor exposures: minimum volatility, value, momentum, liquidity, and quality. The sixth ETF and fund will offer a multi-factor approach. Vanguard will employ an active, rules-based quantitative approach in managing the funds, which will also feature the traditional characteristic of all Vanguard funds—low cost.
I'm excited. I read Larry's factor book recently and my wife and I are talking about adding a tilt to momentum. But a few months ago, the only non-DFA/AQR fund available was an iShares ETFs. Then USAA came out with funds. Now Vanguard. Super convenient for us given that's where our taxable account is. Now we just have to decide if we want to add that tilt and if so, where to take it from - out of TSM or out of our SV tilt. We no longer have to decide how to get the tilt.
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by garlandwhizzer » Wed Nov 29, 2017 11:42 am

CULater wrote:
Now that Vanguard is in the game, going forward, if factor funds underperform, investors will be faced with the dilemma of figuring out whether it is cyclical (keep investing more by rebalancing in) or "factors" are broken because of over-grazing. Most, including me, will end up eventually flinching and bailing out. The reason that investing in plain old market cap index funds will win (even if they are actually inferior to factors) is behavioral -- it is simply easier for most people to stick with index funds over the long haul than with any form of actively managed fund, including factors. The tracking error will get you. It's an old story isn't it?
1+

There is behavioral research that shows on average those who hold cap-weighted indexes, plain old beta, are less likely to bail out during bad times. Factors have outperformed historically. Factor investors as a whole have not. Tracking error is difficult for many to tolerate. Many factors especially MOM, but to a lesser extent VAL, have behavioral explanations. It is not hard to imagine that behavioral explanations play a role in why factor investors on average underperform plain vanilla beta investors. Sticking with factor approaches requires rock solid belief in their eventual outperformance and the discipline to maintain positions during the sometimes long periods of underperformance. Some factor investors discover too late that they don't meet these two requirements, the same way that other investors discover in the depths of a bear market what their true risk tolerance is.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by Doc » Wed Nov 29, 2017 11:42 am

triceratop wrote:
Wed Nov 29, 2017 11:21 am
And yeah, I don't believe the differences are "small"; I do know I was lucky to switch from VBR (which I held due to being commission-free in the past) to IJS on 08/17. You can see the same effect in IJS-VBR divergence in November 2016.
I was just having some fun. I own both IJS and VBR and was thinking about replacing the IJS with VIOV since I own it at Vanguard. But I've got a 10% gain in IJS since I opened the position less than three months ago. Hence the three month chart. If you go for a longer period of time the results are far different. In any case the low trading volume of VIOV makes it unusable in my opinion.
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by jhfenton » Wed Nov 29, 2017 1:08 pm

Doc wrote:
Wed Nov 29, 2017 11:42 am
In any case the low trading volume of VIOV makes it unusable in my opinion.
Unless you're buying and selling six figures, VIOV trades well enough. I buy (and have never sold) a handful of shares a month in taxable, and spreads are reasonable. I can usually get execution somewhere inside the $0.10 spread.

It's certainly not practical to pay a commission on small monthly purchases.

(Our large investments are all in tax-advantaged where we own VSIAX.)

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Vanguard launching factor-based ETFs/funds

Post by lorneabramson » Wed Nov 29, 2017 2:24 pm

[Thread merged into here, see below. --admin LadyGeek]

Interesting - Just in case anyone missed today's announcement from Vanguard re: their upcoming launch of factor-based ETFs/funds:

https://advisors.vanguard.com/VGApp/iip ... 38438&st=R

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by grap0013 » Wed Nov 29, 2017 2:34 pm

Doc wrote:
Wed Nov 29, 2017 11:09 am
grap0013 wrote:
Wed Nov 29, 2017 10:35 am
I think the differences between IJS and VBR are small.
Image
http://quotes.morningstar.com/chart/etf ... ture=en_US
That chart is not right. It does not include dividends. VBR's yield is like 2% while IJS is like 1/2 % or something. Punch in VISVX or VSIAX and then add add IJS to compare. It's a difference of like $5.82 or something like that over the past 10 years. Could easily go either way between the 2 funds.

I've been on a bit of a hiatus from BGs due to a very busy personal life at the moment but I see you guys need me on here regularly to catch these data errors and misrepresentation of information! :-)
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Re: Vanguard launching factor-based ETFs/funds

Post by tludwig23 » Wed Nov 29, 2017 2:37 pm

I wonder what the ERs will be for these "low cost, actively managed" funds.
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by grap0013 » Wed Nov 29, 2017 2:43 pm

garlandwhizzer wrote:
Wed Nov 29, 2017 11:42 am
There is behavioral research that shows on average those who hold cap-weighted indexes, plain old beta, are less likely to bail out during bad times. Factors have outperformed historically. Factor investors as a whole have not. Tracking error is difficult for many to tolerate. Many factors especially MOM, but to a lesser extent VAL, have behavioral explanations. It is not hard to imagine that behavioral explanations play a role in why factor investors on average underperform plain vanilla beta investors. Sticking with factor approaches requires rock solid belief in their eventual outperformance and the discipline to maintain positions during the sometimes long periods of underperformance. Some factor investors discover too late that they don't meet these two requirements, the same way that other investors discover in the depths of a bear market what their true risk tolerance is.
Garland Whizzer
I concur. People have a hard time sticking to diets, getting regular exercise, exerting critical thinking for prolonged periods of time, etc... As in life in general, the folks who are the most comfortable with being uncomfortable for prolonged periods of time are going to reap the rewards. I was buying stupid EM for several years and now it is finally paying off. I think the same will be said for the TS MOM fund QMHIX.

10% of investors make 90% of the money because they stay the course!
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by avalpert » Wed Nov 29, 2017 2:48 pm

grap0013 wrote:
Wed Nov 29, 2017 2:34 pm
Doc wrote:
Wed Nov 29, 2017 11:09 am
grap0013 wrote:
Wed Nov 29, 2017 10:35 am
I think the differences between IJS and VBR are small.
Image
http://quotes.morningstar.com/chart/etf ... ture=en_US
That chart is not right. It does not include dividends. VBR's yield is like 2% while IJS is like 1/2 % or something. Punch in VISVX or VSIAX and then add add IJS to compare. It's a difference of like $5.82 or something like that over the past 10 years. Could easily go either way between the 2 funds.

I've been on a bit of a hiatus from BGs due to a very busy personal life at the moment but I see you guys need me on here regularly to catch these data errors and misrepresentation of information! :-)
Look closer, the chart is right even accounting for the Q3 dividend distributions.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by ResearchMed » Wed Nov 29, 2017 2:50 pm

grap0013 wrote:
Wed Nov 29, 2017 2:43 pm
garlandwhizzer wrote:
Wed Nov 29, 2017 11:42 am
There is behavioral research that shows on average those who hold cap-weighted indexes, plain old beta, are less likely to bail out during bad times. Factors have outperformed historically. Factor investors as a whole have not. Tracking error is difficult for many to tolerate. Many factors especially MOM, but to a lesser extent VAL, have behavioral explanations. It is not hard to imagine that behavioral explanations play a role in why factor investors on average underperform plain vanilla beta investors. Sticking with factor approaches requires rock solid belief in their eventual outperformance and the discipline to maintain positions during the sometimes long periods of underperformance. Some factor investors discover too late that they don't meet these two requirements, the same way that other investors discover in the depths of a bear market what their true risk tolerance is.
Garland Whizzer
I concur. People have a hard time sticking to diets, getting regular exercise, exerting critical thinking for prolonged periods of time, etc... As in life in general, the folks who are the most comfortable with being uncomfortable for prolonged periods of time are going to reap the rewards. I was buying stupid EM for several years and now it is finally paying off. I think the same will be said for the TS MOM fund QMHIX.

10% of investors make 90% of the money because they stay the course!
"As in life in general, the folks who are the most comfortable with being uncomfortable for prolonged periods of time are going to reap the rewards."

:confused

I'd consider "being comfortable for prolonged periods of time" as reaping some of the rewards, at the least, be it financial or "life in general".

RM
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by Random Walker » Wed Nov 29, 2017 3:53 pm

Hopefully the VG products will create competition for other suppliers of factor exposure and the expense ratios of those funds will start to drop.

Dave

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by Doc » Wed Nov 29, 2017 4:05 pm

grap0013 wrote:
Wed Nov 29, 2017 2:34 pm
That chart is not right. It does not include dividends.
avalpert wrote:
Wed Nov 29, 2017 2:48 pm
Look closer, the chart is right even accounting for the Q3 dividend distributions.
Of course it's right. It is a price (NAV) chart. It is not supposed to include dividends. :D

The problem with the chart is that it is only for three months. That doesn't make it "not right". And the short time is because that is how long I've held IJS in taxable. It gained over 10% in three months for an annualized gain of some 120% even without the dividends. So I can't sell the damn thing without incurring a whole lot of short term gains. :(
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by grap0013 » Wed Nov 29, 2017 4:10 pm

avalpert wrote:
Wed Nov 29, 2017 2:48 pm
Look closer, the chart is right even accounting for the Q3 dividend distributions.
I'm not sure what I'm supposed to be looking at.

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

I know the above is accurate. I know, I know 21 basis points is nothing to sneeze at.
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Re: Vanguard launching factor-based ETFs/funds

Post by totesmagotes » Wed Nov 29, 2017 4:10 pm

lorneabramson wrote:
Wed Nov 29, 2017 2:24 pm
Interesting - Just in case anyone missed today's announcement from Vanguard re: their upcoming launch of factor-based ETFs/funds:

https://advisors.vanguard.com/VGApp/iip ... 38438&st=R
If a bunch of money pours into the "Vanguard U.S. Value Factor ETF", wouldn't that bid up the price of the stocks in that fund, thus reducing future returns? Will factor-based investing be different than investing schemes in the past that worked until they became popular? I don't know the answers, and I have some money in USMF (WisdomTree US Multifactor ETF).

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by grap0013 » Wed Nov 29, 2017 4:14 pm

ResearchMed wrote:
Wed Nov 29, 2017 2:50 pm

"As in life in general, the folks who are the most comfortable with being uncomfortable for prolonged periods of time are going to reap the rewards."

:confused

I'd consider "being comfortable for prolonged periods of time" as reaping some of the rewards, at the least, be it financial or "life in general".

RM
You get to be comfortable by first going through some discomfort. If you start out trying to make yourself comfortable from the get go you are not going to get very far.
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by rkhusky » Wed Nov 29, 2017 4:24 pm

triceratop wrote:
Wed Nov 29, 2017 9:45 am
Wouldn't we need to see substantial outperformance of value or any of these factors due to the crowding before the underperformance? Have we seen that yet?
I thought the out performance was prior to Fama-French.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by triceratop » Wed Nov 29, 2017 4:30 pm

Doc wrote:
Wed Nov 29, 2017 4:05 pm
grap0013 wrote:
Wed Nov 29, 2017 2:34 pm
That chart is not right. It does not include dividends.
avalpert wrote:
Wed Nov 29, 2017 2:48 pm
Look closer, the chart is right even accounting for the Q3 dividend distributions.
Of course it's right. It is a price (NAV) chart. It is not supposed to include dividends. :D

The problem with the chart is that it is only for three months. That doesn't make it "not right". And the short time is because that is how long I've held IJS in taxable. It gained over 10% in three months for an annualized gain of some 120% even without the dividends. So I can't sell the damn thing without incurring a whole lot of short term gains. :(
Okay you three, settle down. :wink:

Here's the growth chart we've all been waiting for

Image

There is substantial outperformance even including dividends, of course, because the gap was so wide to begin with. At the same time, grap is right that over longer periods the difference hasn't materialized. Of course, we don't know what happened in 2000-2002 with VBR. Would be interesting to look up the index return! Note that VBR has changed indices repeatedly. That's another reason I dislike Vanguard's small value fund -- I can't rely on keeping the same factor exposure in taxable after accumulating large gains.
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Re: Vanguard launching factor-based ETFs/funds

Post by rkhusky » Wed Nov 29, 2017 4:43 pm


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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by avalpert » Wed Nov 29, 2017 4:52 pm

grap0013 wrote:
Wed Nov 29, 2017 4:10 pm
avalpert wrote:
Wed Nov 29, 2017 2:48 pm
Look closer, the chart is right even accounting for the Q3 dividend distributions.
I'm not sure what I'm supposed to be looking at.

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

I know the above is accurate. I know, I know 21 basis points is nothing to sneeze at.
He was showing a chart for the last 3 month - the divergence is pretty big (a lot more than 21 basis points). To me, regardless of what I might expect in terms of long term performance it does tell me that the two funds behave differently.

Also, when comparing these Vanguard funds to other indexes you probably shouldn't look at the history before late 2012 when they switched to CRSP.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by avalpert » Wed Nov 29, 2017 4:54 pm

rkhusky wrote:
Wed Nov 29, 2017 4:24 pm
triceratop wrote:
Wed Nov 29, 2017 9:45 am
Wouldn't we need to see substantial outperformance of value or any of these factors due to the crowding before the underperformance? Have we seen that yet?
I thought the out performance was prior to Fama-French.
I believe he is suggesting you should see out performance as demand kicks up with the people crowding in - that would occur after the factor becomes popular.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by rkhusky » Wed Nov 29, 2017 4:58 pm

avalpert wrote:
Wed Nov 29, 2017 4:54 pm
rkhusky wrote:
Wed Nov 29, 2017 4:24 pm
triceratop wrote:
Wed Nov 29, 2017 9:45 am
Wouldn't we need to see substantial outperformance of value or any of these factors due to the crowding before the underperformance? Have we seen that yet?
I thought the out performance was prior to Fama-French.
I believe he is suggesting you should see out performance as demand kicks up with the people crowding in - that would occur after the factor becomes popular.
I think factors are already popular.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by avalpert » Wed Nov 29, 2017 5:01 pm

rkhusky wrote:
Wed Nov 29, 2017 4:58 pm
avalpert wrote:
Wed Nov 29, 2017 4:54 pm
rkhusky wrote:
Wed Nov 29, 2017 4:24 pm
triceratop wrote:
Wed Nov 29, 2017 9:45 am
Wouldn't we need to see substantial outperformance of value or any of these factors due to the crowding before the underperformance? Have we seen that yet?
I thought the out performance was prior to Fama-French.
I believe he is suggesting you should see out performance as demand kicks up with the people crowding in - that would occur after the factor becomes popular.
I think factors are already popular.
But did they ever have the big uptick in performance driven by demand as 'commoners' rush into them? Maybe they aren't really as popular as some claim.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by LadyGeek » Wed Nov 29, 2017 5:04 pm

I merged lorneabramson's thread into here.
rkhusky wrote:
Wed Nov 29, 2017 4:58 pm
I think factors are already popular.
The wiki has some background info: Factors (finance)
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by Doc » Wed Nov 29, 2017 5:22 pm

rkhusky wrote:
Wed Nov 29, 2017 4:24 pm
I thought the out performance was prior to Fama-French.
CRSP, V&F, price, total returns, factors discounted with popularity whatever.

Here's a 36 month rolling return chart for IJS & VBR. (The ultra short bond fund is only added to get everything on a percent basis and to highlight the funds of interest.)

Image

There's not a whole lot of difference there guys. Sometimes green wins and sometimes orange wins.
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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by jhfenton » Wed Nov 29, 2017 7:21 pm

Doc wrote:
Wed Nov 29, 2017 5:22 pm
There's not a whole lot of difference there guys. Sometimes green wins and sometimes orange wins.
:beer The same is even true if you throw Vanguard Mid-Cap Value Index into the mix. (But it's not small cap!)

Rolling 36-month returns:
Image

Growth of $10,000:
Image

The charts go back to the inception of VMVAX, the youngest of the three funds.

I've learned not to sweat it too much either. My 401(k) has VMVAX, but no SCV. So be it. We own a ton of SCV elsewhere, so I happily invest in MCV in my 401(k). I use VIOV in taxable where I make continuous small investments. I use VSIAX in retirement accounts where we have six-figure positions, and I ike the 7 bp ER.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by jhfenton » Wed Nov 29, 2017 7:31 pm

As for the original discussion, I am curious to see how the value and multi-factor portfolios look as constructed.

I currently own VLUE, an iShares sector-neutral value fund at 15 bp. It's the only non-Vanguard fund I hold at Vanguard. I'm sceptical that I will find the Vanguard funds more attractive, but I'm curious.

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Re: Vanguard to launch US 'smart beta' ETFs - Will this board burn down?

Post by heyyou » Wed Nov 29, 2017 10:57 pm

going forward, if factor funds underperform, investors will be faced with the dilemma of figuring out whether it is cyclical (keep investing more by rebalancing in) or "factors" are broken because of over-grazing.
It will fluctuate. Just like everything else does over long periods. Might be wise to do that diversification thingy.

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