Vanguard US Multifactor Fund

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brother7
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Vanguard US Multifactor Fund

Post by brother7 » Thu Jan 25, 2018 9:23 pm

I'm excited to see how Vanguard's foray into factor investing goes and if it'll be competitive with Blackrock's iShares Edge MSCI Multifactor USA ETF.

I googled and found a poorly-formatted preliminary prospectus which indicates an effective date of February 13, 2018, just in time for Valentine's Day!

david1082b
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Re: Vanguard US Multifactor Fund

Post by david1082b » Thu Jan 25, 2018 9:47 pm

Stuck for a good Valentine's gift this year? Look no further than the Vanguard US Multifactor ETF! Sure to impress with its good value and high quality, this small package packs a big punch that will be sure to create romantic momentum for anyone who buys it.

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whodidntante
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Re: Vanguard US Multifactor Fund

Post by whodidntante » Thu Jan 25, 2018 10:01 pm

david1082b wrote:
Thu Jan 25, 2018 9:47 pm
Stuck for a good Valentine's gift this year? Look no further than the Vanguard US Multifactor ETF! Sure to impress with its good value and high quality, this small package packs a big punch that will be sure to create romantic momentum for anyone who buys it.
Yes, but the small size may ruin Valentine's Day for some.

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Taylor Larimore
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Re: Vanguard US Multifactor Fund

Post by Taylor Larimore » Thu Jan 25, 2018 10:43 pm

brother7 wrote:
Thu Jan 25, 2018 9:23 pm
I'm excited to see how Vanguard's foray into factor investing goes and if it'll be competitive with Blackrock's iShares Edge MSCI Multifactor USA ETF.
brother7:

The oldest multi-factor fund I can find is PNC Multi-Factor Small-Cap Value C (PSVCX). Its 15-year average return was 7.83%. Total Stock Market (VTSAX) return was 10.99%.

Be wary of "factor" investing.

Consider The Three-Fund Portfolio. which holds nearly all stocks (including "factor" stocks) at market weight.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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sunnywindy
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Re: Vanguard US Multifactor Fund

Post by sunnywindy » Thu Jan 25, 2018 10:47 pm

brother7 wrote:
Thu Jan 25, 2018 9:23 pm
I'm excited to see how Vanguard's foray into factor investing goes and if it'll be competitive with Blackrock's iShares Edge MSCI Multifactor USA ETF
The Vanguard fund will target value, momentum, and quality. The iShares fund targets those three plus size. Although it's going to be 'active', Vanguard said one of the main reasons they went active instead of creating their own index, had more to do with trying to market the fund to advisers and dissuading the general public from buying the fund (who supposedly will be off-put by it being 'active').

I for one like the size factor best, so I guess I prefer the iShares factor combo. But, I also like the idea that the Vanguard fund can be run like a DFA fund that is an index in everything but name, but they can be patient in trading and can make a few trades when the market dictates and not when the index mandates. It definitely will not be a 'stock picker' type fund.

I own iShares Multifactor Intl (INTF) and Emerging Markets (EMGF) in my fun money account (replacing VEA and VWO), but I haven't gone multifactor for the US because VTI is so hard to beat. Not sure LRGF is going to be better than VTI with my 20-year timeframe, but I will be watching the Vanguard offering, too.
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thangngo
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Re: Vanguard US Multifactor Fund

Post by thangngo » Thu Jan 25, 2018 10:55 pm

If I ever buy it, it would be in my tax advantaged account. It looks like a big tax drag if hold in taxable.

stlutz
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Re: Vanguard US Multifactor Fund

Post by stlutz » Thu Jan 25, 2018 11:33 pm

If I ever buy it, it would be in my tax advantaged account. It looks like a big tax drag if hold in taxable.
The iShares ETF has never paid a capital gains distribution.

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Re: Vanguard US Multifactor Fund

Post by lazyday » Fri Jan 26, 2018 5:32 am

sunnywindy wrote:
Thu Jan 25, 2018 10:47 pm
I for one like the size factor best ....
I own iShares Multifactor Intl (INTF) and Emerging ....
If you like the size factor, why not use smallcap ISCF instead?

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Re: Vanguard US Multifactor Fund

Post by saltycaper » Fri Jan 26, 2018 7:30 am

Taylor Larimore wrote:
Thu Jan 25, 2018 10:43 pm

Be wary of "factor" investing.

Consider The Three-Fund Portfolio. which holds nearly all stocks (including "factor" stocks) at market weight.
All stocks are "factor" stocks. You may not pay attention to the stable or changing characteristics of a stock, but a lack of attention does not change the characteristics.

The Three-Fund Portfolio described in your opening post does not hold stocks at market weight--there is a tilt toward US stocks.
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jhfenton
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Re: Vanguard US Multifactor Fund

Post by jhfenton » Fri Jan 26, 2018 7:46 am

Taylor Larimore wrote:
Thu Jan 25, 2018 10:43 pm
brother7 wrote:
Thu Jan 25, 2018 9:23 pm
I'm excited to see how Vanguard's foray into factor investing goes and if it'll be competitive with Blackrock's iShares Edge MSCI Multifactor USA ETF.
brother7:

The oldest multi-factor fund I can find is PNC Multi-Factor Small-Cap Value C (PSVCX). Its 15-year average return was 7.83%. Total Stock Market (VTSAX) return was 10.99%.

Be wary of "factor" investing.

Consider The Three-Fund Portfolio. which holds nearly all stocks (including "factor" stocks) at market weight.

Best wishes.
Taylor
Tacking the word "multi-factor" on a third-rate active fund with a 2.07% expense ratio doesn't make it comparable to a well-designed iShares or Vanguard mutual fund or ETF with an ER of 18 or 20 bp. That fund is the equivalent of the Long Island Ice Tea Corp changing its name to Long Blockchain Corp.

Respectfully,
John

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jhfenton
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Re: Vanguard US Multifactor Fund

Post by jhfenton » Fri Jan 26, 2018 8:16 am

sunnywindy wrote:
Thu Jan 25, 2018 10:47 pm
I own iShares Multifactor Intl (INTF) and Emerging Markets (EMGF) in my fun money account (replacing VEA and VWO), but I haven't gone multifactor for the US because VTI is so hard to beat. Not sure LRGF is going to be better than VTI with my 20-year timeframe, but I will be watching the Vanguard offering, too.
I own EMGF in my HSA, but I'm hedging my bets by sticking with VEMAX in tax-advantaged and VWO in taxable at Vanguard.

I have not jumped on the INTF ship, because I don't own any large developed, only small (Vanguard's VSS) and emerging markets.

I'm watching ISCF, but it's still too small and illiquid. Average daily volume in ISCF is just over $300,000. Far too little to replace a significant chunk of my largest holding (VSS). I bought into EMGF last fall when it was at $90 MM in assets and a clear trend had emerged. It is now at $149 MM.

I am looking forward to seeing the initial portfolio for Vanguard US Multifactor. My U.S. large cap allocation is not large, and I will consider moving it to the new fund.
Last edited by jhfenton on Fri Jan 26, 2018 9:00 am, edited 1 time in total.

lazyday
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Re: Vanguard US Multifactor Fund

Post by lazyday » Fri Jan 26, 2018 8:54 am

It’d be nice if we could place a special kind of ETF limit order to trade at NAV. The limit price would move with fund NAV and you can trade with the broad market. Though you would only want execution to be allowed while NAV is reliable, such as when Europe is still trading in the case of ISCF. This might not work for EM funds.

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Re: Vanguard US Multifactor Fund

Post by 2pedals » Fri Jan 26, 2018 8:59 am

saltycaper wrote:
Fri Jan 26, 2018 7:30 am
Taylor Larimore wrote:
Thu Jan 25, 2018 10:43 pm

Be wary of "factor" investing.

Consider The Three-Fund Portfolio. which holds nearly all stocks (including "factor" stocks) at market weight.
All stocks are "factor" stocks. You may not pay attention to the stable or changing characteristics of a stock, but a lack of attention does not change the characteristics.
st
The Three-Fund Portfolio described in your opening post does not hold stocks at market weight--there is a tilt toward US stocks.
A factor is defined by placing a scanning test filter on a group of stocks, not individual stocks. If the test is passed the stock can be included in the bucket of stocks that are classified by that factor. The grouping of stocks and asset allocation within the group that passed the scanning test defines the factor. So any individual stock cannot be a factor stock. An individual stock can be tainted by multiples of various possible scanning tests that it may pass.

The three-fund portfolio can be tilted toward US stocks, or international (ex-us) or bonds depending on the investor's desired asset allocation. Say a investors selects 80% Vanguard Total International Stock Index Fund, 10% Vanguard Total Stock Market Index Fund and 10% Vanguard Total Bond Market Fund, that AA would not be a tilt toward US stocks.

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jhfenton
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Re: Vanguard US Multifactor Fund

Post by jhfenton » Fri Jan 26, 2018 9:24 am

lazyday wrote:
Fri Jan 26, 2018 8:54 am
It’d be nice if we could place a special kind of ETF limit order to trade at NAV. The limit price would move with fund NAV and you can trade with the broad market. Though you would only want execution to be allowed while NAV is reliable, such as when Europe is still trading in the case of ISCF. This might not work for EM funds.
I would like that as well, a hybrid vehicle combining the portability of ETFs with a close-to-NAV end-of-day price.

Eaton Vance actually patented something very close to what we want, but they're using it for evil :twisted:, using the innovation to try to sell slightly cheaper active management in a fancy new wrapper.

They've launched and licensed a family of over-priced, actively-managed ETMFs (Exchange-Traded Managed Funds) called NextShares. Between Eaton Vance and licensees, they've launched 12 funds, but none are compelling and none have accumulated significant assets. There has been limited broker availability as well. There are other licensees with ETMFs in the pipeline.

With their ETMFs, you place an order at NAV plus or minus a stated spread and it executes at end of market day NAV +/- the spread.

Unfortunately the patent, and the license fees they are demanding will probably keep what we want from becoming widespread and cheap for a long time.

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Re: Vanguard US Multifactor Fund

Post by acanthurus » Fri Jan 26, 2018 9:31 am

Taylor Larimore wrote:
Thu Jan 25, 2018 10:43 pm
brother7 wrote:
Thu Jan 25, 2018 9:23 pm
I'm excited to see how Vanguard's foray into factor investing goes and if it'll be competitive with Blackrock's iShares Edge MSCI Multifactor USA ETF.
brother7:

The oldest multi-factor fund I can find is PNC Multi-Factor Small-Cap Value C (PSVCX). Its 15-year average return was 7.83%. Total Stock Market (VTSAX) return was 10.99%.

Be wary of "factor" investing.

Consider The Three-Fund Portfolio. which holds nearly all stocks (including "factor" stocks) at market weight.

Best wishes.
Taylor
The fund you cited charges more than 2% in expense ratio. I think a more important takeaway from your example would be to avoid high cost investments, not necessarily factors.

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pezblanco
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Re: Vanguard US Multifactor Fund

Post by pezblanco » Fri Jan 26, 2018 9:47 am

2pedals wrote:
Fri Jan 26, 2018 8:59 am
saltycaper wrote:
Fri Jan 26, 2018 7:30 am
Taylor Larimore wrote:
Thu Jan 25, 2018 10:43 pm

Be wary of "factor" investing.

Consider The Three-Fund Portfolio. which holds nearly all stocks (including "factor" stocks) at market weight.
All stocks are "factor" stocks. You may not pay attention to the stable or changing characteristics of a stock, but a lack of attention does not change the characteristics.
st
The Three-Fund Portfolio described in your opening post does not hold stocks at market weight--there is a tilt toward US stocks.
A factor is defined by placing a scanning test filter on a group of stocks, not individual stocks. If the test is passed the stock can be included in the bucket of stocks that are classified by that factor. The grouping of stocks and asset allocation within the group that passed the scanning test defines the factor. So any individual stock cannot be a factor stock. An individual stock can be tainted by multiples of various possible scanning tests that it may pass.

The three-fund portfolio can be tilted toward US stocks, or international (ex-us) or bonds depending on the investor's desired asset allocation. Say a investors selects 80% Vanguard Total International Stock Index Fund, 10% Vanguard Total Stock Market Index Fund and 10% Vanguard Total Bond Market Fund, that AA would not be a tilt toward US stocks.
You can run a factor regression on one stock or a portfolio of stocks. The factor regression on one stock will allow you say if the stock is small or valuey or what have you in comparison with the defined long-short portfolios defining those factors. So, it really a semantic question .... you could very well say that a stock is a factor stock .... it is the same as saying that it's returns are explained by it's loading on various factors.

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saltycaper
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Re: Vanguard US Multifactor Fund

Post by saltycaper » Fri Jan 26, 2018 9:49 am

2pedals wrote:
Fri Jan 26, 2018 8:59 am

A factor is defined by placing a scanning test filter on a group of stocks, not individual stocks. If the test is passed the stock can be included in the bucket of stocks that are classified by that factor. The grouping of stocks and asset allocation within the group that passed the scanning test defines the factor. So any individual stock cannot be a factor stock. An individual stock can be tainted by multiples of various possible scanning tests that it may pass.

The three-fund portfolio can be tilted toward US stocks, or international (ex-us) or bonds depending on the investor's desired asset allocation. Say a investors selects 80% Vanguard Total International Stock Index Fund, 10% Vanguard Total Stock Market Index Fund and 10% Vanguard Total Bond Market Fund, that AA would not be a tilt toward US stocks.
The point is Taylor is misinformed to think there are "factor stocks" and "non-factor" stocks, in general, without regard to a specific factor.

His OP in the 3-fund thread recommends 20% int'l, which is obviously a US tilt. Of course it could go the other way, but he doesn't advocate that.
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afan
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Re: Vanguard US Multifactor Fund

Post by afan » Fri Jan 26, 2018 9:53 am

I am glad Vanguard is doing this. Not because I have any interest in buying the fund, but because Vanguard's continued growth will help keep expenses down and may lead them to offer something I actually want.

Note that the academics who study factor investing make much of the relationship between factors and stock performance. In the statistical sense they interpret the factors as "explaining" stock returns. However, they do not claim that investing in factors rather than cap weighted market funds produces higher risk adjusted returns.

Instead, they say the factors permit investors to customize their portfolios to match their unique risk preferences. This is more a theoretical than practical advantage since few of us know our unique risk preferences. People who do not know their risk preferences have no reason to assume they differ from those of the market as a whole. Thus, they have no reason to choose risk characteristics different from the cap weighted funds. See my quote from the father of factor investing Eugene Fama.
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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Re: Vanguard US Multifactor Fund

Post by sunnywindy » Fri Jan 26, 2018 10:24 am

lazyday wrote:
Fri Jan 26, 2018 5:32 am
sunnywindy wrote:
Thu Jan 25, 2018 10:47 pm
I for one like the size factor best ....
I own iShares Multifactor Intl (INTF) and Emerging ....
If you like the size factor, why not use smallcap ISCF instead?
There's a whole host of reasons, but the main one was that ISCF a year and a half ago barely had any AUM and it just wasn't something I could invest in. The second reason is that I tilt to small caps (~30%) in my main portfolio (VB, VSS) and in my fun money portfolio, I wanted to use 'large caps' and not duplicate my main strategy.

It is interesting to note that the parent index (MSCI Developed ex-US IMI, in the form of iShares IDEV) has a market cap of $25,579, INTF has a market cap of $13,261, and ISCF has a market cap of $1,547 (from Morningstar; in millions), so ISCF is substantially smaller than the other ETFs. While ISCF is a similar size to the S&P 600 SmallCap Index, INTF is much larger than the S&P400 MidCap Index ($5,298), so INTF really is a large-cap fund.
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thangngo
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Re: Vanguard US Multifactor Fund

Post by thangngo » Fri Jan 26, 2018 10:40 am

brother7 wrote:
Thu Jan 25, 2018 9:23 pm
I'm excited to see how Vanguard's foray into factor investing goes and if it'll be competitive with Blackrock's iShares Edge MSCI Multifactor USA ETF.

I googled and found a poorly-formatted preliminary prospectus which indicates an effective date of February 13, 2018, just in time for Valentine's Day!
Correct me if I'm wrong, but this sounds like what a small value actively managed fund does. They evaluate and pick stocks based on trending, quality, size, and value. I have 10% of my portfolio in this type of fund and it typically outperforms S&P 500 index in less than 3 years window. What difference does Vanguard/ishare multi-factor ETF have? They call it a passive index fund, but is it really? It looks like, sounds like, behaves like an actively managed funds to me.

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Re: Vanguard US Multifactor Fund

Post by lazyday » Fri Jan 26, 2018 11:28 am

jhfenton wrote:
Fri Jan 26, 2018 9:24 am
With their ETMFs, you place an order at NAV plus or minus a stated spread and it executes at end of market day NAV +/- the spread.
I was just thinking of a special kind of limit order, but this sounds nice too. As long as dealing with retail investors didn't raise the ER noticeably.

If ishares offered that on ISCF, even without patent fees I'd expect the purchase fee today to be at least .75% considering the recent premium. But at least it would be easy to trade. No worrying about current premium or the trading spread.

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jhfenton
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Re: Vanguard US Multifactor Fund

Post by jhfenton » Tue Feb 13, 2018 9:20 am

I can't see any sign of it yet, but based on the previous filing, today is the earliest day the multifactor fund (and the multifactor and single factor ETFs) could be launched. :beer

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Re: Vanguard US Multifactor Fund

Post by Random Walker » Tue Feb 13, 2018 10:10 am

Quickly looked at the prospectus. This fund is nothing like the style premia multi factor fund of AQR. This VG Fund is a long only US stock fund that looks like it will focus on market, momentum, value, profitability. So the dominant factor remains market beta. In contrast AQR Style Premia is a market neutral long-short fund that invests in 4 styles across I think 4 asset classes. The 4 styles are value, momentum, carry, defensive. The 4 asset classes are equities, bonds, currencies, commodities. As to which one is a better diversifier of a typical long only equity heavy portfolio, they are not even in the same ball park. Of course the expense ratios are not in the same ball park either. With regard to expense ratios, it’s not price that matters. It’s price per unit value added. Both funds reference multi factor in their labels, but have very little in common. I’m sure both are good funds. It’s important that the investor understand what he is trying to accomplish when he makes a new addition to his portfolio.

Dave

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Re: Vanguard US Multifactor Fund

Post by Random Walker » Tue Feb 13, 2018 10:18 am

Afan,
I believe there is a difference between an efficient market and an efficient portfolio. Although there are no free lunches in the markets, some portfolios will be more efficient than others. Those portfolios closer to the northwest corner of a risk return graph will likely be more diversified across factors, sources of risk/return, geography.
Although few of us may truly know our risk preferences as you say, most likely we are all risk averse. Thus we all would rationally want to minimize standard deviation and maximal drawdown for a given level of return. We do this by accepting market efficiency and trying to increase portfolio efficiency through diversification. As always, there is likely a trade off between portfolio efficiency and cost.

Dave
Last edited by Random Walker on Tue Feb 13, 2018 10:23 am, edited 1 time in total.

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Re: Vanguard US Multifactor Fund

Post by MotoTrojan » Tue Feb 13, 2018 10:19 am

lazyday wrote:
Fri Jan 26, 2018 11:28 am
jhfenton wrote:
Fri Jan 26, 2018 9:24 am
With their ETMFs, you place an order at NAV plus or minus a stated spread and it executes at end of market day NAV +/- the spread.
I was just thinking of a special kind of limit order, but this sounds nice too. As long as dealing with retail investors didn't raise the ER noticeably.

If ishares offered that on ISCF, even without patent fees I'd expect the purchase fee today to be at least .75% considering the recent premium. But at least it would be easy to trade. No worrying about current premium or the trading spread.
You’d pay a 75bps fee to ensure you traded at NAV? Are spreads often that large? Is buying a share at $99 but a premium better than waiting an hour and getting it at $100 at NAV?

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Re: Vanguard US Multifactor Fund

Post by jhfenton » Tue Feb 13, 2018 11:25 am

Random Walker wrote:
Tue Feb 13, 2018 10:10 am
Quickly looked at the prospectus. This fund is nothing like the style premia multi factor fund of AQR. This VG Fund is a long only US stock fund that looks like it will focus on market, momentum, value, profitability. So the dominant factor remains market beta. In contrast AQR Style Premia is a market neutral long-short fund that invests in 4 styles across I think 4 asset classes. The 4 styles are value, momentum, carry, defensive. The 4 asset classes are equities, bonds, currencies, commodities. As to which one is a better diversifier of a typical long only equity heavy portfolio, they are not even in the same ball park. Of course the expense ratios are not in the same ball park either. With regard to expense ratios, it’s not price that matters. It’s price per unit value added. Both funds reference multi factor in their labels, but have very little in common. I’m sure both are good funds. It’s important that the investor understand what he is trying to accomplish when he makes a new addition to his portfolio.

Dave
I don't think anyone was under the illusion that this was an AQR-type alternative fund. The comparisons in this thread and a couple others have been to the iShares multifactor ETFs, DFA offerings, and other similar funds.

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Re: Vanguard US Multifactor Fund

Post by Angst » Tue Feb 13, 2018 11:37 am

brother7 wrote:
Thu Jan 25, 2018 9:23 pm
I googled and found a poorly-formatted preliminary prospectus which indicates an effective date of February 13, 2018, just in time for Valentine's Day!
I tend to agree, although the SEC probably wouldn't.
jhfenton wrote:
Tue Feb 13, 2018 11:25 am
Random Walker wrote:
Tue Feb 13, 2018 10:10 am
Quickly looked at the prospectus. This fund is nothing like the style premia multi factor fund of AQR. This VG Fund is a long only US stock fund that looks like it will focus on market, momentum, value, profitability. So the dominant factor remains market beta. In contrast AQR Style Premia is a market neutral long-short fund that invests in 4 styles across I think 4 asset classes. The 4 styles are value, momentum, carry, defensive. The 4 asset classes are equities, bonds, currencies, commodities. As to which one is a better diversifier of a typical long only equity heavy portfolio, they are not even in the same ball park. Of course the expense ratios are not in the same ball park either. With regard to expense ratios, it’s not price that matters. It’s price per unit value added. Both funds reference multi factor in their labels, but have very little in common. I’m sure both are good funds. It’s important that the investor understand what he is trying to accomplish when he makes a new addition to his portfolio.

Dave
I don't think anyone was under the illusion that this was an AQR-type alternative fund. The comparisons in this thread and a couple others have been to the iShares multifactor ETFs, DFA offerings, and other similar funds.
I took out my scissors and pasted together the following for Vanguard's prospective U.S. Multifactor ETF. (My formatting, bolding, etc.) First two paragraphs are practically identical:
Vanguard's Prospectus wrote:
• Vanguard U.S. Multifactor ETF invests primarily in U.S. common stocks with the potential to generate higher returns relative to the broad U.S. equity market by investing in stocks with relatively strong recent performance, strong fundamentals, and low prices relative to fundamentals as determined by the advisor. The portfolio will include a diverse mix of companies representing many different market sectors and industry groups. The advisor uses a quantitative model to evaluate all of the securities in an investment universe comprised of U.S. large, mid, and small capitalization stocks and to construct a U.S. equity portfolio that seeks to achieve exposure to multiple factors subject to a set of reasonable constraints designed to foster portfolio diversification, liquidity, and lower volatility.

Principal Investment Strategies The Fund invests primarily in U.S. common stocks with the potential to generate higher returns relative to the broad U.S. equity market by investing in stocks with relatively strong recent performance, strong fundamentals, and low prices relative to fundamentals as determined by the advisor. The portfolio will include a diverse mix of companies representing many different market sectors and industry groups. The advisor uses a quantitative model to evaluate all of the securities in an investment universe comprised of U.S. large, mid, and small capitalization stocks and to construct a U.S. equity portfolio that seeks to achieve exposure to multiple factors subject to a set of reasonable constraints designed to foster portfolio diversification, liquidity, and lower volatility. Under normal circumstances, at least 80% of the Fund’s assets will be invested in securities issued by U.S. companies.

The investment advisor's quantitative model for the Multifactor ETF, first groups the securities within the Fund's investment universe by market capitalization and then ranks each security within each group by reference to characteristics designed to measure its exposure to the momentum, quality, value and volatility factors. The model then places emphasis on the securities with the lowest rakings related to volatility and the highest rankings related to momentum, quality and value factors. The model determines the identity and amount of securities to include within the portfolio based on such rankings.
Last edited by Angst on Tue Feb 13, 2018 12:02 pm, edited 2 times in total.

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Re: Vanguard US Multifactor Fund

Post by lazyday » Tue Feb 13, 2018 11:58 am

MotoTrojan wrote:
Tue Feb 13, 2018 10:19 am
You’d pay a 75bps fee to ensure you traded at NAV? Are spreads often that large?
I might pay it to get access to the asset class. Small companies can be expensive to trade. If more people are buying than selling ISCF, then someone has to provide the shares and recover their costs somehow.

Back when Vanguard first brought out ETFs for the Pacific and Europe funds, VPL and VGK, I estimated that when markets were calm, they were trading at a premium to Fair Market Value of something like .5% or .75%. You couldn't buy the ETF at FMV, and you could sell for above FMV. If the traditional mutual fund share classes didn't exist, then you would have had to pay this premium to own the asset. Or you could have waited until a moment that the ETFs were less popular, and the premium was smaller or possibly negative.

When I posted about ISCF in January, the story was similar. If you estimate that over the course of a year FMV averages out to be the same as NAV, then according to etfdb, ISCF had an average premium to FMV of about .7%: http://www.etf.com/ISCF

The spread could also be a problem. etfdb reports the average spread as .34%.

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Re: Vanguard US Multifactor Fund

Post by tarheel » Tue Feb 13, 2018 12:13 pm

jhfenton wrote:
Tue Feb 13, 2018 11:25 am
Random Walker wrote:
Tue Feb 13, 2018 10:10 am
Quickly looked at the prospectus. This fund is nothing like the style premia multi factor fund of AQR. This VG Fund is a long only US stock fund that looks like it will focus on market, momentum, value, profitability. So the dominant factor remains market beta. In contrast AQR Style Premia is a market neutral long-short fund that invests in 4 styles across I think 4 asset classes. The 4 styles are value, momentum, carry, defensive. The 4 asset classes are equities, bonds, currencies, commodities. As to which one is a better diversifier of a typical long only equity heavy portfolio, they are not even in the same ball park. Of course the expense ratios are not in the same ball park either. With regard to expense ratios, it’s not price that matters. It’s price per unit value added. Both funds reference multi factor in their labels, but have very little in common. I’m sure both are good funds. It’s important that the investor understand what he is trying to accomplish when he makes a new addition to his portfolio.

Dave
I don't think anyone was under the illusion that this was an AQR-type alternative fund. The comparisons in this thread and a couple others have been to the iShares multifactor ETFs, DFA offerings, and other similar funds.
I think a valid comparison is between this fund and QCELX (AQR large cap US multi-style).

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Re: Vanguard US Multifactor Fund

Post by lack_ey » Tue Feb 13, 2018 12:56 pm

tarheel wrote:
Tue Feb 13, 2018 12:13 pm
jhfenton wrote:
Tue Feb 13, 2018 11:25 am
Random Walker wrote:
Tue Feb 13, 2018 10:10 am
Quickly looked at the prospectus. This fund is nothing like the style premia multi factor fund of AQR. This VG Fund is a long only US stock fund that looks like it will focus on market, momentum, value, profitability. So the dominant factor remains market beta. In contrast AQR Style Premia is a market neutral long-short fund that invests in 4 styles across I think 4 asset classes. The 4 styles are value, momentum, carry, defensive. The 4 asset classes are equities, bonds, currencies, commodities. As to which one is a better diversifier of a typical long only equity heavy portfolio, they are not even in the same ball park. Of course the expense ratios are not in the same ball park either. With regard to expense ratios, it’s not price that matters. It’s price per unit value added. Both funds reference multi factor in their labels, but have very little in common. I’m sure both are good funds. It’s important that the investor understand what he is trying to accomplish when he makes a new addition to his portfolio.

Dave
I don't think anyone was under the illusion that this was an AQR-type alternative fund. The comparisons in this thread and a couple others have been to the iShares multifactor ETFs, DFA offerings, and other similar funds.
I think a valid comparison is between this fund and QCELX (AQR large cap US multi-style).
Which is not an AQR-type alternative fund, being long-only and equity-only targeting value, momentum, and quality. Vanguard's product is a long-only, equity-only factor fund targeting value, momentum, and quality with volatility considerations.




For reference, here's a non-exhaustive list of existing products just within ETFs that target 3+ factors. I may be in particular missing some that are not branded as multifactor that may have some other targets, especially dividends. Like a small cap vol-weighted dividends fund, which would technically I guess be three factors, if you count dividends as weighting to value.

---
ticker (ER, AUM) - fund name - description

GSLC (0.09%, $2.74B) - Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF - value, momentum, quality, low volatility (four separate sub-indexes)

LRGF (0.20%, $950M) - iShares Edge MSCI Multifactor USA ETF - value, momentum, quality, size

JPUS (0.19%, $452M) - JPMorgan Diversified Return U.S. Equity ETF - value, momentum, quality, considering volatility within and between sectors

JHML (0.35%, $375M) - John Hancock Multifactor Large Cap ETF - value, size, profitability with screen on momentum [managed by DFA]

DEUS (0.19%, $138M) - Xtrackers Russell 1000 Comprehensive Factor ETF - value, momentum, quality, size, low volatility

SCIU (0.19%, $127M) - Global X Scientific Beta US ETF - value, momentum, size, low volatility

QUS (0.15%, $90M) - SPDR MSCI USA StrategicFactors ETF - value, quality, low volatility

ROUS (0.29%, $41M) - Hartford Multifactor US Equity ETF - value, momentum, quality

OMFL (0.29%, $14M) - Oppenheimer Russell 1000 Dynamic Multifactor ETF - value, momentum, quality, size, low volatility, with dynamic weightings based on market cycle

MFUS (0.29%, $19M) - PIMCO RAFI Dynamic Multi-Factor U.S. Equity ETF - value, low volatility, quality, momentum, size sub-portfolios, with screens and relative weightings via RAFI fundamental weights

USMF (0.28%, $4M) - WisdomTree U.S. Multifactor Fund - value, momentum, quality, also incorporating correlations

GMFL (0.25%, $1M) - Guggenheim Multi-Factor Large Cap ETF - value, momentum, quality, growth, short interest, volatility, and liquidity; sector neutral

Keep in mind that weighting and construction methodology and factor definitions generally vary between all of the above. Vanguard is joining a crowded field and not particularly with a cost advantage. That said, they have the Vanguard brand. Maybe the fact that they aren't using an index will help them stand out, not that this is much different from following some custom smart beta index.

GSLC is constructed in a way that lends itself to low active share, low tracking error. Top 5 holdings are Apple, Microsoft, Amazon, Facebook, and JPMorgan. But this is also not true for LRGF because of its size tilt; top 5 are Accenture, Northrop Grumman, Anthem, Cigna, and GM. JPUS top 5: IAC, Dr. Pepper Snapple, Harris, Waters, LabCorp. JHML being run by DFA starts with market cap weights in the kind of way that AQR does as well for the equity funds, so its top 5: Apple, Microsoft, Alphabet, JPMorgan, Amazon. Out of the rest, QUS and MFUS seem to start from market cap and have Apple as the top holding; the others do not.

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Re: Vanguard US Multifactor Fund

Post by Random Walker » Tue Feb 13, 2018 1:08 pm

The term “Multi-Factor” is what got my attention. That’s why I compared it to Style premia. Just a reminder that the name of a fund is virtually meaningless.

Dave

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Re: Vanguard US Multifactor Fund

Post by jhfenton » Tue Feb 13, 2018 1:42 pm

We have tickers and prospectuses filed today:

Vanguard U.S. Liquidity Factor ETF Shares (VFLQ)
Vanguard U.S. Minimum Volatility ETF Shares (VFMV)
Vanguard U.S. Momentum Factor ETF Shares (VFMO)
Vanguard U.S. Multifactor ETF Shares (VFMF)
Vanguard U.S. Quality Factor ETF Shares (VFQY)
Vanguard U.S. Value Factor ETF Shares (VFVA)

Vanguard U.S. Multifactor Fund Admiral Shares (VFMFX)

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Re: Vanguard US Multifactor Fund

Post by triceratop » Tue Feb 13, 2018 1:54 pm

Are these the first Vanguard ETF tickers with more than three letters?

Yikes! Ignore me, I am an idiot, I even own shares in one of the existing ones. :oops:
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Vanguard US Multifactor Fund

Post by jhfenton » Tue Feb 13, 2018 2:06 pm

triceratop wrote:
Tue Feb 13, 2018 1:54 pm
Are these the first Vanguard ETF tickers with more than three letters?

Yikes! Ignore me, I am an idiot, I even own shares in one of the existing ones. :oops:
I think they are the first CBOE-listed Vanguard ETFs.

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Re: Vanguard US Multifactor Fund

Post by JohnDindex » Tue Feb 13, 2018 2:24 pm

Can someone clarify, the multifactor fund is not a fund of funds of the individual factor etf's ?

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Re: Vanguard US Multifactor Fund

Post by jhfenton » Tue Feb 13, 2018 2:29 pm

JohnDindex wrote:
Tue Feb 13, 2018 2:24 pm
Can someone clarify, the multifactor fund is not a fund of funds of the individual factor etf's ?
The multifactor fund is not a fund of funds. It is an individual mutual fund and companion ETF.

And within the fund, it appears that they will use an integrated factor approach (like the iShares multifactor funds) rather than combining discrete single-factor sub-portfolios (like Goldman Sachs):
Principal Investment Strategies

The Fund invests primarily in U.S. common stocks with the potential to generate higher returns relative to the broad U.S. equity market by investing in stocks with relatively strong recent performance, strong fundamentals, and low prices relative to fundamentals as determined by the advisor. The portfolio will include a diverse mix of companies representing many different market sectors and industry groups. The advisor uses a quantitative model to evaluate all of the securities in an investment universe comprised of U.S. large-, mid-, and small-capitalization stocks and to construct a U.S. equity portfolio that seeks to achieve exposure to multiple factors subject to a rules-based screen designed to promote diversification and to mitigate exposure to certain less liquid and more volatile stocks. Under normal circumstances, at least 80% of the Fund’s assets will be invested in securities issued by U.S. companies.

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Re: Vanguard US Multifactor Fund

Post by JohnDindex » Tue Feb 13, 2018 2:31 pm

Thanks.

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Factor funds

Post by Taylor Larimore » Tue Feb 13, 2018 5:21 pm

GSLC (0.09%, $2.74B) - Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF - value, momentum, quality, low volatility (four separate sub-indexes)

LRGF (0.20%, $950M) - iShares Edge MSCI Multifactor USA ETF - value, momentum, quality, size

JPUS (0.19%, $452M) - JPMorgan Diversified Return U.S. Equity ETF - value, momentum, quality, considering volatility within and between sectors

JHML (0.35%, $375M) - John Hancock Multifactor Large Cap ETF - value, size, profitability with screen on momentum [managed by DFA]

DEUS (0.19%, $138M) - Xtrackers Russell 1000 Comprehensive Factor ETF - value, momentum, quality, size, low volatility

SCIU (0.19%, $127M) - Global X Scientific Beta US ETF - value, momentum, size, low volatility

QUS (0.15%, $90M) - SPDR MSCI USA StrategicFactors ETF - value, quality, low volatility

ROUS (0.29%, $41M) - Hartford Multifactor US Equity ETF - value, momentum, quality

OMFL (0.29%, $14M) - Oppenheimer Russell 1000 Dynamic Multifactor ETF - value, momentum, quality, size, low volatility, with dynamic weightings based on market cycle

MFUS (0.29%, $19M) - PIMCO RAFI Dynamic Multi-Factor U.S. Equity ETF - value, low volatility, quality, momentum, size sub-portfolios, with screens and relative weightings via RAFI fundamental weights

USMF (0.28%, $4M) - WisdomTree U.S. Multifactor Fund - value, momentum, quality, also incorporating correlations

GMFL (0.25%, $1M) - Guggenheim Multi-Factor Large Cap ETF - value, momentum, quality, growth, short interest, volatility, and liquidity; sector neutral
Bogleheads:

I was intrigued by the above list of twelve factor funds so I checked with Morningstar to read their 1-yr; 3-yr; 5-yr and 10-yr history. Here's what I found:

The bottom four funds (OMFL; MFUS; USMF; GMFL) are not listed by Morningstar. Of the eight remaining (none have been in business for 3-years) only 3 beat Total Stock Market Index Fund during the past 12 months.

In my 67 years of investing experience, I have seen many fads come and go. This could be another.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Vanguard US Multifactor Fund

Post by triceratop » Tue Feb 13, 2018 5:24 pm

Vanguard Total Stock Market trailed Vanguard Total International Stock Market over the past 12 months. Is investing in the US Stock market a fad?
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Vanguard US Multifactor Fund

Post by Angst » Wed Feb 14, 2018 2:05 am

Taylor Larimore wrote:
Tue Feb 13, 2018 5:21 pm
Bogleheads:

I was intrigued by the above list of twelve factor funds so I checked with Morningstar to read their 1-yr; 3-yr; 5-yr and 10-yr history. Here's what I found:

The bottom four funds (OMFL; MFUS; USMF; GMFL) are not listed by Morningstar. Of the eight remaining (none have been in business for 3-years) only 3 beat Total Stock Market Index Fund during the past 12 months.

In my 67 years of investing experience, I have seen many fads come and go. This could be another.

Best wishes.
Taylor
triceratop wrote:
Tue Feb 13, 2018 5:24 pm
Vanguard Total Stock Market trailed Vanguard Total International Stock Market over the past 12 months. Is investing in the US Stock market a fad?
:?: I don't get it. Total Stock Market seems like a reasonable benchmark for US Equity Long-only Multifactor ETFs. And I wouldn't think Total International a reasonable benchmark for Vanguard Total Stock Market.

I thought Taylor's post added a bit of useful perspective.


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Re: Vanguard US Multifactor Fund

Post by aegis965 » Wed Feb 14, 2018 2:55 am

Underperformance equals fad... So if multif-actor models outperform market beta (in theory they should), does passive investing become a fad?
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Re: Vanguard US Multifactor Fund

Post by lazyday » Wed Feb 14, 2018 3:25 am

jhfenton wrote:
Tue Feb 13, 2018 1:42 pm
Vanguard U.S. Liquidity Factor ETF Shares (VFLQ)
Looking forward to this one. Not to invest in (except maybe during a financial panic) just interested to see how it's run, what it holds, how the ETF price varies from NAV.

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Re: Vanguard US Multifactor Fund

Post by lack_ey » Wed Feb 14, 2018 3:36 am

lazyday wrote:
Wed Feb 14, 2018 3:25 am
jhfenton wrote:
Tue Feb 13, 2018 1:42 pm
Vanguard U.S. Liquidity Factor ETF Shares (VFLQ)
Looking forward to this one. Not to invest in (except maybe during a financial panic) just interested to see how it's run, what it holds, how the ETF price varies from NAV.
The existing Global Liquidity Factor ETF (VLQ) from Vanguard Canada should already give an idea of the holdings.

Top holdings at the end of 2017 were Sprint, Monster Beverage, Southern Copper, Ecolab, Marsh & McLennan, Fiserv, S&P Global, Waste Management, Prologic, Aon, Stryker, Dominion Energy, Fidelity National Information Services, Aflac, Intercontinental Exchange, Sempra Energy, Illinoi Tool Works, Praxair, Las Vegas Sands, Welltower, Phillips 77, CME Group, BlackRock, Progressive, Edison International, and Public Storage. US stocks make up 56% of the fund and all of the top 25 holdings.

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Re: Vanguard US Multifactor Fund

Post by lazyday » Wed Feb 14, 2018 3:54 am

lack_ey wrote:
Wed Feb 14, 2018 3:36 am
The existing Global Liquidity Factor ETF (VLQ) from Vanguard Canada should already give an idea of the holdings.
Top holdings at the end of 2017 were ....
Thanks, didn't know there's already Vanguard liquidity factor funds. Disappointing they hold such large companies.

VDLQ has median market cap of 5.6 billion $US. The 20th largest holding happens to be BlackRock, market cap $84 B. I don't imagine there's much of an illiquidity premium there. The fund holds companies with lower trading volumes, but for such large companies I doubt much of the fund $ are in truly illiquid shares. BlackRock trades about .5% of its shares per day, a little less than $0.5 B. In comparison, Apple trades about .1% of shares per day, or $7 B.

Annual reports etc for the UK version are here: https://www.vanguardinvestor.co.uk/inve ... f/overview

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Re: Vanguard US Multifactor Fund

Post by jhfenton » Wed Feb 14, 2018 9:10 am

The ETFs are in the system as listed securities today (DTCC list), and they show up in the Vanguard ETF buy/sell UI. I don't know if they will trade today, but they are progressing.

Edit: They are not trading today.

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Re: Vanguard US Multifactor Fund

Post by triceratop » Wed Feb 14, 2018 11:16 am

Angst wrote:
Wed Feb 14, 2018 2:05 am
Taylor Larimore wrote:
Tue Feb 13, 2018 5:21 pm
Bogleheads:

I was intrigued by the above list of twelve factor funds so I checked with Morningstar to read their 1-yr; 3-yr; 5-yr and 10-yr history. Here's what I found:

The bottom four funds (OMFL; MFUS; USMF; GMFL) are not listed by Morningstar. Of the eight remaining (none have been in business for 3-years) only 3 beat Total Stock Market Index Fund during the past 12 months.

In my 67 years of investing experience, I have seen many fads come and go. This could be another.

Best wishes.
Taylor
triceratop wrote:
Tue Feb 13, 2018 5:24 pm
Vanguard Total Stock Market trailed Vanguard Total International Stock Market over the past 12 months. Is investing in the US Stock market a fad?
:?: I don't get it. Total Stock Market seems like a reasonable benchmark for US Equity Long-only Multifactor ETFs. And I wouldn't think Total International a reasonable benchmark for Vanguard Total Stock Market.

I thought Taylor's post added a bit of useful perspective.
With every investable country in the world included except one, total international is a reasonable proxy for global equity beta. Yet US underperformed this benchmark for a whole 12-month period.

That’s the logic Taylor just used for multi factor. In full disclosure I have no intention of using these products.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Vanguard US Multifactor Fund

Post by Angst » Wed Feb 14, 2018 12:53 pm

triceratop wrote:
Wed Feb 14, 2018 11:16 am
Angst wrote:
Wed Feb 14, 2018 2:05 am
Taylor Larimore wrote:
Tue Feb 13, 2018 5:21 pm
Bogleheads:

I was intrigued by the above list of twelve factor funds so I checked with Morningstar to read their 1-yr; 3-yr; 5-yr and 10-yr history. Here's what I found:

The bottom four funds (OMFL; MFUS; USMF; GMFL) are not listed by Morningstar. Of the eight remaining (none have been in business for 3-years) only 3 beat Total Stock Market Index Fund during the past 12 months.

In my 67 years of investing experience, I have seen many fads come and go. This could be another.

Best wishes.
Taylor
triceratop wrote:
Tue Feb 13, 2018 5:24 pm
Vanguard Total Stock Market trailed Vanguard Total International Stock Market over the past 12 months. Is investing in the US Stock market a fad?
:?: I don't get it. Total Stock Market seems like a reasonable benchmark for US Equity Long-only Multifactor ETFs. And I wouldn't think Total International a reasonable benchmark for Vanguard Total Stock Market.

I thought Taylor's post added a bit of useful perspective.
With every investable country in the world included except one, total international is a reasonable proxy for global equity beta. Yet US underperformed this benchmark for a whole 12-month period.

That’s the logic Taylor just used for multi factor. In full disclosure I have no intention of using these products.
That's not the logic I see Taylor using. You are the one who introduced "global equity" into the discussion. When Taylor compared the various multifactor funds to the performance of the "Total Stock Market Index Fund", he surely did not mean the "Global Stock Market Index Fund" - he meant the Total US Stock Market.

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Re: Vanguard US Multifactor Fund

Post by jhfenton » Thu Feb 15, 2018 7:57 am

jhfenton wrote:
Wed Feb 14, 2018 9:10 am
The ETFs are in the system as listed securities today (DTCC list), and they show up in the Vanguard ETF buy/sell UI. I don't know if they will trade today, but they are progressing.

Edit: They are not trading today.
I haven't seen a press release yet, but the factor ETFs and mutual fund all seem to be launched today. They have fund profiles on Vanguard.com, and it seemingly would let me exchange into VFMFX.

I'm curious to see how the ETFs trade in the early days. I haven't paid close attention to any of Vanguard previous domestic ETF launches.

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Re: Vanguard US Multifactor Fund

Post by jhfenton » Thu Feb 15, 2018 11:49 am

As of 11:45 AM EST, the spreads on all the new ETFs are $0.07-$0.08 on a share price of $76.xx per share. (It appears they were pegged at $75.00 NAV before the market yesterday.)

But volumes were laughably low:

VFMF - 1,236
VFLQ - 663
VFQY - 237
VFVA - 222
VFMV - 207
VFMO - 14

It's interesting that the low liquidity ETF is the second most active.

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