Vanguard US Multifactor Funds Launch

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Vanguard US Multifactor Funds Launch

Post by sunnywindy » Thu Feb 15, 2018 7:49 am

I wasn't searching for it, but I just noticed that the Vanguard US Multifactor fund/ETF launched today as did the Value, Momentum, Liquidity, and Quality ETFs.

https://advisors.vanguard.com/web/cf/fa ... 1/overview

And as long as we are on this topic, here is an interesting article in Institutional Investor about Smart Beta, i.e. Factor Funds
https://www.institutionalinvestor.com/a ... egist-sick
Last edited by sunnywindy on Thu Feb 15, 2018 8:45 am, edited 1 time in total.
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Re: Vanguard US Multifactor Funds Launch

Post by whodidntante » Thu Feb 15, 2018 8:03 am

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Re: Vanguard US Multifactor Funds Launch

Post by sunnywindy » Thu Feb 15, 2018 8:57 am

It is interesting that the funds are not (yet) listed on the Vanguard 'Personal Investors' website. Tim Buckley did say that these products were intended for advisors/professionals, so I wonder when or if they will be on the Personal Investors website.
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Re: Vanguard US Multifactor Funds Launch

Post by azanon » Thu Feb 15, 2018 9:55 am

I just want to know when the Contrarian multi-factor ETF is coming out. Should be large-cap growth, with emphasis on poor recent performance, weak fundamentals, and high measures of trading liquidity. Since factor investing is so hip now, and the 4-trillion-dollar Vanguard is even diving in, then these kinds of stocks are going to be sold at bargain bin prices. If you go to a party, share your portfolio with someone in the industry, and they don't usually go yuck!, you're doing it wrong.

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Re: Vanguard US Multifactor Funds Launch

Post by cheapskate » Thu Feb 15, 2018 1:18 pm

sunnywindy wrote:
Thu Feb 15, 2018 7:49 am
I wasn't searching for it, but I just noticed that the Vanguard US Multifactor fund/ETF launched today as did the Value, Momentum, Liquidity, and Quality ETFs.

https://advisors.vanguard.com/web/cf/fa ... 1/overview

And as long as we are on this topic, here is an interesting article in Institutional Investor about Smart Beta, i.e. Factor Funds
https://www.institutionalinvestor.com/a ... egist-sick
Thanks for sharing, this is a wonderfully well written, must read article, sums up the problems of multifactor investing very neatly (I am completely value tilted, yet I felt the article was A+).

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Re: Vanguard US Multifactor Funds Launch

Post by drk » Thu Feb 15, 2018 2:11 pm

azanon wrote:
Thu Feb 15, 2018 9:55 am
I just want to know when the Contrarian multi-factor ETF is coming out. Should be large-cap growth, with emphasis on poor recent performance, weak fundamentals, and high measures of trading liquidity. Since factor investing is so hip now, and the 4-trillion-dollar Vanguard is even diving in, then these kinds of stocks are going to be sold at bargain bin prices. If you go to a party, share your portfolio with someone in the industry, and they don't usually go yuck!, you're doing it wrong.
You can just buy eBay directly. You don't need an ETF for that.

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Re: Vanguard US Multifactor Funds Launch

Post by azanon » Thu Feb 15, 2018 3:57 pm

drk wrote:
Thu Feb 15, 2018 2:11 pm
azanon wrote:
Thu Feb 15, 2018 9:55 am
I just want to know when the Contrarian multi-factor ETF is coming out. Should be large-cap growth, with emphasis on poor recent performance, weak fundamentals, and high measures of trading liquidity. Since factor investing is so hip now, and the 4-trillion-dollar Vanguard is even diving in, then these kinds of stocks are going to be sold at bargain bin prices. If you go to a party, share your portfolio with someone in the industry, and they don't usually go yuck!, you're doing it wrong.
You can just buy eBay directly. You don't need an ETF for that.
:mrgreen: :beer

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Re: Vanguard US Multifactor Funds Launch

Post by Jiu Jitsu Fighter » Thu Feb 15, 2018 4:22 pm

FYI - You are able to look at the each of fund's holdings and expense ratios online now.

Of course, keeping with Vanguard's tradition, no factor-based international funds.

I tilt to SCV and plan on keeping it that way. These funds don't add anything special. With existing VMVAX/VOE, VSIAX/VBR and VIOV, one can tilt to smaller, valuey companies on the cheap. It's the international side where it's more difficult in general and impossible using Vanguard funds.

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Re: Vanguard US Multifactor Funds Launch

Post by azanon » Thu Feb 15, 2018 4:26 pm

Jiu Jitsu Fighter wrote:
Thu Feb 15, 2018 4:22 pm
Of course, keeping with Vanguard's tradition, no factor-based international funds.
Dunno about that; Their International Value fund goes way back. Now sure one can engage whether they're properly exploiting the value factor properly, but I imagine if you asked them if the fund is buying "value" international stock, they're going to say yes, or their their 3 sub-managers for that fund would say yes.

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Re: Vanguard US Multifactor Funds Launch

Post by azanon » Thu Feb 15, 2018 4:26 pm

Jiu Jitsu Fighter wrote:
Thu Feb 15, 2018 4:22 pm
Of course, keeping with Vanguard's tradition, no factor-based international funds.
Dunno about that; Their International Value fund goes way back. Now sure one can engage in discussing whether they're properly exploiting the value factor, but I imagine if you asked them if the fund is buying "value" international stock, they're going to say yes, or their 3 sub-managers for that fund would say yes. If i recall from having read the prospectus a good ways back, the sub managers explains, at least in summary, how they are buying value.

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Re: Vanguard US Multifactor Funds Launch

Post by retiringwhen » Thu Feb 15, 2018 4:56 pm

sunnywindy wrote:
Thu Feb 15, 2018 7:49 am
...
And as long as we are on this topic, here is an interesting article in Institutional Investor about Smart Beta, i.e. Factor Funds
https://www.institutionalinvestor.com/a ... egist-sick
Thanks you for that article. I was having a nervous flirt with a perceived need to tilt a bit more Small/Value in my portfolio. I am 93% Three-Fund, but my "play" funds tilt Large/Value and I started looking at options to move towards Small/Value with a new fund purchase.... That article helped cure me of a flirtation with the Wellington Trust Small Cap 2000 in my 401(K).... :shock:

BTW, the money quote from the article is:
https://www.institutionalinvestor.com/article/b16x0v5q14ky2k/smart-beta-is-making-this-strategist-sick wrote:
The main marketing test for these all-in-one products is academic research. Studies prove concept, and proof sells product. But few people appreciate how weak the statistical support really is. “Smart beta” is the catch-all term for funds that use statistical hypothesis inference testing (that spells <censored>, by the way), which relies on historical regressions and the resulting p-values. This approach is in the process of being discredited. A methodological crisis occurring in science has swept up investment finance as well. Researchers across disciplines have found the results of many experiments difficult or impossible to reproduce, even by the original experimenters themselves.

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Larry Swedroe, Cliff Asness... Can we get a little help here?

Post by Angst » Mon Feb 19, 2018 5:16 pm

sunnywindy wrote:
Thu Feb 15, 2018 7:49 am
And as long as we are on this topic, here is an interesting article in Institutional Investor about Smart Beta, i.e. Factor Funds
https://www.institutionalinvestor.com/a ... egist-sick
That's one very "interesting article" there, to say the least. I'd call it discouraging. All factor hounds ought to take a look. I'd like to hear what Larry or Cliff have to say about it and wonder if they've commented yet. It might be a bit early since the article is dated Feb 13, 2018. Here's one paragraph in particular that caught my attention:
The Institutional Investor article wrote:In 2016 the American Statistical Association published an extraordinary document. The “Statement on Statistical Significance and P-Value” reiterated that “a p-value does not provide a good measure of evidence regarding a model or hypothesis.” It cannot answer the researcher’s fundamental question: What are the odds that a hypothesis is correct? A worldwide consortium of scientists known as the Open Science Collaboration advocates abolishing the use of p-values to determine statistical significance. At least one journal has decided that it will no longer publish the metrics. It’s been a wake-up call. Most published research based on statistically significant findings is false. This is a jarring breach of faith — like a child discovering, in his father’s drawer, the Santa Claus suit.
Perhaps this article deserves its own thread? Here's a possible title:
"Larry Swedroe, Cliff Asness... Can we get a little help here?"
Last edited by Angst on Mon Feb 19, 2018 5:22 pm, edited 1 time in total.

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Re: Vanguard US Multifactor Funds Launch

Post by saltycaper » Mon Feb 19, 2018 5:22 pm

sunnywindy wrote:
Thu Feb 15, 2018 7:49 am
I wasn't searching for it, but I just noticed...
It's okay, sunnywindy. No need to distance yourself from your own thread. As you can see, it's already pretty good!
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Re: Vanguard US Multifactor Funds Launch

Post by jhfenton » Mon Feb 19, 2018 5:47 pm

I invested in the Multifactor Admiral Shares on Day One, something I've never done before. I'm trusting the Vanguard Quantitative Equity Group to put together a good portfolio. They've done a fair job previously with funds like Vanguard U.S. Value and Vanguard Select Equity, even with narrower mandates.

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Re: Vanguard US Multifactor Funds Launch

Post by Angst » Mon Feb 19, 2018 5:58 pm

jhfenton wrote:
Mon Feb 19, 2018 5:47 pm
I invested in the Multifactor Admiral Shares on Day One, something I've never done before. I'm trusting the Vanguard Quantitative Equity Group to put together a good portfolio. They've done a fair job previously with funds like Vanguard U.S. Value and Vanguard Select Equity, even with narrower mandates.
I'm just curious, have you read the Institutional Investor article referenced in the OP? If not, please do. It's fairly unsettling about multi-factor investing.

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Re: Vanguard US Multifactor Funds Launch

Post by lack_ey » Mon Feb 19, 2018 6:42 pm

Angst wrote:
Mon Feb 19, 2018 5:58 pm
jhfenton wrote:
Mon Feb 19, 2018 5:47 pm
I invested in the Multifactor Admiral Shares on Day One, something I've never done before. I'm trusting the Vanguard Quantitative Equity Group to put together a good portfolio. They've done a fair job previously with funds like Vanguard U.S. Value and Vanguard Select Equity, even with narrower mandates.
I'm just curious, have you read the Institutional Investor article referenced in the OP? If not, please do. It's fairly unsettling about multi-factor investing.
You think? It's largely what we know and acknowledge already.

Long-only multifactor investing will result in low loads on the non-market factors: no duh, especially for relatively diversified funds. It does depend on the construction methodology, though.

Russell 2000 has lost to the S&P 500 for decades now: yes, because (1) Russell 2000 in particular was badly frontrun a number of years and an easy index to beat for small cap investors, (2) small caps in the US didn't do all that well in the period (not as bad outside the US), and (3) the size effect was never that large and historically in part probably more illiquidity premium than anything else, so bad runs are bound to happen.

Vanguard value index fund has been about the same as the S&P 500 since inception in 1992: sure, as we've been in a relatively good period for growth rather than value from where inflation ended up relative to expectations among other things, and large cap value even historically has not been much different from large cap growth (more of value factor excess return derived from the 50% small cap value / growth differential, which is in turn significantly driven by lottery-style SCG stocks that don't even make regular index funds because of earnings or liquidity screens).

In low vol I don't think you should expect higher returns, which is what you'd have seen over certain periods. But I think still superior risk-adjusted returns overall, which is a result still in conflict with CAPM.

The relative fragility of old backtested results obtained using relatively poor statistical methods is pretty apparent if you've read the papers. I don't think the issues are any surprise.

Obviously you shouldn't have confidence that factor or multifactor approaches should work as suggested by backtests to the magnitude seen. The level of confidence in say a Merriman is way too high. The real question is how much edge they might actually provide in the real world going forward, which I think is probably nonzero and positive. Or do you suggest negative? (that's not unreasonable after costs, but I don't think so, given the broader evidence)

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Re: Vanguard US Multifactor Funds Launch

Post by Angst » Mon Feb 19, 2018 7:38 pm

lack_ey wrote:
Mon Feb 19, 2018 6:42 pm
Angst wrote:
Mon Feb 19, 2018 5:58 pm
jhfenton wrote:
Mon Feb 19, 2018 5:47 pm
I invested in the Multifactor Admiral Shares on Day One, something I've never done before. I'm trusting the Vanguard Quantitative Equity Group to put together a good portfolio. They've done a fair job previously with funds like Vanguard U.S. Value and Vanguard Select Equity, even with narrower mandates.
I'm just curious, have you read the Institutional Investor article referenced in the OP? If not, please do. It's fairly unsettling about multi-factor investing.
You think? It's largely what we know and acknowledge already.

Long-only multifactor investing will result in low loads on the non-market factors: no duh, especially for relatively diversified funds. It does depend on the construction methodology, though.

Russell 2000 has lost to the S&P 500 for decades now: yes, because (1) Russell 2000 in particular was badly frontrun a number of years and an easy index to beat for small cap investors, (2) small caps in the US didn't do all that well in the period (not as bad outside the US), and (3) the size effect was never that large and historically in part probably more illiquidity premium than anything else, so bad runs are bound to happen.

Vanguard value index fund has been about the same as the S&P 500 since inception in 1992: sure, as we've been in a relatively good period for growth rather than value from where inflation ended up relative to expectations among other things, and large cap value even historically has not been much different from large cap growth (more of value factor excess return derived from the 50% small cap value / growth differential, which is in turn significantly driven by lottery-style SCG stocks that don't even make regular index funds because of earnings or liquidity screens).

In low vol I don't think you should expect higher returns, which is what you'd have seen over certain periods. But I think still superior risk-adjusted returns overall, which is a result still in conflict with CAPM.

The relative fragility of old backtested results obtained using relatively poor statistical methods is pretty apparent if you've read the papers. I don't think the issues are any surprise.

Obviously you shouldn't have confidence that factor or multifactor approaches should work as suggested by backtests to the magnitude seen. The level of confidence in say a Merriman is way too high. The real question is how much edge they might actually provide in the real world going forward, which I think is probably nonzero and positive. Or do you suggest negative? (that's not unreasonable after costs, but I don't think so, given the broader evidence)
lack_ey, I never tried to imply I was speaking for all of us, and the only thing I intended to suggest in my first post in this thread was that Bogleheads investing in or interested in investing in the new (less than 3 yrs old...?) multi-factor equity funds read this article, and I stand by that suggestion. As far as "the broader evidence" goes, poor benighted me has always had the notion that much if not most of the factor evidence was rooted in regression analysis. At least most of the evidence I've been exposed to has been. (I don't think the existence of poor implementation of anything, whether it's harvesting factors or using regression as a research tool, is in any way "evidence" in itself though; of course it's relevant when choosing a fund to invest in.) Then there's the more anecdotal evidence we hear about, which ought not count for too much. So, I don't mean to obligate you to bullet-point the breadth of non-regression based evidence you state exists for the variety of factors being addressed in these new, long equity multi-factor funds out there, but your statement suggests I have a lot more research to do than I thought. So I probably should take heart in that, given that I own shares of QSMLX, AQR's SC Multi-Style Fund! (Not to mention QSPIX as well.)

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Re: Vanguard US Multifactor Funds Launch

Post by sunnywindy » Tue Feb 20, 2018 7:23 pm

jhfenton wrote:
Mon Feb 19, 2018 5:47 pm
I invested in the Multifactor Admiral Shares on Day One, something I've never done before. I'm trusting the Vanguard Quantitative Equity Group to put together a good portfolio. They've done a fair job previously with funds like Vanguard U.S. Value and Vanguard Select Equity, even with narrower mandates.
I was briefly thinking of doing this, but I'm going to wait until we have much more information on the Vanguard website and ETF.com - namely holdings and trading information.
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Re: Vanguard US Multifactor Funds Launch

Post by nisiprius » Tue Feb 20, 2018 8:23 pm

lack_ey wrote:
Mon Feb 19, 2018 6:42 pm
... (3) the size effect was never that large and historically in part probably more illiquidity premium than anything else, so bad runs are bound to happen...
"Everyone" is saying now that the size effect was never that large, but that is not what people were saying just a few years ago.

Clifford Asness, 2015: The Small-Firm Effect is Real, and It's Spectacular (To be fair, this article is debunking what had become a consensus view that that it was "marginally significant, at best, and 'not real' at worst." He also explained, in this forum, that the title of the article is a tongue-in-cheek Seinfeld reference).

1998, in Stock Market Anomalies, ed. Elroy Dimson:
Small firms [in the UK, I think] experienced, in the period from 1966 to 1982, CAPM excess returns (relative to large firms) of approximately 10 per cent per year.
Rob Arnott, 1983:
A growing body of evidence exists that small-capitalization stocks significantly outperform large-capitalization stocks. This effect is so strong and so consistent that even advocates of the Efficient Market Hypothesis have found no refutation of this effect.
Last edited by nisiprius on Tue Feb 20, 2018 8:43 pm, edited 1 time in total.
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Re: Vanguard US Multifactor Funds Launch

Post by lack_ey » Tue Feb 20, 2018 8:38 pm

nisiprius wrote:
Tue Feb 20, 2018 8:23 pm
lack_ey wrote:
Mon Feb 19, 2018 6:42 pm
... (3) the size effect was never that large and historically in part probably more illiquidity premium than anything else, so bad runs are bound to happen...
"Everyone" is saying now that the size effect was never that large, but that is not what people were saying just a few years ago.

Clifford Asness, 2015: The Small-Firm Effect is Real, and It's Spectacular (To be fair, this article is debunking what had become a consensus view that that it was "marginally significant, at best, and 'not real' at worst." He also explained, in this forum, that the title of the article is a tongue-in-cheek Seinfeld reference).

Rob Arnott, 1983:
A growing body of evidence exists that small-capitalization stocks significantly outperform large-capitalization stocks. This effect is so strong and so consistent that even advocates of the Efficient Market Hypothesis have found no refutation of this effect.
The point Asness is making is that size is significant if you also include the quality factor, but not so much otherwise. That does not say that small caps overall have significantly and reasonably reliable excess return. Many small cap funds do not really take quality/junk into account. To the extent that small caps when adjusting for quality might have higher return, this is good for multifactor investing, but it does not really help small caps overall.

And I was saying that the previously linked paper I was responding to does not say anything really new relative to today's understanding. I wasn't addressing what people thought five years ago, fifteen, or thirty-five.

I get the idea that the benchmarks, current understanding, etc. change over time. Obviously so, as evidence changes. Any time you try investing in some way, later on, people are going to find out why whatever you did wasn't as optimal as you'd hoped. That should be apparent enough going in.

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Re: Larry Swedroe, Cliff Asness... Can we get a little help here?

Post by sunnywindy » Tue Feb 20, 2018 9:11 pm

Angst wrote:
Mon Feb 19, 2018 5:16 pm
sunnywindy wrote:
Thu Feb 15, 2018 7:49 am
And as long as we are on this topic, here is an interesting article in Institutional Investor about Smart Beta, i.e. Factor Funds
https://www.institutionalinvestor.com/a ... egist-sick
That's one very "interesting article" there, to say the least. I'd call it discouraging. All factor hounds ought to take a look. I'd like to hear what Larry or Cliff have to say about it and wonder if they've commented yet. It might be a bit early since the article is dated Feb 13, 2018. Here's one paragraph in particular that caught my attention:
The Institutional Investor article wrote:In 2016 the American Statistical Association published an extraordinary document. The “Statement on Statistical Significance and P-Value” reiterated that “a p-value does not provide a good measure of evidence regarding a model or hypothesis.” It cannot answer the researcher’s fundamental question: What are the odds that a hypothesis is correct? A worldwide consortium of scientists known as the Open Science Collaboration advocates abolishing the use of p-values to determine statistical significance. At least one journal has decided that it will no longer publish the metrics. It’s been a wake-up call. Most published research based on statistically significant findings is false. This is a jarring breach of faith — like a child discovering, in his father’s drawer, the Santa Claus suit.
Perhaps this article deserves its own thread? Here's a possible title:
"Larry Swedroe, Cliff Asness... Can we get a little help here?"
My big take away from the article is that the author thinks single and multi-factor funds are just another fund industry scam. On this, I think he is mostly correct as factors beautifully lend themselves to telling a good 'story.' And stories are what the fund industry loves to tell, especially ones they never told before, so it sounds exciting and new for everyone.

But, I would disagree with him about a few things (and they don't lessen the article in my eyes):

- I know there's academic debate about whether or not the size premium exists, but I've done well with small caps. I've participated in some of the gains shown here - https://tinyurl.com/yam63w68. I also overweight small caps for international and VSS has made more money for me than it's large-cap brother (VEU). Yes, this could reverse itself, and yes, this is a minuscule sample size; but, I accept the risk and I am glad that these products exist.

- The psychological reality of mankind is that not everyone wants to be a Boglehead, nor could they invest this way even when confronted with the facts; they just want to invest in alpha generating products whether they understand the risks or not. This will never change, and thus, the fund industry will provide them with something to invest in, i.e. smart beta.

- I would much rather have people investing in lower cost indexed or quasi-indexed active ETFs (of any kind) than one of the thousands of active stock picker mutual funds charging a fortune. That is truly the loser's game. ETFs are much much cheaper and will almost certainly lead to a better result.

- I think single factor index funds can have their place in a person's portfolio, although they certainly aren't necessary. (I think some risk adverse people on this site would benefit from a minimum volatility 3 fund portfolio that may allow them to hold more equities - an important consideration if they are young and need to make some money now so that it has time to compound.)

- I track a list of about 25 US multifactor ETFs (a few MFs, too) and while most of them will disappoint their holders because they won't 'outperform', the average ER is about 29 bps and the average number of holdings is 438. So, if a multifactor smart beta gee-whiz ETF is cheap and it holds an S&P 500-ish portfolio, I'd say that's a win for most investors...especially if it replaces expensive active funds as I fully expect, over time, will happen. Of course, they would be better off in TSM for 4 bps...

Thus, my overall criticism of the article is that he doesn't pay enough attention to costs and how these smart beta factor funds, some hair-brained, some not, are much less toxic than expensive mutual funds - no matter how crazy he thinks factor investing might be.
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Re: Vanguard US Multifactor Funds Launch

Post by stlutz » Tue Feb 20, 2018 9:28 pm

In general, I think most of these factor funds are marketing inappropriately by selling outpeformance. What most of them are doing in reality in managing/limiting risk. Min vol. does that most explicitly, but quality, value and even momentum (if it's netting out volatility as MTUM does) are all finding ways to eschew the riskier stocks. For most people, this is sound security selection.

Everyone knows I'm not particularly persuaded that factor funds have a 90+% chance out beating the market over the long term. At the same time, I'm also not persuaded that using cap-weighted total market funds are the one right way to invest either.

I agree with sunnywindy that low cost investing is really what folks should go searching for.

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Re: Larry Swedroe, Cliff Asness... Can we get a little help here?

Post by Angst » Wed Feb 21, 2018 12:18 am

sunnywindy wrote:
Tue Feb 20, 2018 9:11 pm
My big take away from the article is that the author thinks single and multi-factor funds are just another fund industry scam. On this, I think he is mostly correct as factors beautifully lend themselves to telling a good 'story.' And stories are what the fund industry loves to tell, especially ones they never told before, so it sounds exciting and new for everyone.

But, I would disagree with him about a few things (and they don't lessen the article in my eyes):

- I know there's academic debate about whether or not the size premium exists, but I've done well with small caps. I've participated in some of the gains shown here - https://tinyurl.com/yam63w68. I also overweight small caps for international and VSS has made more money for me than it's large-cap brother (VEU). Yes, this could reverse itself, and yes, this is a minuscule sample size; but, I accept the risk and I am glad that these products exist.

- The psychological reality of mankind is that not everyone wants to be a Boglehead, nor could they invest this way even when confronted with the facts; they just want to invest in alpha generating products whether they understand the risks or not. This will never change, and thus, the fund industry will provide them with something to invest in, i.e. smart beta.

- I would much rather have people investing in lower cost indexed or quasi-indexed active ETFs (of any kind) than one of the thousands of active stock picker mutual funds charging a fortune. That is truly the loser's game. ETFs are much much cheaper and will almost certainly lead to a better result.

- I think single factor index funds can have their place in a person's portfolio, although they certainly aren't necessary. (I think some risk adverse people on this site would benefit from a minimum volatility 3 fund portfolio that may allow them to hold more equities - an important consideration if they are young and need to make some money now so that it has time to compound.)

- I track a list of about 25 US multifactor ETFs (a few MFs, too) and while most of them will disappoint their holders because they won't 'outperform', the average ER is about 29 bps and the average number of holdings is 438. So, if a multifactor smart beta gee-whiz ETF is cheap and it holds an S&P 500-ish portfolio, I'd say that's a win for most investors...especially if it replaces expensive active funds as I fully expect, over time, will happen. Of course, they would be better off in TSM for 4 bps...

Thus, my overall criticism of the article is that he doesn't pay enough attention to costs and how these smart beta factor funds, some hair-brained, some not, are much less toxic than expensive mutual funds - no matter how crazy he thinks factor investing might be.
sunnywindy, I appreciate your open-mindedness and don't really disagree with you. A low-ER multi-factor fund may well get most of its return from beta anyhow and might end up being comparable to the market in general. Of course we're hoping for a little more return and a little less volatility. Time will tell.

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Re: Vanguard US Multifactor Funds Launch

Post by KyleAAA » Wed Feb 21, 2018 9:58 am

Article discussing Vanguard's new factor funds on Morningstar today:
http://www.morningstar.com/articles/851 ... -etfs.html

It explicitly states they break the universe into large/mid/smallcap stocks and sort each bucket individual, which leads me to believe maybe they are all implicitly targeting somewhat of a size factor loading as well. That's great IMO since the factors tend to be stronger in small caps and I was worried these funds would all essentially be large-cap funds. Does anybody know exactly what Vanguard's target wrt to the size factor is? Are they still targeting a size-neutral portfolio, which is what I initially expected based on the prospectus? Or are they aiming for a consistent positive size loading? Or maybe I'm just misreading Morningstar.

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Re: Vanguard US Multifactor Funds Launch

Post by Da5id » Wed Feb 21, 2018 11:12 am

The institutional investor article is really interesting. Makes me feel better about waffling on factors (and not deviating from 3 fund) even if it is partially correct.

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Re: Vanguard US Multifactor Funds Launch

Post by Dead Man Walking » Thu Feb 22, 2018 1:00 am

The old adage "time in the market" is applicable to factor-based funds. Time will tell whether the multi factor-based funds available to retail investors will deliver the risk adjusted performance claimed by those marketing and/or advocating them. Some of us in the deccumulation phase may not have the time to witness the proof of this performance.

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Re: Vanguard US Multifactor Funds Launch

Post by Barry Barnitz » Thu Feb 22, 2018 4:15 pm

Hi:

News article: Vanguard Group gets under RIAs' skin by launching ETFs supposedly aimed at helping them, Lisa Shidler, RIAbiz
Vanguard Group is greeting a future based on financial advice that now includes an abrupt product pivot toward Austin, Texas -- one that some big RIAs are greeting with raw skepticism...

The Malvern, Pa.-based $4-trillion king of passive investing is launching active factor ETFs for RIAs with trappings of Dimensional Fund Advisors' system that several hundred RIAs use almost exclusively ...

The fix is in for the new Vanguard factor ETFs because they come with a voracious $100-billion investor, Vanguard Personal Advisor Services, says Joe Duran, founder of United Capital Financial Advisers. VPAS is growing at an unprecedented rate for an RIA of about $3 billion per month based on the pioneering price of 30 basis points and coming with a dedicated human advisor... "They’re going to put PAS clients in factor-based strategies," he predicts. ”Instead of charging 30 basis points, they can charge more. They can sell a product that has a higher margin for Vanguard."

...Vanguard CEO Tim Buckley alludes to both RIAs and institutional investors in the release announcing the six factor ETFs.

“The funds are aimed primarily at financial advisors and institutional investors, who we believe understand the risks of potential underperformance and can effectively incorporate factor funds into their portfolios.”

Vanguard made sure that the funds were active and sold as ETFs rather than in mutual funds, says Matt Jiannino, head of quantitative equity product management at Vanguard.

"The most important thing to us was the product was active and we wanted to do it an ETF," Jiannino says. "We think those are differentiators."

He maintains these funds are targeted to a specific audience.

"These products are for advisors," Jiannino says.
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Runalong
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Re: Vanguard US Multifactor Funds Launch

Post by Runalong » Sat Mar 03, 2018 8:18 pm

I took some time this afternoon to look at the portfolio holdings of each of these new factor funds.

Most of them are highly diversified, 500-700 holdings, although VFMV only has 140.

VFMF (Multi-Factor) and VFVA (Value) have a VERY HIGH degree of overlap/correlation. VFMF costs 0.05% more than VFVA and it seems unlikely it could outperform VFVA given this overlap.

Low liquidity intrigues me, I'm going to investigate further as it hasn't been on my radar screen in the past (VFLQ).

Low volatility seems like a potentially smart play when valuations are high, but VFMV seems to be heavily overweight mortgage-related equities (MITT, AGNC, NLY, GPMT, MFA, ORC, PMT, STWD, TRTX & TWO). That sounds potentially volatile to me if rates continue to rise, even if it hasn't been in the low interest/easy money decade we've recently been experiencing.

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Re: Vanguard US Multifactor Funds Launch

Post by jhfenton » Sat Mar 03, 2018 9:11 pm

Runalong wrote:
Sat Mar 03, 2018 8:18 pm
VFMF (Multi-Factor) and VFVA (Value) have a VERY HIGH degree of overlap/correlation. VFMF costs 0.05% more than VFVA and it seems unlikely it could outperform VFVA given this overlap.
The top holdings don't look similar to me at all. VFMF only has two of VFVA's top 10 holdings in its top 50, and those are the two split HP companies. Scanning down the top 50, I see limited overlap, and those at very different weightings.

At least initially, VFMF is more popular, with trading volumes picking up more quickly. I haven't bought either ETF yet, but I did buy the VFMFX Admiral Shares in one account. I have a small $30K rollover IRA that is entirely invested in large value right now. I'm going to wait a while to decide whether to opt for the status quo, VFVA, or VFMF. I want to see how value-y VFMF looks and what the sector breakdowns look like on both funds.
Runalong wrote:
Sat Mar 03, 2018 8:18 pm
Low volatility seems like a potentially smart play when valuations are high, but VFMV seems to be heavily overweight mortgage-related equities (MITT, AGNC, NLY, GPMT, MFA, ORC, PMT, STWD, TRTX & TWO). That sounds potentially volatile to me if rates continue to rise, even if it hasn't been in the low interest/easy money decade we've recently been experiencing.
I haven't looked at VFMV, but my understanding is that like a few other funds in the category, its MV calculation is supposed to be on the portfolio level, meaning that the calculations take into account correlations between securities. Perhaps there's some correlation magic expected with the mortgage-related securities and some other fund holdings.

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Re: Vanguard US Multifactor Funds Launch

Post by Runalong » Mon Mar 05, 2018 1:13 pm

jhfenton wrote:
Sat Mar 03, 2018 9:11 pm
The top holdings don't look similar to me at all. VFMF only has two of VFVA's top 10 holdings in its top 50, and those are the two split HP companies. Scanning down the top 50, I see limited overlap, and those at very different weightings.
I did a quick check, I see 9 of VFMF's top 12 holdings in VFVA's top 40 (HPQ, HPE, INTC, VLO, MPC, ESRX, AFL, CVX, STT) which isn't as correlated as I first discerned, but more than what you said. It surprised me (I had earlier cherry picked 25 of VFMF's top 100 holdings for further research and was surprised to find ALL of them among VFVA's top 100 holdings, but maybe there was bias in my selection process).

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Re: Vanguard US Multifactor Funds Launch

Post by jhfenton » Mon Mar 05, 2018 1:33 pm

Runalong wrote:
Mon Mar 05, 2018 1:13 pm
I did a quick check, I see 9 of VFMF's top 12 holdings in VFVA's top 40 (HPQ, HPE, INTC, VLO, MPC, ESRX, AFL, CVX, STT) which isn't as correlated as I first discerned, but more than what you said. It surprised me (I had earlier cherry picked 25 of VFMF's top 100 holdings for further research and was surprised to find ALL of them among VFVA's top 100 holdings, but maybe there was bias in my selection process).
I was doing my quick comparison the other direction, looking at VFVA's top holdings and seeing if they were top holdings in VFMF. I guess it's not surprising that more of VFMF's top holdings would be in VFVA's than the other way around. If a stock doesn't pass a value screen of some sort, it's not going to be in either. But in order to make VFMF's portfolio, it also has to score well on momentum and quality screens.

I'm actually encouraged by the fact that many of VFMF's top holdings make the cut for VFVA, but not necessarily the other way around.

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