Vanguard New Factor Funds Portfolio Statistics

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jhfenton
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Mon Mar 12, 2018 7:20 am

fennewaldaj wrote:
Sun Mar 11, 2018 6:12 pm
I would think that these funds could get pretty big as is. Current small cap value fund has ~ 30 billion. This value factor fund has a similar amount of names and a larger average market cap.
I also see no reason they couldn't scale the VFVA portfolio up from $8 Million to $8 Billion. Positions 601-785 range from $5,302 to $2,820 currently. Multiply that by 1,000 and you have $2.8MM to $5.3MM positions. The $2.8 MM would be 1.1% of Cloudpeak ($245 MM market cap). The $5.3 MM would be 0.7% of Comtech Telecom ($724 MM market cap). The outlier would be Vitamine Shoppe with a market cap of $95 MM and a current position size of $4,383. That would translate into the $8 Billion fund owning 4.5% of Vitamin Shoppe. Almost everything else would be under 2%.

At $30 Billion, owning the fund's current smallest positions in their current proportions would be problematic. They would own 7.5% of a lot of the smaller companies and 16.9% of Vitamin Shoppe (definitely an outlier).

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by GreatOdinsRaven » Mon Mar 12, 2018 7:25 am

jhfenton wrote:
Mon Mar 12, 2018 7:20 am
fennewaldaj wrote:
Sun Mar 11, 2018 6:12 pm
I would think that these funds could get pretty big as is. Current small cap value fund has ~ 30 billion. This value factor fund has a similar amount of names and a larger average market cap.
I also see no reason they couldn't scale the VFVA portfolio up from $8 Million to $8 Billion. Positions 601-785 range from $5,302 to $2,820 currently. Multiply that by 1,000 and you have $2.8MM to $5.3MM positions. The $2.8 MM would be 1.1% of Cloudpeak ($245 MM market cap). The $5.3 MM would be 0.7% of Comtech Telecom ($724 MM market cap). The outlier would be Vitamine Shoppe with a market cap of $95 MM and a current position size of $4,383. That would translate into the $8 Billion fund owning 4.5% of Vitamin Shoppe. Almost everything else would be under 2%.

At $30 Billion, owning the fund's current smallest positions in their current proportions would be problematic. They would own 7.5% of a lot of the smaller companies and 16.9% of Vitamin Shoppe (definitely an outlier).
Could Vanguard close the ETF to new investors at 30 billion? I know mutual funds can close to new investors, but haven’t ever read about it for ETFs.
"The greatest enemies of the equity investor are expenses and emotions." -John C. Bogle, Little Book of Common Sense Investing. | | "Winter is coming." Lord Eddard Stark.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by GreatOdinsRaven » Mon Mar 12, 2018 7:32 am

lack_ey wrote:
Sun Mar 11, 2018 6:37 pm

The new value factor fund may have a larger average market cap, but it reaches deeper into a lot of the small caps, having higher weightings than the small cap value index fund does.

Check in my companion thread:
viewtopic.php?f=10&t=244016&newpost=382 ... ead#unread

Image Image

Also the turnover should be higher. I would say that the small cap value index fund in particular has higher capacity than you'd think because it reaches into mid caps and has a significant weighting there, and the CRSP index rules have the packeting procedure to mitigate turnover.

I don't disagree that the new factor funds could get pretty big, though.
Thanks for all your hard work. Your Imgur post was incredible!

As a largely taxable investor, I’m affected by turnover and rebalancing costs. Any idea when we’ll know the full impact of costs/taxes? I’m currently using IJS for my SCV, MTUM for my mom exposure and some DFA funds for US and International value exposure (LCV, SCV, Core etc). There’s definitely a tax drag using DFA even with their tax aware/managed funds.

As Triceratop recently demonstrated, though, it’s surprising how tax efficient some of the ETFs really are. For example IJS has lower total costs to me than VBR and higher factor weightings. viewtopic.php?p=3791554#p3791554

Check out the link to the google spreadsheet and be sure to save a copy and update your marginal tax rate. Pretty interesting. Can’t wait to see where these Active Factor funds end up relative to factor “index” funds.

GOR
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Mon Mar 12, 2018 7:39 am

GreatOdinsRaven wrote:
Mon Mar 12, 2018 7:25 am
Could Vanguard close the ETF to new investors at 30 billion? I know mutual funds can close to new investors, but haven’t ever read about it for ETFs.
I'm not aware of any way that an ETF can reasonably close. It is possible to suspend the creation and redemption mechanism. That occasionally happens in ETFs, usually temporarily. The problem is that an ETF with no creation/redemption mechanism behaves like a closed-end fund.

Why ETF Creation Halts Are Dangerous, in Two Charts

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Mon Mar 12, 2018 8:01 pm

I found some information on portfolio construction from some Vanguard advisor materials that a friend shared with me. Each single-factor product (value, momentum, quality, and liquidity) uses three equally-weighted metrics:

VALUE
• Book to price
• Forward earnings to price
• Cash flow to price

MOMENTUM
• 11-month momentum
• 6-month momentum
• Risk-adjusted 1-year momentum

QUALITY
• Operational quality
• Earnings quality
• Balance sheet quality

LIQUIDITY
• Percentage turnover
• Dollar turnover
• Amihud illiquidity

They rank stocks from worst to best within each factor, average the three individual ranks (equally weighted) to form a composite, and standardize the composites to form a score. (They don't explain that last step.) Only the highest-scoring stocks are included in each ETF portfolio. A stock's weight is determined by its factor score (emphasis mine), subject to a set of risk controls.

They repeat the process daily, and decide when to buy or sell to maintain exposure to the desired factors. (That's the active part.)

For the Multifactor fund, they screen out the most volatile stocks, and then equally weight their value, momentum, and quality scores (as above) of the remaining stocks.

They are vague about the Minimum Volatility ETF, except that they assess not only the volatility of individual securities, but the correlation of returns among stocks.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by GreatOdinsRaven » Mon Mar 12, 2018 8:16 pm

jhfenton wrote:
Mon Mar 12, 2018 8:01 pm
I found some information on portfolio construction from some Vanguard advisor materials that a friend shared with me. Each single-factor product (value, momentum, quality, and liquidity) uses three equally-weighted metrics:

VALUE
• Book to price
• Forward earnings to price
• Cash flow to price

MOMENTUM
• 11-month momentum
• 6-month momentum
• Risk-adjusted 1-year momentum

QUALITY
• Operational quality
• Earnings quality
• Balance sheet quality

LIQUIDITY
• Percentage turnover
• Dollar turnover
• Amihud illiquidity

They rank stocks from worst to best within each factor, average the three individual ranks (equally weighted) to form a composite, and standardize the composites to form a score. (They don't explain that last step.) Only the highest-scoring stocks are included in each ETF portfolio. A stock's weight is determined by its factor score (emphasis mine), subject to a set of risk controls.

They repeat the process daily, and decide when to buy or sell to maintain exposure to the desired factors. (That's the active part.)

For the Multifactor fund, they screen out the most volatile stocks, and then equally weight their value, momentum, and quality scores (as above) of the remaining stocks.

They are vague about the Minimum Volatility ETF, except that they assess not only the volatility of individual securities, but the correlation of returns among stocks.
This is in line with what the said and/or intimated during the webcast.
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Theoretical » Mon Mar 12, 2018 9:27 pm

That really sounds like a multi metric DFA, especially since the Value Factor etf looks fairly neutral on momentum and with the daily re-evaluation.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by MindTheGAAP » Fri Mar 16, 2018 9:55 am

jhfenton wrote:
Thu Mar 08, 2018 2:05 pm
I bought some of the Multifactor Admiral Shares on the first day. I'm planning to stick with it as a core position, but I'll probably take my existing large value and move it to VFVA. It seems to be more value-y than Vanguard's existing CRSP value funds. I may swap a couple of percent to the position from small value, because it includes more small and mid cap value.
So do you think this could be used to replace a Mid Cap index (VIMAX) and Total Market? I also hold VTMSX to get more micro/small exposure (S&P 600 index versus the CSRP index of VSMAX or VSIAX). I have been wondering if I should whittle down some of my slicing lately (mostly size factor) since I currently have 3 domestic equity funds (VTSAX, VIMAX, VTMSX) and 3 int'l equity funds (VTIAX, VFSVX, VEMAX).

Appreciate the insight you're sharing with us
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Fri Mar 16, 2018 10:09 am

MindTheGAAP wrote:
Fri Mar 16, 2018 9:55 am
jhfenton wrote:
Thu Mar 08, 2018 2:05 pm
I bought some of the Multifactor Admiral Shares on the first day. I'm planning to stick with it as a core position, but I'll probably take my existing large value and move it to VFVA. It seems to be more value-y than Vanguard's existing CRSP value funds. I may swap a couple of percent to the position from small value, because it includes more small and mid cap value.
So do you think this could be used to replace a Mid Cap index (VIMAX) and Total Market? I also hold VTMSX to get more micro/small exposure (S&P 600 index versus the CSRP index of VSMAX or VSIAX). I have been wondering if I should whittle down some of my slicing lately (mostly size factor) since I currently have 3 domestic equity funds (VTSAX, VIMAX, VTMSX) and 3 int'l equity funds (VTIAX, VFSVX, VEMAX).

Appreciate the insight you're sharing with us
I would certainly consider the Multifactor Admiral Shares or ETF (VFMFX or VFMF) a viable single fund Total Market + Small/Mid replacement for slice and dicers who want simplicity. I think tracking error will be lower than the single-factor funds, sector tilts will be lower. You have a reasonable weight of companies of all sizes.

I can't completely go in that direction because of 401(k) limitations. 18% of our portfolio (and climbing) is in my 401(k), and when my wife is able to participate in her new 401(k) on May 1, we will have the majority of our annual savings going into their limited investment options. (Vanguard Mid-Cap Value Index Admiral and DFA US Small Cap in mine, and DFA US Small Cap Value in my wife's. Those funds will eventually crowd out all of our Vanguard-held small cap value, mostly VSIAX/Vanguard Small Cap Value Admiral, with a bit of VIOV/Vanguard S&P 600 Value in taxable.)

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by MindTheGAAP » Fri Mar 16, 2018 10:10 am

jhfenton wrote:
Fri Mar 16, 2018 10:09 am
MindTheGAAP wrote:
Fri Mar 16, 2018 9:55 am
jhfenton wrote:
Thu Mar 08, 2018 2:05 pm
I bought some of the Multifactor Admiral Shares on the first day. I'm planning to stick with it as a core position, but I'll probably take my existing large value and move it to VFVA. It seems to be more value-y than Vanguard's existing CRSP value funds. I may swap a couple of percent to the position from small value, because it includes more small and mid cap value.
So do you think this could be used to replace a Mid Cap index (VIMAX) and Total Market? I also hold VTMSX to get more micro/small exposure (S&P 600 index versus the CSRP index of VSMAX or VSIAX). I have been wondering if I should whittle down some of my slicing lately (mostly size factor) since I currently have 3 domestic equity funds (VTSAX, VIMAX, VTMSX) and 3 int'l equity funds (VTIAX, VFSVX, VEMAX).

Appreciate the insight you're sharing with us
I would certainly consider the Multifactor Admiral Shares or ETF (VFMFX or VFMF) a viable single fund Total Market + Small/Mid replacement for slice and dicers who want simplicity. I think tracking error will be lower than the single-factor funds, sector tilts will be lower. You have a reasonable weight of companies of all sizes.

I can't completely go in that direction because of 401(k) limitations. 18% of our portfolio (and climbing) is in my 401(k), and when my wife is able to participate in her new 401(k) on May 1, we will have the majority of our annual savings going into their limited investment options. (Vanguard Mid-Cap Value Index Admiral and DFA US Small Cap in mine, and DFA US Small Cap Value in my wife's. Those funds will eventually crowd out all of our Vanguard-held small cap value, mostly VSIAX/Vanguard Small Cap Value Admiral, with a bit of VIOV/Vanguard S&P 600 Value in taxable.)
So how long do you give it to prove itself before making the hop? (I noted that you've mentioned you've already put money in, just curious on what is the norm/ recommended)
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Fri Mar 16, 2018 10:11 am

According to ETF.com, the Multifactor ETF (VFMF) has had 75,000 new shares created, bring the total to 175,000 and the AUM to nearly $14MM.

Momentum has 125,000 shares (+25,000 since launch). Value, Liquidity, Quality, and Min Vol are still at the initial 100,000 shares.

(1 creation unit equals 25,000 shares.)

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Fri Mar 16, 2018 10:14 am

MindTheGAAP wrote:
Fri Mar 16, 2018 10:10 am
jhfenton wrote:
Fri Mar 16, 2018 10:09 am
MindTheGAAP wrote:
Fri Mar 16, 2018 9:55 am
jhfenton wrote:
Thu Mar 08, 2018 2:05 pm
I bought some of the Multifactor Admiral Shares on the first day. I'm planning to stick with it as a core position, but I'll probably take my existing large value and move it to VFVA. It seems to be more value-y than Vanguard's existing CRSP value funds. I may swap a couple of percent to the position from small value, because it includes more small and mid cap value.
So do you think this could be used to replace a Mid Cap index (VIMAX) and Total Market? I also hold VTMSX to get more micro/small exposure (S&P 600 index versus the CSRP index of VSMAX or VSIAX). I have been wondering if I should whittle down some of my slicing lately (mostly size factor) since I currently have 3 domestic equity funds (VTSAX, VIMAX, VTMSX) and 3 int'l equity funds (VTIAX, VFSVX, VEMAX).

Appreciate the insight you're sharing with us
I would certainly consider the Multifactor Admiral Shares or ETF (VFMFX or VFMF) a viable single fund Total Market + Small/Mid replacement for slice and dicers who want simplicity. I think tracking error will be lower than the single-factor funds, sector tilts will be lower. You have a reasonable weight of companies of all sizes.

I can't completely go in that direction because of 401(k) limitations. 18% of our portfolio (and climbing) is in my 401(k), and when my wife is able to participate in her new 401(k) on May 1, we will have the majority of our annual savings going into their limited investment options. (Vanguard Mid-Cap Value Index Admiral and DFA US Small Cap in mine, and DFA US Small Cap Value in my wife's. Those funds will eventually crowd out all of our Vanguard-held small cap value, mostly VSIAX/Vanguard Small Cap Value Admiral, with a bit of VIOV/Vanguard S&P 600 Value in taxable.)
So how long do you give it to prove itself before making the hop? (I noted that you've mentioned you've already put money in, just curious on what is the norm/ recommended)
If it were anyone else, I'd give it longer. I usually wouldn't buy an ETF with less than $100 MM in assets. But Vanguard has never closed an ETF. I have little doubt that these will survive.

In taxable accounts, I'd give it longer, to make sure the factor characteristics were what I expected.

Since it's Vanguard, since their initial portfolios look good, and since they're in retirement accounts, I leapt. I have since bought some VFVA as well.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by columbia » Sat Mar 17, 2018 10:13 am

VFVA seems to out do TISM, for folks looking for cheaper options aside from TSM.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Sat Mar 17, 2018 11:43 am

columbia wrote:
Sat Mar 17, 2018 10:13 am
VFVA seems to out do TISM, for folks looking for cheaper options aside from TSM.
I wouldn't consider VFVA or any U.S. value or factor fund an alternative to Total International or any international fund. I like diversifying away from pure U.S. beta (i.e. Total Market), but I consider value, size, ex-U.S. beta, emerging markets beta, etc. as distinct categories. I want (and own) all of them. And, in fact, I group our equity funds into basically those four categories: U.S. large (value or multifactor), U.S. small/mid (value), ex-U.S. small/mid (blend), and emerging markets (blend or multifactor).

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by columbia » Sat Mar 17, 2018 3:15 pm

jhfenton wrote:
Sat Mar 17, 2018 11:43 am
columbia wrote:
Sat Mar 17, 2018 10:13 am
VFVA seems to out do TISM, for folks looking for cheaper options aside from TSM.
I wouldn't consider VFVA or any U.S. value or factor fund an alternative to Total International or any international fund. I like diversifying away from pure U.S. beta (i.e. Total Market), but I consider value, size, ex-U.S. beta, emerging markets beta, etc. as distinct categories. I want (and own) all of them. And, in fact, I group our equity funds into basically those four categories: U.S. large (value or multifactor), U.S. small/mid (value), ex-U.S. small/mid (blend), and emerging markets (blend or multifactor).
I’m merely speaking to the idea that folks should buy international, because of valuations; one can get better deals here, if that is desired.

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"TRYING TO BEAT THE MARKET"

Post by Taylor Larimore » Sat Mar 17, 2018 4:07 pm

jhfenton wrote:
Thu Mar 08, 2018 1:14 pm
I was a bit impatient for portfolio statistic on the new factor funds, so I've started calculating them, at least roughly. You can export the portfolio's from Vanguard, tweak the CSV file, and import the portfolio into M*'s portfolio manager. The big limitation is a limit of 200 holdings. So I have to split the portfolios into segments by market cap, pull the statistics, and then do a weighted average.

I've done VFVA (Vanguard US Value Factor ETF) so far.

Code: Select all

Pos#s	Total Value	P/PE	P/B	ROA	ROE	PEG	Yield	Avg Mkt Cap 	LCV	LCB	LCG	MCV	MCB	MCG	SCV	SCB	SCG
001-200	$4,174,389.08 	11.43	1.49	5.25%	14.8%	8.44%	2.10%	$26,127MM 	41	19	2	18	3	1	9	3	1
201-400	$1,596,208.67 	11.67	1.29	3.58%	13.99%	9.11%	2.08%	$2,515MM 	4	1	0	19	6	4	48	12	3
401-600	$1,154,778.84 	13.01	1.43	3.33%	5.95%	9.74%	1.79%	$1,780MM 	0	0	0	9	7	0	44	31	7
601-785	$727,221.83 	13.49	1.57	2.56%	21.55%	10.63%	1.49%	$1,270MM	1	0	0	2	1	1	44	44	7
Total	$7,652,598.42 	11.91	1.45	4.36%	13.94%	8.98%	1.99%	$15,166MM 	23	11	1	15	4	1	26	13	3
P/PE = Price / Projected Earnings
PEG = Projected 5-year EPS Growth %


On a first impression, it seems very value-y. It has a much lower forward P/E than any of Vanguard's other value funds, large, mid, or small. P/B is much lower. And it has a *lot* of small and mid cap. They said it would be an all cap fund, and it is.

I'm going to do the multi-factor fund next. It's probably the only other one I care enough about.
jhfenton:

I put this Boglehead post in another thread. It belongs here:
Bogleheads:

Jonathan Clements is one of the most knowledgeable financial writers in the business. Mr. Clements spent almost 20 years at The Wall Street Journal where he wrote over 1,000 personal finance columns. He left the Journal to join Citigroup where he became their Director of Financial Education . Mr. Clements is also the author of six highly regarded financial books. He now writes a personal finance newsletter, The Humble Dollar.

This is his first sentence in the March, 2018, edition of The Humble Dollar:
"TRYING TO BEAT THE MARKET isn’t just a risky endeavor that will almost certainly end in failure. It’s also unnecessary and, arguably, an astonishing waste of money and time." --
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "TRYING TO BEAT THE MARKET"

Post by saltycaper » Sat Mar 17, 2018 4:38 pm

Taylor Larimore wrote:
Sat Mar 17, 2018 4:07 pm


I put this Boglehead post in another thread. It belongs here:
Actually, the quote has nothing to do with this thread, which otherwise has been excellent. Let's try not to derail it.
Quod vitae sectabor iter?

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Re: "TRYING TO BEAT THE MARKET"

Post by jhfenton » Sat Mar 17, 2018 5:19 pm

Taylor Larimore wrote:
Sat Mar 17, 2018 4:07 pm
jhfenton:

I put this Boglehead post in another thread. It belongs here:
Bogleheads:

Jonathan Clements is one of the most knowledgeable financial writers in the business. Mr. Clements spent almost 20 years at The Wall Street Journal where he wrote over 1,000 personal finance columns. He left the Journal to join Citigroup where he became their Director of Financial Education . Mr. Clements is also the author of six highly regarded financial books. He now writes a personal finance newsletter, The Humble Dollar.

This is his first sentence in the March, 2018, edition of The Humble Dollar:
"TRYING TO BEAT THE MARKET isn’t just a risky endeavor that will almost certainly end in failure. It’s also unnecessary and, arguably, an astonishing waste of money and time." --
Best wishes.
Taylor
Taylor, I respect your desire for the simplicity of the three-fund portfolio. It is undoubtedly perfect for you.

Please respect that whether I'm training for marathons or investing for retirement, I may take a different road to Dublin. I have running spreadsheets and investing spreadsheets. I am analytical, read the latest research, and put together a plan to get me to my goal. Some folks just go out and run. And that's great. I track my mileage, plan my runs and workouts months in advance, collect heart rate data, keep notes on my condition, and tweak my workouts to peak on a specific day. I've done reasonably well for the overweight guy who started running at 34. And I've done reasonably well with our investments since we started investing in the mid-to-late 90's. (Our first non-401(k) investments were in our Roth IRAs in 1998 in small value and emerging markets.) I may not buy any total market funds, but everything is low cost, well-diversified, and--like my training program--fits together logically. :beer

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Re: "TRYING TO BEAT THE MARKET"

Post by mickens16 » Sat Mar 17, 2018 5:47 pm

saltycaper wrote:
Sat Mar 17, 2018 4:38 pm
Taylor Larimore wrote:
Sat Mar 17, 2018 4:07 pm


I put this Boglehead post in another thread. It belongs here:
Actually, the quote has nothing to do with this thread, which otherwise has been excellent. Let's try not to derail it.
It appears that every thread that deviates from the three fund portfolio gets derailed by this poster.

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Re: "TRYING TO BEAT THE MARKET"

Post by GreatOdinsRaven » Sat Mar 17, 2018 8:11 pm

mickens16 wrote:
Sat Mar 17, 2018 5:47 pm
saltycaper wrote:
Sat Mar 17, 2018 4:38 pm
Taylor Larimore wrote:
Sat Mar 17, 2018 4:07 pm


I put this Boglehead post in another thread. It belongs here:
Actually, the quote has nothing to do with this thread, which otherwise has been excellent. Let's try not to derail it.
It appears that every thread that deviates from the three fund portfolio gets derailed by this poster.
Mickens16,
“This poster” is literally the king of the Bogleheads, one of our founders, Taylor Larimore. I had the opportunity to meet Taylor at the Bogleheads meeting in 2016. A prince among men. I respect his opinion and his desire to keep people thinking about the simplicity of the three fund portfolio, a fine choice for many.

I do feel, though, that this conversation is clearly comprised of knowledgeable people addressing slice and dice/factor tilted portfolios and I too agree that the push to consider a three fund portfolio, while certainly well intentioned, is not necessary.

Taylor, thank you so much for your contributions to helping people invest in a low cost way sure to capture our fair share of the market returns.

I do think that we should get back to discussion of these new Vanguard active factor funds, though.

Respectfully,
GOR
"The greatest enemies of the equity investor are expenses and emotions." -John C. Bogle, Little Book of Common Sense Investing. | | "Winter is coming." Lord Eddard Stark.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by GreatOdinsRaven » Sun Mar 18, 2018 8:45 am

Vanguard active factor portfolio construction has already been discussed. But, I saw this link when I logged in, today, and listened to it. It’s not nearly as instructive as the advisor webcast but still interesting. A little more than halfway through or so they discuss portfolio construction from a 30,000’ overview. Eg value weighting is created by evaluating P/B, price/CF, and P/Forward earnings etc. Factor wonks probably will think the discussion is too elementary. People who want to learn more about factors might enjoy it.

GOR

http://investornews.vanguard/factor-bas ... the-risks/
"The greatest enemies of the equity investor are expenses and emotions." -John C. Bogle, Little Book of Common Sense Investing. | | "Winter is coming." Lord Eddard Stark.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Sun Mar 18, 2018 10:36 am

GreatOdinsRaven wrote:
Sun Mar 18, 2018 8:45 am
Vanguard active factor portfolio construction has already been discussed. But, I saw this link when I logged in, today, and listened to it. It’s not nearly as instructive as the advisor webcast but still interesting. A little more than halfway through or so they discuss portfolio construction from a 30,000’ overview. Eg value weighting is created by evaluating P/B, price/CF, and P/Forward earnings etc. Factor wonks probably will think the discussion is too elementary. People who want to learn more about factors might enjoy it.

GOR

http://investornews.vanguard/factor-bas ... the-risks/
Thanks for posting it. I meant to post the link a few days ago, but I forgot to. It popped up in my podcast app earlier in the week.

It was fairly basic, but consistent with everything else we've come across. The key message is that they are all-cap, factor-weighted portfolios:
You’re getting exposure to all parts of the market-cap spectrum, and then you are getting stocks weighted by factor score, not by their market cap.
So expect a fair amount of tracking error to a market-cap-weighted Total Stock Market portfolio, especially for the single-factor ETFs.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by AndrewXnn » Sun Mar 18, 2018 3:27 pm

Here are some simple performance statistics on the Factor Funds.
Calculations are based on closing prices since February 20, 2018.
Hopefully, the formatting is reasonable...

Code: Select all

Fund	Return	Max	Min	Max-Min	VAR
VFMV	2.8%	3.3%	-0.8%	4.1%	1.37
VFMF	3.0%	3.5%	-1.0%	4.4%	1.33
VFMO	3.4%	4.5%	-1.0%	5.5%	1.25
VFQY	2.8%	3.5%	-1.3%	4.7%	1.20
VFMFX	2.7%	3.3%	-1.4%	4.7%	1.16
VFLQ	3.2%	3.7%	-2.0%	5.7%	1.11
VFVA	2.2%	3.5%	-1.0%	4.5%	1.00
VOO	1.4%	2.7%	-1.4%	4.1%	0.70
VAR stands for Volatility Adjusted Returns.
My own quick and dirty version of the Sharpe ratio.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by fennewaldaj » Mon Mar 19, 2018 11:13 pm

It looks like morningstar now has the portfolio statistics. They look pretty similar to what was calculated above.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Tue Mar 20, 2018 8:23 am

fennewaldaj wrote:
Mon Mar 19, 2018 11:13 pm
It looks like morningstar now has the portfolio statistics. They look pretty similar to what was calculated above.
:beer They seem to only have the Multifactor ETF and Admiral and Value Factor ETF so far. The others still seem to be missing. (I don't know if it's because I specifically asked for the Multifactor and Value Factor and only indirectly mentioned the others.)

The style boxes are a little off what I calculated, but reasonably close. The P/PE was very close for both funds.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by ryn996 » Tue Mar 20, 2018 10:50 am

Would anyone like to hypothesize how the Multi-factor fund would fair in a down market compared to the U.S.Total Stock Market fund?

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Theoretical » Tue Mar 20, 2018 11:04 am

Probably worse in a usual recession, since these are risk factors being tilted towards. A massive bubble a la the tech bubble means its value tilt will do well but a liquidity crisis will not help these at all. An inflationary recession would be an open question.

I do think there is a premium associated with the factors being used, but a premium can also be negative as well as positive.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by lack_ey » Tue Mar 20, 2018 11:07 am

ryn996 wrote:
Tue Mar 20, 2018 10:50 am
Would anyone like to hypothesize how the Multi-factor fund would fair in a down market compared to the U.S.Total Stock Market fund?
I would guess that it would be similar, maybe just slightly worse on average during equity down markets. Depends on what is driving the downturn and what preceded it. Value can do poorly under deteriorating economic conditions, which coincide with some down markets, but the fund is not deep value and not as much in the kinds of distressed, debt-laden parts of value that would be in trouble because of the quality component. A quality tilt in of itself would reduce drawdowns in the worst markets on average. The fund is significantly tilted to mid caps and small caps relative to the market, which would generally increase volatility and drawdowns, but it also screens out IIRC the 20% most volatile stocks in each size range, so that would reduce volatility.

Theoretical wrote:
Tue Mar 20, 2018 11:04 am
Probably worse in a usual recession, since these are risk factors being tilted towards. A massive bubble a la the tech bubble means its value tilt will do well but a liquidity crisis will not help these at all. An inflationary recession would be an open question.

I do think there is a premium associated with the factors being used, but a premium can also be negative as well as positive.
Hm, I don't really see people talking about low vol as a risk factor, or momentum as a risk factor (though there are some papers trying to explain it that way), or quality as a risk factor (likewise, some papers).

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by AndrewXnn » Sun Mar 25, 2018 12:35 pm

By my own calculations both VFMF and VFMFX are continuing to display alpha.

2.85% between 2/26/2018 thru 3/23/2018.

Over just the last week since 3/16/2018, they have both gained 1.2% compared to the S&P500.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by AndrewXnn » Sun Mar 25, 2018 12:38 pm

Slight correction:

Since 2/26/2018
VFMFX 2.77%
VFMF 2.82%

Since 3/16/2018
VFMFX 1.16%
VFMF 1.17%

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by GreatOdinsRaven » Tue Apr 03, 2018 4:48 am

GreatOdinsRaven wrote:
Sat Mar 10, 2018 2:39 pm
jhfenton wrote:
Sat Mar 10, 2018 1:10 pm

I wish I had known about the webcast. I would have tried to listen to it too, even though I would have also been frequently distracted by work.
GreatOdinsRaven wrote:
Sat Mar 10, 2018 10:51 am

Vanguard said they’d post a link to edited video from the discussion in a few months. Will return and post a link if I see one in the future.

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https://advisors.vanguard.com/VGApp/iip ... 85553483=1
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Tue Apr 03, 2018 7:42 am

GreatOdinsRaven wrote:
Tue Apr 03, 2018 4:48 am
GreatOdinsRaven wrote:
Sat Mar 10, 2018 2:39 pm
jhfenton wrote:
Sat Mar 10, 2018 1:10 pm

I wish I had known about the webcast. I would have tried to listen to it too, even though I would have also been frequently distracted by work.
GreatOdinsRaven wrote:
Sat Mar 10, 2018 10:51 am

Vanguard said they’d post a link to edited video from the discussion in a few months. Will return and post a link if I see one in the future.

GOR
https://advisors.vanguard.com/VGApp/iip ... 85553483=1
Gracias. I still have a bit left, but I listened to most of it getting ready this morning.

The one interesting bit I heard was that they use a beta-conscious version of momentum, so that at the end of a down cycle in the market, you don't have an entire momentum portfolio of low-beta stocks that underperform in the recovery.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by airshow » Wed Apr 04, 2018 8:55 am

For those who really like midcaps, I think VFMFX would make a great core fund as it captures a nice mix of large and small too. A simple portfolio of that, VTIAX international, and say an intermediate bond fund such as VFIDX would make a nice set-it-and-forget-it portfolio with a slight value/small tilt.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Wed Apr 04, 2018 9:16 am

airshow wrote:
Wed Apr 04, 2018 8:55 am
For those who really like midcaps, I think VFMFX would make a great core fund as it captures a nice mix of large and small too. A simple portfolio of that, VTIAX international, and say an intermediate bond fund such as VFIDX would make a nice set-it-and-forget-it portfolio with a slight value/small tilt.
I agree. VFMFX looks like a great core fund for believers in tilting who also want simplicity. If I didn't have 401(k) constraints, I could see eventually simplifying to a two-fund equity portfolio: VFMFX and VSS (Vanguard FTSE All-World ex-US Small Cap). VSS is an all small- and mid-cap version of Total International, about 80% developed, 20% emerging markets.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Fri Apr 20, 2018 8:36 am

AUM update:

VFMFX $18.2 MM (as of 3/31/18 from Vanguard) (M* shows $31.6 MM, but I'm skeptical that is accurate)
VFMF $27.44 MM
VFMO $9.88 MM
VFMV $7.99 MM
VFQY $7.87 MM
VFLQ $7.85 MM
VFVA $7.77 MM

* ETF assets from ETF.com

Other than the multifactor fund, the other ETFs haven't grown yet. Only VFMO has had an additional creation unit, and that was the first week. Vanguard did launch the ETFs with 100,000 shares each, so it is undoubtedly taking time to dribble those out into the market.

I'm curious to see what the long-term growth curves will be for all of the funds. So far, as I expected, the multifactor fund is the clear winner.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by lazyday » Fri Apr 20, 2018 8:56 am

I bet there's some Bogleheads who never owned .5% of a fund until recently.

Myself, I wish they would do multifactor developed ex-US and EM funds. I have over 20% of my portfolio in each of FNDF and FNDE (RAFI) and would gladly move that to Vanguard.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Fri Apr 20, 2018 9:05 am

lazyday wrote:
Fri Apr 20, 2018 8:56 am
I bet there's some Bogleheads who never owned .5% of a fund until recently.
You can count me in that category. I've never been close before, but I currently own about 0.7% of VFVA. :beer (I own a bit more VFMFX than VFVA, but I've been diluted to less than 0.5% at this point.)
lazyday wrote:
Fri Apr 20, 2018 8:56 am
Myself, I wish they would do multifactor developed ex-US and EM funds. I have over 20% of my portfolio in each of FNDF and FNDE (RAFI) and would gladly move that to Vanguard.
+2 I would love Vanguard multifactor developed ex-US and emerging funds. I own some EMGF (iShares Multifactor EM) in my HSA, and I like the fund. But I based on the current factor funds, I would like Vanguard's better.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by lazyday » Fri Apr 20, 2018 10:01 am

jhfenton wrote:
Fri Apr 20, 2018 9:05 am
I own some EMGF (iShares Multifactor EM) in my HSA, and I like the fund. But I based on the current factor funds, I would like Vanguard's better.
I really like that Vanguard isn't following an index, so the fund could potentially lose less money trading. Many EM factor and RAFI funds fall behind their indexes by more than the ER.

Of course investing in a fund that doesn't follow an index requires trust. I would trust Vanguard both to manage the fund in the shareholder's interest and to manage it well.

If RA data ever shows smallcap to be cheap, then I plan to take a good look at the iShares funds, especially ISCF developed small, and your EMGF EM which overweights small.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by asset_chaos » Sat Apr 21, 2018 5:39 pm

At Vanguard's financial advisor site there is a large and detailed presentation on the new factor funds https://advisors.vanguard.com/web/cf/factor/basics with sections called Factor Basics, Factor Applications, Our Difference, and Factor Products. It might be the flashy online version of the presentation material mentioned earlier in this thread.
Regards, | | Guy

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by SteelyEyed » Sun Apr 22, 2018 4:07 pm

jhfenton wrote:
Fri Mar 16, 2018 10:14 am
Since it's Vanguard, since their initial portfolios look good, and since they're in retirement accounts, I leapt. I have since bought some VFVA as well.
jhfenton wrote:
Wed Apr 04, 2018 9:16 am
I agree. VFMFX looks like a great core fund for believers in tilting who also want simplicity. If I didn't have 401(k) constraints, I could see eventually simplifying to a two-fund equity portfolio: VFMFX and VSS (Vanguard FTSE All-World ex-US Small Cap). VSS is an all small- and mid-cap version of Total International, about 80% developed, 20% emerging markets.
I bought VFMFX on the first day as well. I know that the second quote is not your actual plan, but it makes me wonder: why did you also buy VFVA? Do you have a particular value loading goal, similar to Robert T?

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Sun Apr 22, 2018 5:32 pm

SteelyEyed wrote:
Sun Apr 22, 2018 4:07 pm
I bought VFMFX on the first day as well. I know that the second quote is not your actual plan, but it makes me wonder: why did you also buy VFVA? Do you have a particular value loading goal, similar to Robert T?
Basically, yes. I've always tilted fairly heavily toward value, at least on the U.S. side. At this point, I'm splitting my U.S. large cap between VFMFX and VFVA. I know they're only about 1/3 large cap, but that's all the U.S. large cap I have. Everything else U.S. is mid-cap value (my 401(k)), small-cap value, or DFA small cap (also my 401(k)). The DFA US Small Cap is not explicitly a value fund, but it does have a value+quality loading because it excludes junk. My wife's new 401(k) kicks in May 1, and that will bring DFA US Small Cap Value into the mix.

I didn't go all VFVA in order to minimize regret and volatility. VFMFX should be a better all-weather performer.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by geetzromo » Mon Apr 23, 2018 5:41 pm

The re-play of Vanguard's Factors webcast is available. Hopefully this link will get you there.

https://advisors.vanguard.com/VGApp/iip ... layFactors

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by SteelyEyed » Mon Apr 23, 2018 11:11 pm

jhfenton wrote:
Sun Apr 22, 2018 5:32 pm
Basically, yes.
Thank you. The domestic side of my portfolio has always been 50% TSM (VTSAX) and 50% SCV (VSIAX). I'm figuring out how to best work the multifactor fund in.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by comeinvest » Fri Apr 27, 2018 12:55 am

What precisely is a tangible benefit of the new VFVA (Vanguard US Value Factor ETF) vs. the old VBR (small cap value), mid cap value, large cap value, etc.?
The expense ratio of VFVA is about twice that of the old ETFs.
I gather that VFVA does not track an index, but on the other hand the relevant indexes (CRSP US Small Cap Value Index, etc.) are constructed to minimize turnover too, so I'm curious if there is a tangible benefit here.
Also, VFVA seems to follow a strict, rules based approach too. I'm not sure where exactly the "active" part comes into play, or if "active" is just Vanguard's terminology for "non-market cap" or "rules-based factor".
With the old ETFs, the investor has more control over the weighting of large/mid/small depending on individual preferences or overall portfolio.
Finally, I'm not sure if "deeper value" is necessarily a benefit. If deeper value was always better, as sometimes suggested in this forum, one could easily tweak the portfolio construction rules (weighting and cutoff numbers) to achieve arbitrary deep factor exposure, at no additional cost since the data and the computers are already there.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by AlohaJoe » Fri Apr 27, 2018 1:24 am

Jiu Jitsu Fighter wrote:
Fri Mar 09, 2018 7:15 pm
That and Vanguard generally let's the funds/ETFs sell themselves.
Back in 2010 Vanguard spent over $60 million just on "measured media" advertising. I can only assume it has gone up quite a bit since then.

That's small relative to their competitors and their assets under management. But by most measures spending $60 million in a single year on just one part of your overall marketing & advertising budget is still a pretty big chunk of change!

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Fri Apr 27, 2018 7:16 am

comeinvest wrote:
Fri Apr 27, 2018 12:55 am
What precisely is a tangible benefit of the new VFVA (Vanguard US Value Factor ETF) vs. the old VBR (small cap value), mid cap value, large cap value, etc.?
The expense ratio of VFVA is about twice that of the old ETFs.
I gather that VFVA does not track an index, but on the other hand the relevant indexes (CRSP US Small Cap Value Index, etc.) are constructed to minimize turnover too, so I'm curious if there is a tangible benefit here.
Also, VFVA seems to follow a strict, rules based approach too. I'm not sure where exactly the "active" part comes into play, or if "active" is just Vanguard's terminology for "non-market cap" or "rules-based factor".
With the old ETFs, the investor has more control over the weighting of large/mid/small depending on individual preferences or overall portfolio.
Finally, I'm not sure if "deeper value" is necessarily a benefit. If deeper value was always better, as sometimes suggested in this forum, one could easily tweak the portfolio construction rules (weighting and cutoff numbers) to achieve arbitrary deep factor exposure, at no additional cost since the data and the computers are already there.
If you actually want "value" exposure, the new VFVA is a more concentrated take on it.

The CRSP value funds have fairly dilute value exposure for two main reasons: (1) They include 50% of the market by "value", so you are getting a lot of stocks with middling value characteristics. (2) They market cap weight the included stocks, potentially diluting the value exposure further.

I have no problem owning the CRSP funds. I own Vanguard Mid-Cap Value Index Admiral in my 401(k), and I have Vanguard Small-Cap Value Index Admiral in two of our retirement accounts. They offer a cheap and almost infinitely scalable mix of beta, value, and, for the mid and small funds, size factors. They have moderate tracking error to the popular indices people see on TV, so they may be easier for folks to hold on to.

Vanguard certainly could tweak the CRSP indexing rules to create "passive" funds with deeper value characteristics. They could limit the indices to 33% of the market by value and weight the holdings by the strength of their value characteristics rather than market cap.

At that point, though, if you simply gave the manager the discretion to determine when to rebalance the index, you'd essentially have the new "active" value factor ETF.

To be honest, if you aren't immediately excited by VFVA upon looking at its construction methodology and its portfolio characteristics, you shouldn't even consider it. It should not be sold to anyone. There is a reason they are marketing them as a tool for advisors.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by matjen » Fri Apr 27, 2018 7:36 am

jhfenton wrote:
Wed Apr 04, 2018 9:16 am
I agree. VFMFX looks like a great core fund for believers in tilting who also want simplicity. If I didn't have 401(k) constraints, I could see eventually simplifying to a two-fund equity portfolio: VFMFX and VSS (Vanguard FTSE All-World ex-US Small Cap). VSS is an all small- and mid-cap version of Total International, about 80% developed, 20% emerging markets.
I agree. Reminds me of the Taylor Swedroe Portfolio which I champion.
DFA US Vector Equity I DFVEX
DFA World ex US Targeted Val Instl DWUSX (22% or so Emerging Markets)

And the Intermediate Term Bond Fund(s) of your choice.
BND, IEI, MUB, BMBIX, etc.
A man is rich in proportion to the number of things he can afford to let alone.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by cheapskate » Fri Apr 27, 2018 4:44 pm

matjen wrote:
Fri Apr 27, 2018 7:36 am
I agree. Reminds me of the Taylor Swedroe Portfolio which I champion.
DFA US Vector Equity I DFVEX
DFA World ex US Targeted Val Instl DWUSX (22% or so Emerging Markets)

And the Intermediate Term Bond Fund(s) of your choice.
BND, IEI, MUB, BMBIX, etc.
One issue with DFVEX is it's tendency to throw off fairly large LT cap gains. For tax year 2017, for instance, it distributed well over 3% of NAV as LT cap gains. For investors living in high tax states, that's a nearly 1.5% of NAV tax impact. I only remember it because it stood out when I was looking at my 1099s during tax season.

I assume something like VFVA will be way more tax efficient (if it can gather more assets).

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by matjen » Fri Apr 27, 2018 5:07 pm

cheapskate wrote:
Fri Apr 27, 2018 4:44 pm

One issue with DFVEX is it's tendency to throw off fairly large LT cap gains. For tax year 2017, for instance, it distributed well over 3% of NAV as LT cap gains. For investors living in high tax states, that's a nearly 1.5% of NAV tax impact. I only remember it because it stood out when I was looking at my 1099s during tax season.

I assume something like VFVA will be way more tax efficient (if it can gather more assets).
Good point. One of their tax advantaged or tax managed funds like DFA T.A. U.S. Core Equity 2 Portfolio Institutional Class (DFTCX) would be an alternative. Not quite as valuey though. Regardless, if Vanguard can make these new funds stick it makes these DFA options not nearly as attractive.
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"Taylor Swedroe Portfolio"

Post by Taylor Larimore » Fri Apr 27, 2018 5:17 pm

"Reminds me of the Taylor Swedroe Portfolio which I champion.
DFA US Vector Equity I DFVEX
DFA World ex US Targeted Val Instl DWUSX (22% or so Emerging Markets)

And the Intermediate Term Bond Fund(s) of your choice.
BND, IEI, MUB, BMBIX, etc.
Matjen:

I am unaware of any "Taylor Swedroe Portfolio." Perhaps you are referring to another "Taylor."

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

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