Ex DFA CIO launches competitor which will also have ETFs

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pascalwager
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by pascalwager »

I'm now using AVDV (intl small cap value ETF) as a rebalancing partner with DFISX (intl small company fund) in an old DFA stock funds portfolio that hadn't been rebalanced since 2011--I'm not allowed to buy more DFA shares. AVDV is currently 12.9% of the revised portfolio (25% allocations of LV/SC/ISC/EM).
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by MotoTrojan »

pascalwager wrote: Wed Jul 29, 2020 11:37 am I'm now using AVDV (intl small cap value ETF) as a rebalancing partner with DFISX (intl small company fund) in an old DFA stock funds portfolio that hadn't been rebalanced since 2011--I'm not allowed to buy more DFA shares. AVDV is currently 12.9% of the revised portfolio (25% allocations of LV/SC/ISC/EM).
Nice choice. I would dump it all into AVDV myself.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by calcada »

caklim00 wrote: Fri Mar 20, 2020 2:55 pm
MotoTrojan wrote: Thu Mar 19, 2020 6:02 am
I’m not sure that’s true. Some funds use derivatives to maintain exposure while holding cash to help with redemptions. I thought it was more prevalent in Mutual Funds though. I can’t imagine IJS has a 2% cash drag.
Someone needs to look into this. Its VIOV, not IJS that would have the cash drag. I'm surprissed though that Vanguard would be the one using derivatives...
So which one is the better fund to buy? I do not yet own SLYV or VIOV but I will choose and buy one of them as a long term holding for my domestic SCV allocation. They both track the same index and have the same ER. Its hard to choose between them.

Assuming non-taxable accounts and that both are available.
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vineviz
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by vineviz »

calcada wrote: Sat Sep 05, 2020 1:01 pm So which one is the better fund to buy? I do not yet own SLYV or VIOV but I will choose and buy one of them as a long term holding for my domestic SCV allocation. They both track the same index and have the same ER. Its hard to choose between them.
I can't envision any important criterion by which one could be judged as "better" than the other.

I use SLYV because it is commission-free at my broker, but few (none?) of the largest brokers are charging commissions to begin with, so I can't imagine that'd be a swing factor for many investors.

In a taxable account I might choose VIOV simply because Vanguard has a strong history of lower expense ratios proactively. In a tax-advantaged account, I'd say flip a coin.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by XacTactX »

calcada wrote: Sat Sep 05, 2020 1:01 pm
caklim00 wrote: Fri Mar 20, 2020 2:55 pm
MotoTrojan wrote: Thu Mar 19, 2020 6:02 am
I’m not sure that’s true. Some funds use derivatives to maintain exposure while holding cash to help with redemptions. I thought it was more prevalent in Mutual Funds though. I can’t imagine IJS has a 2% cash drag.
Someone needs to look into this. Its VIOV, not IJS that would have the cash drag. I'm surprissed though that Vanguard would be the one using derivatives...
So which one is the better fund to buy? I do not yet own SLYV or VIOV but I will choose and buy one of them as a long term holding for my domestic SCV allocation. They both track the same index and have the same ER. Its hard to choose between them.

Assuming non-taxable accounts and that both are available.
In a non-taxable account I think both VIOV and SLYV are equal, SLYV has a average volume of $10 million and VIOV has an average volume of $4 million, both should be pretty easy to trade. The issue with SLYV and its large STCG and LTCG distributions is not going to effect your taxes.

If anyone is trying to make this decision for a taxable account here is the background.

IJS vs SLYV vs VIOV 2011 - Present, scroll to the bottom and look at dividends.

SLYV dividend distributions in 2014, 2015, and 2017

Huge distributions in those years, a mixture of STCG and LTCG. To avoid that problem going forward I would avoid SLYV in a taxable account. I think it's a solid fund outside of that issue.

EDIT: Read what vineviz wrote below, SSGA is trying to fix this problem and it should not happen anymore.
Last edited by XacTactX on Sat Sep 05, 2020 2:37 pm, edited 2 times in total.
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vineviz
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by vineviz »

XacTactX wrote: Sat Sep 05, 2020 2:01 pm Huge distributions in those years, a mixture of STCG and LTCG. To avoid that problem going forward I would avoid SLYV in a taxable account. I think it's a solid fund outside of that issue.
Never say never, but State Street has acknowledged the problematic distributions and said in 2018 that they’d implemented processes that should allows them to avoid the issue going forward. I don’t think any of their ETFs has capital gains distributions last year, for example.

Looking forward, I genuinely don’t think any of these three funds is any more likely to present a tax efficiency issue than the others.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by Northern Flicker »

calcada wrote: Sat Sep 05, 2020 1:01 pm
caklim00 wrote: Fri Mar 20, 2020 2:55 pm
MotoTrojan wrote: Thu Mar 19, 2020 6:02 am
I’m not sure that’s true. Some funds use derivatives to maintain exposure while holding cash to help with redemptions. I thought it was more prevalent in Mutual Funds though. I can’t imagine IJS has a 2% cash drag.
Someone needs to look into this. Its VIOV, not IJS that would have the cash drag. I'm surprissed though that Vanguard would be the one using derivatives...
So which one is the better fund to buy? I do not yet own SLYV or VIOV but I will choose and buy one of them as a long term holding for my domestic SCV allocation. They both track the same index and have the same ER. Its hard to choose between them.

Assuming non-taxable accounts and that both are available.
Vanguard returns 100% of securities lending revenue to investors. State Street does not. The fund legal structure for SLYV perhaps does not allow for heartbeat trades, so that capital gains are not as well managed, but the costs associated with managing capital gains are thus not realized unnecessarily by investors in tax-qualified accounts. I think the securities lending issue is bigger, particularly because the prospectus for SLYV only states that some of the securities lending revenue is shared with the fund, with no indication of the percentage retained by State Street. iShares returns 80% of securities lending revenue to investors in their funds, such as IJS.

My conclusion is that VIOV is the preferred choice in a tax-qualified account (or taxable account).
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vineviz
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by vineviz »

Northern Flicker wrote: Sat Sep 05, 2020 2:19 pm I think the securities lending issue is bigger, particularly because the prospectus for SLYV only states that some of the securities lending revenue is shared with the fund, with no indication of the percentage retained by State Street. iShares returns 80% of securities lending revenue to investors in their funds, such as IJS.
If securities lending revenue was a "big issue", there'd be a gap between the net investor return for the funds. However, over the past 24 months, the net return to investors from SLYV been 4 bps higher than VIOV. That is literally noise: even a gap 10x that large wouldn't be statistically significant.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by Northern Flicker »

State Street does a higher volume of securities lending than Vanguard, up to 40% of fund assets per the State Street prospectus, so investors may be earning more SL revenue with State Street. But not returning all of the SL revenue to investors creates some uncompensated risk for the State Street investors.
Last edited by Northern Flicker on Sun Sep 06, 2020 7:19 pm, edited 2 times in total.
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pascalwager
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by pascalwager »

nedsaid wrote: Sat Sep 21, 2019 2:34 pm
cheezit wrote: Sat Sep 21, 2019 2:20 pm
nedsaid wrote: Sun Sep 15, 2019 10:07 am
Advantis US Equity Expense Ratio 0.15%
Advantis International Equity 0.23%
Advantis Emerging Markets Equity 0.33%
Advantis U.S. Small Cap Value 0.25%
Advantis International Small Cap Value 0.36%

If Vanguard's quantitative equity group someday makes ex-US analogs of VFMF and friends I might give them a look, but at these ERs I'm sticking with VSS + VXUS for international exposure in the meantime. Investors in domestic equities can get good exposure to a bunch of factors so cheaply by comparison.
I would say that Avantis is competitive with DFA in terms of fees. Remember you also have to look at how efficiently the different products load on factors. Vanguard is cheap but may not give you as good of factor exposure as DFA-like products. Anyways, this gets to be a pretty sophisticated argument pretty quickly. For a layman like me, not easy to tell what is better. If I want Small/Value tilting, I can want products with better Value characteristics and smaller market caps. Vanguard Small Cap Value Index has a lot of mid-caps and a lot of stocks outside the Value styleboxes but it is cheap and its performance has been very good. Certainly trade-offs are involved here.

Avantis will be yet another competitor in the factors universe. Hard to say what will do best going forwards.
I recall Gus Sauter saying in an interview that the Vanguard small value index fund was purposely managed to imitate common active SV management policies. Also, I owned a DFA value fund that targeted deciles 6 through 10, including a lot of mid-cap.

What is the actual, formal relationship between Avantis and AC? (I hold AVDV.) Is Avantis a "division" of AC?
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vineviz
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by vineviz »

pascalwager wrote: Sun Sep 06, 2020 4:22 pm I recall Gus Sauter saying in an interview that the Vanguard small value index fund was purposely managed to imitate common active SV management policies. Also, I owned a DFA value fund that targeted deciles 6 through 10, including a lot of mid-cap.
Although VBR definitely has smaller loadings on size and value it's low expense ratio is a pretty powerful offsetting consideration. For investors who are pursuing middle-of-the-the road tilts, VBR is pretty cost competitive.

For instance, if someone was happy with the factor exposures of a 50/50 portfolio of VTSMX and DFSVX they could get the same overall portfolio exposures with 75% VBR and 25% VTSMSX but with just 20% of the cost.
pascalwager wrote: Sun Sep 06, 2020 4:22 pm What is the actual, formal relationship between Avantis and AC? (I hold AVDV.) Is Avantis a "division" of AC?
Yes, it's basically a division of American Century. I've seen it called a "venture" and a "brand", but Repetto and Keating are employees of American Century.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by XacTactX »

pascalwager wrote: Sun Sep 06, 2020 4:22 pm
I recall Gus Sauter saying in an interview that the Vanguard small value index fund was purposely managed to imitate common active SV management policies. Also, I owned a DFA value fund that targeted deciles 6 through 10, including a lot of mid-cap.

What is the actual, formal relationship between Avantis and AC? (I hold AVDV.) Is Avantis a "division" of AC?
American Century owns Avantis and gives Avantis the infrastructure and the tools they need to be able to do their job but when it comes to the investment strategy, the marketing, and the day to day operations the Avantis / former DFA people have full control.

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nedsaid
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by nedsaid »

pascalwager wrote: Sun Sep 06, 2020 4:22 pm
nedsaid wrote: Sat Sep 21, 2019 2:34 pm
cheezit wrote: Sat Sep 21, 2019 2:20 pm
nedsaid wrote: Sun Sep 15, 2019 10:07 am
Advantis US Equity Expense Ratio 0.15%
Advantis International Equity 0.23%
Advantis Emerging Markets Equity 0.33%
Advantis U.S. Small Cap Value 0.25%
Advantis International Small Cap Value 0.36%

If Vanguard's quantitative equity group someday makes ex-US analogs of VFMF and friends I might give them a look, but at these ERs I'm sticking with VSS + VXUS for international exposure in the meantime. Investors in domestic equities can get good exposure to a bunch of factors so cheaply by comparison.
I would say that Avantis is competitive with DFA in terms of fees. Remember you also have to look at how efficiently the different products load on factors. Vanguard is cheap but may not give you as good of factor exposure as DFA-like products. Anyways, this gets to be a pretty sophisticated argument pretty quickly. For a layman like me, not easy to tell what is better. If I want Small/Value tilting, I can want products with better Value characteristics and smaller market caps. Vanguard Small Cap Value Index has a lot of mid-caps and a lot of stocks outside the Value styleboxes but it is cheap and its performance has been very good. Certainly trade-offs are involved here.

Avantis will be yet another competitor in the factors universe. Hard to say what will do best going forwards.
I recall Gus Sauter saying in an interview that the Vanguard small value index fund was purposely managed to imitate common active SV management policies. Also, I owned a DFA value fund that targeted deciles 6 through 10, including a lot of mid-cap.

What is the actual, formal relationship between Avantis and AC? (I hold AVDV.) Is Avantis a "division" of AC?
Avantis is a subsidiary of American Century Investments, it has available to it resources of the mother company but it operates independently. American Century is headquartered in Kansas City, Missouri and has a big presence in Mountain View, California which was the headquarters of Benham Mutual funds, which merged with Twentieth Century Investors to become American Century back in 1996. American Century also has offices in New York City. Avantis is located in Los Angeles, California.

Avantis has its own team of managers and analysts. I suppose they get IT and other support from the mother company.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by pascalwager »

nedsaid wrote: Sun Sep 06, 2020 10:15 pm
pascalwager wrote: Sun Sep 06, 2020 4:22 pm
nedsaid wrote: Sat Sep 21, 2019 2:34 pm
cheezit wrote: Sat Sep 21, 2019 2:20 pm
nedsaid wrote: Sun Sep 15, 2019 10:07 am
Advantis US Equity Expense Ratio 0.15%
Advantis International Equity 0.23%
Advantis Emerging Markets Equity 0.33%
Advantis U.S. Small Cap Value 0.25%
Advantis International Small Cap Value 0.36%

If Vanguard's quantitative equity group someday makes ex-US analogs of VFMF and friends I might give them a look, but at these ERs I'm sticking with VSS + VXUS for international exposure in the meantime. Investors in domestic equities can get good exposure to a bunch of factors so cheaply by comparison.
I would say that Avantis is competitive with DFA in terms of fees. Remember you also have to look at how efficiently the different products load on factors. Vanguard is cheap but may not give you as good of factor exposure as DFA-like products. Anyways, this gets to be a pretty sophisticated argument pretty quickly. For a layman like me, not easy to tell what is better. If I want Small/Value tilting, I can want product a lot.s with better Value characteristics and smaller market caps. Vanguard Small Cap Value Index has a lot of mid-caps and a lot of stocks outside the Value styleboxes but it is cheap and its performance has been very good. Certainly trade-offs are involved here.

Avantis will be yet another competitor in the factors universe. Hard to say what will do best going forwards.
I recall Gus Sauter saying in an interview that the Vanguard small value index fund was purposely managed to imitate common active SV management policies. Also, I owned a DFA value fund that targeted deciles 6 through 10, including a lot of mid-cap.

What is the actual, formal relationship between Avantis and AC? (I hold AVDV.) Is Avantis a "division" of AC?
Avantis is a subsidiary of American Century Investments, it has available to it resources of the mother company but it operates independently. American Century is headquartered in Kansas City, Missouri and has a big presence in Mountain View, California which was the headquarters of Benham Mutual funds, which merged with Twentieth Century Investors to become American Century back in 1996. American Century also has offices in New York City. Avantis is located in Los Angeles, California.

Avantis has its own team of managers and analysts. I suppose they get IT and other support from the mother company.
Thanks a lot.

I used to live "down the road" from the Benham Funds, Mountain View office, owned three of their CA muni funds, and had my Roth at AC. Later moved it all to Vanguard, but enjoyed the excellent AC customer service.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by Northern Flicker »

Benham was primarily a fixed-income shop and 20th Century was primarily an equity shop, so the merger was a natural fit.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by kolder »

Hi all.

I'm interested in including the Avantis fund lineup in the 401k fund choices for the company I work for. Originally I was just going to include the ETFs but after reading through the prospectus for the mutual funds it seems that they might be able to be included in some 401k plans without the need for an advisor (not 100% sure on this). Assuming I can get the mutual funds included, I'm a bit concerned to see that the difference in holdings between the MF and ETF versions are quite different. I'm aware that each version tries to achieve the same goal, but does anyone have any insight as to which is preferable? Of course the mutual funds don't suffer from the costs related to ETFs, but are there other benefits/drawbacks to the ETF version considering the strategy implemented by these funds?

As an example AVUV holds 505 funds and AVUVX holds 645, AVUS holds 2003 & AVUSX holds 1811 funds. The performance difference of each fund seems quite significant as well so far. Not much data obviously but here's the factor regression for the US funds https://www.portfoliovisualizer.com/fac ... sion=false. Appreciate any insight.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by nzahir »

caklim00 wrote: Fri Apr 03, 2020 10:22 am Moved all of my international small cap into AVDV this morning. Tax loss harvested out of FNDC, VSS, and ISCF and moved my entire ISCF in our IRAs over as well. Just checked and its looks like my international is now roughly

50% All Cap World Index (Large International with a .04% ER in my 401k)
37.5% AVDV
12.5% DFEVX (DFA EM Value)
Why so much small cap international?
Why no total international?
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by MotoTrojan »

nzahir wrote: Tue Sep 15, 2020 4:30 pm
caklim00 wrote: Fri Apr 03, 2020 10:22 am Moved all of my international small cap into AVDV this morning. Tax loss harvested out of FNDC, VSS, and ISCF and moved my entire ISCF in our IRAs over as well. Just checked and its looks like my international is now roughly

50% All Cap World Index (Large International with a .04% ER in my 401k)
37.5% AVDV
12.5% DFEVX (DFA EM Value)
Why so much small cap international?
Why no total international?
My entire ex-US is in small-value :twisted:. Caklim00 seems to have 50% in total per above.
Last edited by MotoTrojan on Tue Sep 15, 2020 4:39 pm, edited 1 time in total.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by caklim00 »

nzahir wrote: Tue Sep 15, 2020 4:30 pm
caklim00 wrote: Fri Apr 03, 2020 10:22 am Moved all of my international small cap into AVDV this morning. Tax loss harvested out of FNDC, VSS, and ISCF and moved my entire ISCF in our IRAs over as well. Just checked and its looks like my international is now roughly

50% All Cap World Index (Large International with a .04% ER in my 401k)
37.5% AVDV
12.5% DFEVX (DFA EM Value)
Why so much small cap international?
Why no total international?
50% is total international, see above. 37.5% is small and then the other portion in EM Value. If I could tilt with cheap options more I would.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by nzahir »

caklim00 wrote: Tue Sep 15, 2020 4:38 pm
nzahir wrote: Tue Sep 15, 2020 4:30 pm
caklim00 wrote: Fri Apr 03, 2020 10:22 am Moved all of my international small cap into AVDV this morning. Tax loss harvested out of FNDC, VSS, and ISCF and moved my entire ISCF in our IRAs over as well. Just checked and its looks like my international is now roughly

50% All Cap World Index (Large International with a .04% ER in my 401k)
37.5% AVDV
12.5% DFEVX (DFA EM Value)
Why so much small cap international?
Why no total international?
50% is total international, see above. 37.5% is small and then the other portion in EM Value. If I could tilt with cheap options more I would.
My bad, I thought I read 50% total US World MKT
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by Steve Reading »

nzahir wrote: Tue Sep 15, 2020 4:41 pm My bad, I thought I read 50% total US World MKT
If US stocks keep rallying and growing this much, who knows, maybe that’ll be a fund one day
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by Hallman »

Anyone care to explain the difference between the Avantis mutual funds and ETFs? I see that each of the mutual funds have beat their ETF counterpart YTD by a meaningful margin.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by nedsaid »

Hallman wrote: Mon Oct 05, 2020 10:53 pm Anyone care to explain the difference between the Avantis mutual funds and ETFs? I see that each of the mutual funds have beat their ETF counterpart YTD by a meaningful margin.
From the Avantis website:
Funds and ETFs with the same name have the same management team and investment policies. The fees and expenses of the funds are similar, and they are managed with substantially the same investment objective and strategies. Notwithstanding these general similarities, the funds and the ETFs are separate funds that have different investment performance. Differences in cash flows into the two funds, the size of their portfolios, and the specific investments held by two funds with the same name can cause performance to differ. Please consult the appropriate prospectus for a description of each fund and ETF, details on how they are offered, and their associated fees.
If you go the the Avantis website and check 3 month performance, the ETF version of US Small Value has beaten its mutual fund counterpart. The other ETFs trail their mutual fund counterparts by a small amount except International Small Value where the ETF trails by 6.79% compared to 8.30%.

These products are very new. The ETFs were started in September 2019 and the mutual funds were started in December 2019. So I wouldn't read too much into the differences in performance.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by calcada »

vineviz wrote: Sat Sep 05, 2020 1:35 pm
I can't envision any important criterion by which one could be judged as "better" than the other.

I use SLYV because it is commission-free at my broker, but few (none?) of the largest brokers are charging commissions to begin with, so I can't imagine that'd be a swing factor for many investors.

In a taxable account I might choose VIOV simply because Vanguard has a strong history of lower expense ratios proactively. In a tax-advantaged account, I'd say flip a coin.
What are your thoughts on buying RZV (S&P Small Cap 600 Pure Value) instead of SLYV (S&P Small Cap 600 Value)? RZV has much deeper factor tilts that would allow you to either achieve higher factor loads for the same allocation or achieve the same factor loads with a lower allocation allowing you to free up funds for something else. It sounds more efficient to me.

I am aware that RZV comes with a high negative momentum load which may explain its underperformance relative to SLYV.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by vineviz »

calcada wrote: Tue Nov 17, 2020 2:16 pm What are your thoughts on buying RZV (S&P Small Cap 600 Pure Value) instead of SLYV (S&P Small Cap 600 Value)? RZV has much deeper factor tilts that would allow you to either achieve higher factor loads for the same allocation or achieve the same factor loads with a lower allocation allowing you to free up funds for something else. It sounds more efficient to me.

I am aware that RZV comes with a high negative momentum load which may explain its underperformance relative to SLYV.
I think it's more the deeper value exposure than any consistent negative momentum exposure that explains the underperformance of RZV, but if you're a small cap value investor that's a feature not a bug.

Because VIOV and SLYV are so much cheaper (15bps vs 35bps), my personal preference is to simply use a larger allocation of the cheaper funds but I think your proposal is totally reasonable.
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calcada
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by calcada »

vineviz wrote: Tue Nov 17, 2020 5:04 pm I think it's more the deeper value exposure than any consistent negative momentum exposure that explains the underperformance of RZV, but if you're a small cap value investor that's a feature not a bug.

Because VIOV and SLYV are so much cheaper (15bps vs 35bps), my personal preference is to simply use a larger allocation of the cheaper funds but I think your proposal is totally reasonable.
So would you buy RZV instead of SLYV if they had the same ERs? If RZV reduces their ER to 15bps in the future would you sell SLYV to buy RZV?

Have you considered that perhaps the higher cost of RZV is justified since it delivers deeper factor tilts? I think it would be justified if it results in more loading per unit of cost. More bang for buck so to speak.

According to Robert T's estimations of factor loads of the underlying indexes:

SLYV per unit cost (1bps) delivers 0.045 SMB and 0.029 HML (1996-2019)
RZV per unit cost (1bps) delivers 0.024 SMB and 0.034 HML (1995-2011)

RZV delivers more value per unit cost compared to SLYV. RZV is cheaper when you look at it like this. And since you would be using less RZV than you would SLYV to achieve the same factor loads you could ultimately be paying a smaller dollar amount in costs to achieve your HML loading with RZV. According to the index data this would be true if RZV gets below 30.5bps. I would say its pretty close.

The market seems to agree with you though. As SLYV has $2.44B under management vs $131M for RZV.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by vineviz »

calcada wrote: Wed Nov 18, 2020 3:51 pm
Have you considered that perhaps the higher cost of RZV is justified since it delivers deeper factor tilts? I think it would be justified if it results in more loading per unit of cost. More bang for buck so to speak.
It's a reasonable hypothesis, but not supported by the data in my view.

RZV has about 65% higher loading on HML but 133% higher cost than SLYV/VIOV.

More concerning, IMO, is the significant and erratic alpha that RZV has generated. 2-300bps of negative alpha relative to SLYV/VIOV is easily enough to drown out any benefit from the higher HML exposure, and I think reliability is an important characteristic in an index fund: I want to be able to count on the fund to deliver the risk premia I sign up for.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
calcada
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by calcada »

vineviz wrote: Wed Nov 18, 2020 5:15 pm
It's a reasonable hypothesis, but not supported by the data in my view.

RZV has about 65% higher loading on HML but 133% higher cost than SLYV/VIOV.

More concerning, IMO, is the significant and erratic alpha that RZV has generated. 2-300bps of negative alpha relative to SLYV/VIOV is easily enough to drown out any benefit from the higher HML exposure, and I think reliability is an important characteristic in an index fund: I want to be able to count on the fund to deliver the risk premia I sign up for.
Just to be clear my point above was that RZV delivers more value loading (HML) per unit cost (1bps) compared to SLYV. Dividing their longterm HML loads with their expense ratios I get 0.034 HML vs 0.029 HML per unit cost. This would make RZV 15% cheaper than SLYV when it comes to HML loading. For every dollar spent on fees you would get 15% more HML loading with RZV.

When you say negative alpha are you talking about the underperformance of RZV vs SLYV? Where did you get the negative 2-300 bps figure?
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by vineviz »

calcada wrote: Wed Nov 18, 2020 6:01 pm
Just to be clear my point above was that RZV delivers more value loading (HML) per unit cost (1bps) compared to SLYV.
You were clear before: it seems that you are measuring the HML factor load to higher than I’m finding.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by Uncorrelated »

calcada wrote: Wed Nov 18, 2020 3:51 pm
vineviz wrote: Tue Nov 17, 2020 5:04 pm I think it's more the deeper value exposure than any consistent negative momentum exposure that explains the underperformance of RZV, but if you're a small cap value investor that's a feature not a bug.

Because VIOV and SLYV are so much cheaper (15bps vs 35bps), my personal preference is to simply use a larger allocation of the cheaper funds but I think your proposal is totally reasonable.
So would you buy RZV instead of SLYV if they had the same ERs? If RZV reduces their ER to 15bps in the future would you sell SLYV to buy RZV?

Have you considered that perhaps the higher cost of RZV is justified since it delivers deeper factor tilts? I think it would be justified if it results in more loading per unit of cost. More bang for buck so to speak.

According to Robert T's estimations of factor loads of the underlying indexes:

SLYV per unit cost (1bps) delivers 0.045 SMB and 0.029 HML (1996-2019)
RZV per unit cost (1bps) delivers 0.024 SMB and 0.034 HML (1995-2011)

RZV delivers more value per unit cost compared to SLYV. RZV is cheaper when you look at it like this. And since you would be using less RZV than you would SLYV to achieve the same factor loads you could ultimately be paying a smaller dollar amount in costs to achieve your HML loading with RZV. According to the index data this would be true if RZV gets below 30.5bps. I would say its pretty close.

The market seems to agree with you though. As SLYV has $2.44B under management vs $131M for RZV.
Not all factor loadings are created equal. It is preferable to obtain your factor exposure with as much stocks as possible. Although you may be able to obtain lower cost with RZV than SLYV for the same factor exposure, a portfolio constructed with the latter will have better diversification and lower tracking error relative to the academic factors. This is clearly visible in a 3-factor regression: RZV has an R^2 of 87% and SLYV 97.5%. The additional risk is not a compensated risk (according to any research I know of).

DFA has a very short publication detailing this: How Diversification Impacts the Reliability of Outcomes.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by calcada »

larryswedroe wrote: Fri Jun 28, 2019 7:43 am FWIW I expect the ERs will be below, and maybe in some cases well below DFAs. With perhaps deeper tilts. So more loading per unit of cost.
Larry
Hi Larry. Now that some time has passed, could you elobarate on your comment that these funds may have deeper tilts?

How can you comment on how deep the tilts are for this new fund which doesn't have a long track record and doesn't follow an index? As I understand it is impossible to know what kind of long-term factor loads one would be getting with these kind of funds. Without knowing this one would not be able to decide on how much to allocate to these funds to achieve their target longterm SMB HML factor loads.

This makes me hesitate to invest in these funds as I feel like I do not know what I am getting. What would you say to someone like me who is unsure about investing in these funds for this reason? I am only interested in AVDV. Do you think this fund is suitable to buy and hold for decades to come? Do you think there is a better alternative to AVDV?

Would it be accurate to assume that they will have similar long-term factor loadings as the DFA funds? Will AVDV perform similarly to DISVX?

“We don’t really like to call it factor investing because we’re not trying to deliver a factor.”

This concerns me. Sounds like an active fund. It doesn't sound like a fund a factor investor, who has factor load targets, would buy. On the other hand, I struggle to find a better, cheaper alternative to AVDV.

I have acquired your factor-based investing book and I am looking forward to reading it. Thank you.
Last edited by calcada on Wed Nov 25, 2020 5:02 pm, edited 1 time in total.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by nedsaid »

calcada wrote: Tue Nov 24, 2020 4:43 pm
larryswedroe wrote: Fri Jun 28, 2019 7:43 am FWIW I expect the ERs will be below, and maybe in some cases well below DFAs. With perhaps deeper tilts. So more loading per unit of cost.
Larry
Hi Larry. Now that some time has passed, could you elobarate on your comment that these funds may have deeper tilts?

How can you comment on how deep the tilts are for this new fund which doesn't have a long track record and doesn't follow an index? As I understand it is impossible to know what kind of long-term factor loads one would be getting with these kind of funds. Without knowing this one would not be able to decide on how much to allocate to these funds to achieve their target longterm SMB HML factor loads.

This makes me hesitate to invest in these funds as I feel like I do not know what I am getting. What would you say to someone like me who is unsure about investing in these funds for this reason? I am only interested in AVDV. Do you think this fund is suitable to buy and hold for decades to come? Do you think there is a better alternative to AVDV?

Would it be accurate to assume that they will have similar long-term factor loadings as the DFA funds? Will AVDV perform similarly to DFSVX?

“We don’t really like to call it factor investing because we’re not trying to deliver a factor.”

This concerns me. Sounds like an active fund. It doesn't sound like a fund a factor investor, who has factor load targets, would buy. On the other hand, I struggle to find a better, cheaper alternative to AVDV.

I have acquired your factor-based investing book and I am looking forward to reading it. Thank you.
Larry stopped posting here back in January of 2020 and hasn't logged back since. He does respond to e-mails and you can contact him directly. I got this e-mail address directly from the Buckingham website. Don't know Larry personally except from discussion on the forum and exchanges of a few e-mails. What I do know is that he will respond.

lswedroe@buckinghamgroup.com

He left this e-mail address with his final post: lswedroe@bamadvisor.com

Probably either will work.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by asset_chaos »

calcada wrote: Tue Nov 24, 2020 4:43 pm
larryswedroe wrote: Fri Jun 28, 2019 7:43 am FWIW I expect the ERs will be below, and maybe in some cases well below DFAs. With perhaps deeper tilts. So more loading per unit of cost.
Larry
How can you comment on how deep the tilts are for this new fund which doesn't have a long track record and doesn't follow an index?
I think Larry posts only rarely or not at all anymore to Bogleheads. My quite uninformed guess is that Avantis may have indicated to Larry, as someone in the financial services business from whose company they want an investment mandate, what factor loads Avantis would target. I expect it makes a big difference to how one manages the portfolio if the target, e.g., size loading is 0.01 or 0.5. I don't see how one manages a fund in the way they sort of indicate in their marketing literature without having factor targets in mind. But either for the sake of flexibility or perhaps so they can't be held to anything later, Avantis has not hinted anything about their factor targets to the hoi poloi.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by asset_chaos »

The previous post got me to browse Avantis' website for anything new on their methodology. Nothing on that, but it seems they launched last month a fixed income etf.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by Steve Reading »

Not Larry, but maybe this will help.
calcada wrote: Tue Nov 24, 2020 4:43 pm Hi Larry. Now that some time has passed, could you elobarate on your comment that these funds may have deeper tilts?
You should expect a reasonable tilt because the value and quality metrics are OK, and they use the signal strength as part of the weighing. The weighing is "cap-scaled" in factor limbo. It should be a stronger exposure than purely cap-weighteed funds (like VTV) but not as strong as a purely signal-weighted fund (like VFMF).
calcada wrote: Tue Nov 24, 2020 4:43 pm As I understand it is impossible to know what kind of long-term factor loads one would be getting with these kind of funds. Without knowing this one would not be able to decide on how much to allocate to these funds to achieve their target longterm SMB HML factor loads.
You can look at the methodology, retroactively apply it with past stock data, and then regress those returns. Here's what I got for AVDV (data back to ~2000):
Beta = 1.1
Size = 0.7
Value = 0.2
Robust = 0 (statis. insig)
Conservative = 0 (statis. insig)
Momentum = -0.19
Alpha = 0.27% (monthly)

There's a big mismatch between Avantis methodology and how FF defines factors, so it's not surprising you see no quality load but then positive alpha. Either way, I wouldn't directly use these number for portfolio construction, they're just another piece of info to guide your thoughts.
calcada wrote: Tue Nov 24, 2020 4:43 pm This makes me hesitate to invest in these funds as I feel like I do not know what I am getting. What would you say to someone like me who is unsure about investing in these funds for this reason? I am only interested in AVDV. Do you think this fund is suitable to buy and hold for decades to come? Do you think there is a better alternative to AVDV?
I'd say you can read up more on factors so you develop a better sense between what a methodology looks like, and what kind of tilt you could expect. I don't happen to think this fund is suitable long-term buy in taxable for one big reason:
- The fund, as an active fund, can change its methodology at any time, for any reason. If a decade goes by of massive value outperformance, they might decide value as a factor is dead and change the methodology.

Is this farfetched? Yep. But it would be really annoying if it happened. No issues if in tax-advantaged though. And if you thought the above wasn't that big of a deal, I wouldn't blame you either.

I like ISCF better than ADVD personally.
calcada wrote: Tue Nov 24, 2020 4:43 pm Would it be accurate to assume that they will have similar long-term factor loadings as the DFA funds? Will AVDV perform similarly to DFSVX?
I honestly haven't seen DFA's methodology at all (never cared since I can't use them) so I couldn't tell you.
calcada wrote: Tue Nov 24, 2020 4:43 pm “We don’t really like to call it factor investing because we’re not trying to deliver a factor.”

This concerns me. Sounds like an active fund. It doesn't sound like a fund a factor investor, who has factor load targets, would buy. On the other hand, I struggle to find a better, cheaper alternative to AVDV.
I wouldn't be concerned by the above quote. Avantis doesn't target a factor exposure and neither do most funds. And that's perfectly fine, even a good thing. It is a reasonable vehicle for a factor investor to use.

There are other good options (namely ISCF and FNDC). What you pick comes down to what methodologies you like best honestly.
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by kolder »

calcada wrote: Tue Nov 24, 2020 4:43 pm
larryswedroe wrote: Fri Jun 28, 2019 7:43 am FWIW I expect the ERs will be below, and maybe in some cases well below DFAs. With perhaps deeper tilts. So more loading per unit of cost.
Larry
How can you comment on how deep the tilts are for this new fund which doesn't have a long track record and doesn't follow an index? As I understand it is impossible to know what kind of long-term factor loads one would be getting with these kind of funds. Without knowing this one would not be able to decide on how much to allocate to these funds to achieve their target longterm SMB HML factor loads.

This makes me hesitate to invest in these funds as I feel like I do not know what I am getting. What would you say to someone like me who is unsure about investing in these funds for this reason? I am only interested in AVDV. Do you think this fund is suitable to buy and hold for decades to come? Do you think there is a better alternative to AVDV?
Something I can appreciate that Avantis provides is their monthly fund review where they provide a short analysis of each of their funds and its holdings, performance, attributes and compares them to their benchmarks. They also include some overall market data and relevant articles they've written recently. You can see the October edition for their ETFs here: https://www.avantisinvestors.com/conten ... r-intm.pdf

Here's the breakdown for AVDV
Image
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Re: Ex DFA CIO launches competitor which will also have ETFs

Post by whodidntante »

kolder wrote: Wed Nov 25, 2020 9:44 am
calcada wrote: Tue Nov 24, 2020 4:43 pm
larryswedroe wrote: Fri Jun 28, 2019 7:43 am FWIW I expect the ERs will be below, and maybe in some cases well below DFAs. With perhaps deeper tilts. So more loading per unit of cost.
Larry
How can you comment on how deep the tilts are for this new fund which doesn't have a long track record and doesn't follow an index? As I understand it is impossible to know what kind of long-term factor loads one would be getting with these kind of funds. Without knowing this one would not be able to decide on how much to allocate to these funds to achieve their target longterm SMB HML factor loads.

This makes me hesitate to invest in these funds as I feel like I do not know what I am getting. What would you say to someone like me who is unsure about investing in these funds for this reason? I am only interested in AVDV. Do you think this fund is suitable to buy and hold for decades to come? Do you think there is a better alternative to AVDV?
Something I can appreciate that Avantis provides is their monthly fund review where they provide a short analysis of each of their funds and its holdings, performance, attributes and compares them to their benchmarks. They also include some overall market data and relevant articles they've written recently. You can see the October edition for their ETFs here: https://www.avantisinvestors.com/conten ... r-intm.pdf

Here's the breakdown for AVDV
Image
Didn't know that. Thanks. The report is not actionable for me because I don't mind sector or country drift since I don't view any float weighted index as the correct way to invest. But still it's interesting to look at.
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