Vanguard Multifactor fund VFMF has had a bad year

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Steve Reading
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by Steve Reading »

typical.investor wrote: Fri Sep 18, 2020 6:07 pm
Steve Reading wrote: Fri Sep 18, 2020 4:28 pm
000 wrote: Fri Sep 18, 2020 4:01 pm Most of their active, style, and smart beta funds are fairly tame.
On the contrary, Vanguard's factor funds achieve some truly remarkable factor loads. The "trick" is in their methodology. By weighing stocks purely by their factor score, you basically end up with only the strongest factor stocks, weighted by how strong their score is on top of it.

Which means, IMO, these funds are meant to be added to portfolios that are mostly market-cap weighted already. They're like very concentrated doses of factors.
Not for the momentum loading though...
It applies to the momentum fund (VFMO) all the same. I expect VFMO will show a higher momentum load than its competitors (such as MTUM) over the next few years.
000 wrote: Sat Sep 19, 2020 1:01 am Seeing as small caps are some of "the most volatile stocks in the universe" and the fund seeks to invest in a "diverse mix of stocks representing many different market capitalizations (large, mid, and small)", it's not obvious from the high-level fund description that a small cap tilt is included. Indeed, size is not one of the three factors mentioned as being targeted by the fund.
I agree it's not obvious but I think the expectation with this fund is that the investor or advisor will read through the actual methodology, as opposed to just deciding based on the marketing's description. The methodology assures a small and mid cap tilt relative to total stock market.
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Steve Reading
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Re: VFMF has had a bad year

Post by Steve Reading »

Robot Monster wrote: Fri Sep 18, 2020 1:28 pm
Steve Reading wrote: Fri Sep 18, 2020 1:21 pm
Robot Monster wrote: Fri Sep 18, 2020 11:00 am
Steve Reading wrote: Fri Sep 18, 2020 8:15 am No, the methodology is actually really good. I've slowly fallen in love with this fund.
Would be interested in hearing more about your enthusiasm for the fund. I don't even understand the case for it, but the mere fact that both you, and vineviz, like the fund, that alone piques my interest.
The case is that if you're an investor that wants exposure to quality, value and momentum, this fund will do it while also overweighing small and mid caps. The metrics it uses are reasonable. And the ER is very competitive for such a product. It's also all rules-based; there's no human stock-picking. It even has a screen to avoid highly volatile stocks. The thing has it all.

Whether you want to tilt to factor or not is a very important question. But IF you've decided you want to tilt, VFMF does basically everything I want it to.
I am curious, in particular, about a tilt to quality, and see a Vanguard U.S. Quality Factor ETF exists. From BlackRock:

"We keep our strong overweight on quality. We see it as the most resilient exposure against a range of outcomes in terms of developments in the pandemic and economy."
Source

Would you dissuade someone, who was interested in such a tilt, to invest in this Quality ETF?
For various reasons, I actually expect VFMF to produce a similar quality load as VFQY might. Not quite as high but reasonably close.

If you were interested in quality and quality only, then I wouldn't dissuade you from a Quality ETF. If, like me, you're interested in other factors in addition to Quality, VFMF is a strong choice.

Just my 2 cents.
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YRT70
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Re: VFMF has had a bad year

Post by YRT70 »

000 wrote: Sat Sep 19, 2020 1:01 am
YRT70 wrote: Sat Sep 19, 2020 12:53 am Small has had a bad year too so far.
True, but I think it's worth pointing out that the benchmark for this fund is the Russell 3000, which is a cap-weighted near-total market index.

The Vanguard Product Detail page (linked in my OP) has this to say about the fund's Objective:
Vanguard U.S. Multifactor ETF seeks to provide long-term capital appreciation by investing in U.S. stocks which target three factors, value, momentum, and quality, after an initial volatility screen. Such a strategy offers potential diversification benefits that can help reduce the active risk associated with exposure to a single factor.
And it says this about the Investment Approach (bold emphases mine):
  • Advisor uses a rules-based quantitative model to evaluate U.S. common stocks and construct a U.S. equity portfolio that seeks to achieve exposure to multiple factors.
  • After applying an initial screen to remove the most volatile stocks in the universe, stocks are then selected according to their equally weighted ranking across three targeted factors; momentum-stocks that exhibit strong recent performance, quality-stocks that exhibit strong fundamentals, and value-stocks with low prices relative to fundamentals.
  • Portfolio includes a diverse mix of stocks representing many different market capitalizations (large, mid, and small), market sectors, and industry groups, and holds hundreds of names to diversify idiosyncratic stock risk.
  • Portfolio is rebalanced as needed to maintain consistent exposure to the targeted factors.
  • Seeks long-term capital appreciation.
  • Typically, at least 80% of the fund’s assets will be invested in securities issued by U.S. companies.
Seeing as small caps are some of "the most volatile stocks in the universe" and the fund seeks to invest in a "diverse mix of stocks representing many different market capitalizations (large, mid, and small)", it's not obvious from the high-level fund description that a small cap tilt is included. Indeed, size is not one of the three factors mentioned as being targeted by the fund.
Well the text is a bit ambiguous but they do mention: "representing many different market capitalizations (large, mid, and small)". If you then look at the M* data it holds 24% mid caps, 29% small caps and even 6% micro caps. Small caps is even its largest category. A market cap weighted fund like VTI holds only 5% small caps and less than 1% micro caps. This means it can be expected that VFMF loads on size.

This is confirmed in the factor regression shown by Robert T. earlier. VFMF's loading on size is 0.45 and statistically significant. I bet it explains quite a bit of the poor performance this year.
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Re: VFMF has had a bad year

Post by Elysium »

typical.investor wrote: Fri Sep 18, 2020 7:00 am
I have no reason to doubt that, yet ...:

CAGR Mar 2018 - Aug 2020 (life of VFMF)
0.20% VFMF Vanguard US Multifactor ETF
7.29% USMF WisdomTree US Multifactor
6.08% MFUS PIMCO RAFI Dyn Multi-Factor US Eq ETF

Rm-Rf __ SMB __ HML __ MOM __ Alpha __ Annual Alpha
0.99 __ 0.37 __ 0.33 __ 0.11 __ -0.25% __ -3.04% __ VFMF Vanguard US Multifactor ETF
0.97 __ 0.13 __ 0.19 __ 0.18 __ 0.03% __ 0.41% __ USMF WisdomTree US Multifactor
0.95 __ -0.01 __ 0.21 __ 0.14 __ -0.12% __ -1.49% __ MFUS PIMCO RAFI Dyn Multi-Factor US Eq ETF

Obviously size and value hurt VFMF relative to the other funds, and it's lighter MOM exposure didn't help it as much as USMF and MFUS benefited. But what explains the negative alpha (trick question here as alpha means unexplained). Maybe only the idiosyncrasies of a short time period.
DFA Vector Equity is a better match for the Vanguard fund, they're identical.

I have known this for a while, but given how I'm not convinced about factor products didn't bother to say anything.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by midareff »

I'd beware any investment vehicle that portents to be better and smarter than the market. I also suspect the fund manager is doing just fine too.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by Robot Monster »

midareff wrote: Sat Sep 19, 2020 10:04 am I'd beware any investment vehicle that portents to be better and smarter than the market. I also suspect the fund manager is doing just fine too.
Doesn't appear that is how the factor-based vehicle is advertised. See:
https://investor.vanguard.com/etf/factor-funds
https://advisors.vanguard.com/investmen ... strategies

It's also unclear that "portent" can be used as a verb. :wink:
Last edited by Robot Monster on Sat Sep 19, 2020 11:12 am, edited 1 time in total.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by HippoSir »

midareff wrote: Sat Sep 19, 2020 10:04 am I'd beware any investment vehicle that portents to be better and smarter than the market. I also suspect the fund manager is doing just fine too.
On the contrary, Vanguard seems to do everything they can to avoid individuals investing in these funds. They don't even show up in the usual list of Vanguard ETFs, and language on their page says:

Factor funds are high-risk investments that should be used only by investors who:

Fully understand the risks and potential benefits of each factor.
Can financially and emotionally handle higher degrees of risk.
Consider these funds to be long-term investments.
Factor returns can be cyclical, so you could experience sharp and lengthy periods of underperformance compared with the broader stock market.


That to me does not sound like a promise to be better/smarter than the market. :happy
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by columbia »

Robot Monster wrote: Sat Sep 19, 2020 10:44 am
midareff wrote: Sat Sep 19, 2020 10:04 am I'd beware any investment vehicle that portents to be better and smarter than the market. I also suspect the fund manager is doing just fine too.
Doesn't appear that is how the factor-based vehicle is advertised. See:
https://investor.vanguard.com/etf/factor-funds

It's also unclear that "portent" can be used as a verb. :wink:
A collection of human beings designed the screening for eligible companies. And no, that's not like a total market fund, which excludes micro-caps. :)
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by Uncorrelated »

RE annual alpha, since VFMF inception:

VFMF: -3.62%
DFSVX: -1.94% (DFA small cap value)
DFLVX: -4.46% (DFA large cap value)
PV link

I suspect that this was simply a bad time for long-only factor funds. If DFA funds would have shown a positive alpha and VFMF a negative alpha, I would have been concerned.

Last year I responded to VFMF criticism by saying it did exactly what it was supposed to do. I believe that is still accurate.

Elysium wrote: Sat Sep 19, 2020 9:57 am
typical.investor wrote: Fri Sep 18, 2020 7:00 am
I have no reason to doubt that, yet ...:

CAGR Mar 2018 - Aug 2020 (life of VFMF)
0.20% VFMF Vanguard US Multifactor ETF
7.29% USMF WisdomTree US Multifactor
6.08% MFUS PIMCO RAFI Dyn Multi-Factor US Eq ETF

Rm-Rf __ SMB __ HML __ MOM __ Alpha __ Annual Alpha
0.99 __ 0.37 __ 0.33 __ 0.11 __ -0.25% __ -3.04% __ VFMF Vanguard US Multifactor ETF
0.97 __ 0.13 __ 0.19 __ 0.18 __ 0.03% __ 0.41% __ USMF WisdomTree US Multifactor
0.95 __ -0.01 __ 0.21 __ 0.14 __ -0.12% __ -1.49% __ MFUS PIMCO RAFI Dyn Multi-Factor US Eq ETF

Obviously size and value hurt VFMF relative to the other funds, and it's lighter MOM exposure didn't help it as much as USMF and MFUS benefited. But what explains the negative alpha (trick question here as alpha means unexplained). Maybe only the idiosyncrasies of a short time period.
DFA Vector Equity is a better match for the Vanguard fund, they're identical.

I have known this for a while, but given how I'm not convinced about factor products didn't bother to say anything.
That is not correct, DFVEX has negligible exposure to momentum, profitability and robustness (with monthly data since 2006, only the momentum exposure is statistically significant at -0.03). VFMF has obtained exposures above .1 on all of these factors.
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Re: VFMF has had a bad year

Post by whereskyle »

MotoTrojan wrote: Fri Sep 18, 2020 7:17 am
rkhusky wrote: Fri Sep 18, 2020 7:10 am
vineviz wrote: Fri Sep 18, 2020 6:26 am I'd hope not, but given the Boglehead affinity for performance-chasing I wouldn't be surprised.
Yes, like so many that invest in small value stocks because they did well in the past. Or those that jump into momentum or quality or profitability or low volatility stocks because they performed well in the past.
I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.

I know Merriman makes an argument that you're better diversified by tilting, but I think we should all acknowledge that he would not be advocating such a strategy if he couldn't point to a historical number indicating a higher annual return.
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Re: VFMF has had a bad year

Post by typical.investor »

whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am
rkhusky wrote: Fri Sep 18, 2020 7:10 am
vineviz wrote: Fri Sep 18, 2020 6:26 am I'd hope not, but given the Boglehead affinity for performance-chasing I wouldn't be surprised.
Yes, like so many that invest in small value stocks because they did well in the past. Or those that jump into momentum or quality or profitability or low volatility stocks because they performed well in the past.
I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.
Not sure I agree about the performance chasing part.

I view it more as selling insurance. Yes, people will pay to avoid the volatility and risk. I will hold the positions most want to avoid.
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Re: VFMF has had a bad year

Post by whereskyle »

typical.investor wrote: Tue Sep 22, 2020 6:20 am
whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am
rkhusky wrote: Fri Sep 18, 2020 7:10 am
vineviz wrote: Fri Sep 18, 2020 6:26 am I'd hope not, but given the Boglehead affinity for performance-chasing I wouldn't be surprised.
Yes, like so many that invest in small value stocks because they did well in the past. Or those that jump into momentum or quality or profitability or low volatility stocks because they performed well in the past.
I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.
Not sure I agree about the performance chasing part.

I view it more as selling insurance. Yes, people will pay to avoid the volatility and risk. I will hold the positions most want to avoid.
Why will you hold them?

(Rhetorical question. I know the answer: you think holding unwanted assets provides higher returns.)
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Re: VFMF has had a bad year

Post by Uncorrelated »

whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am
rkhusky wrote: Fri Sep 18, 2020 7:10 am
vineviz wrote: Fri Sep 18, 2020 6:26 am I'd hope not, but given the Boglehead affinity for performance-chasing I wouldn't be surprised.
Yes, like so many that invest in small value stocks because they did well in the past. Or those that jump into momentum or quality or profitability or low volatility stocks because they performed well in the past.
I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.

I know Merriman makes an argument that you're better diversified by tilting, but I think we should all acknowledge that he would not be advocating such a strategy if he couldn't point to a historical number indicating a higher annual return.
If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by markcoop »

I have considered switching my tilt to VFMF from SV but would be uncomfortable doing it in a year where VFMF, although having a bad year, has outperformed SV. I have tilted toward small value for about 20 years. I think the only scenario where I would make such a switch were after a period where SV outperforms the VFMF. I imagine there is some behavioral science reason for this feeling and that some would say if you want to hold VFMF you should just take the plunge.
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Re: VFMF has had a bad year

Post by rkhusky »

Uncorrelated wrote: Tue Sep 22, 2020 6:40 am If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
Large growth stocks and small value stocks are much more similar than are stocks and bonds.

Chasing correlations?
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by 000 »

markcoop wrote: Tue Sep 22, 2020 6:56 am I have considered switching my tilt to VFMF from SV but would be uncomfortable doing it in a year where VFMF, although having a bad year, has outperformed SV. I have tilted toward small value for about 20 years. I think the only scenario where I would make such a switch were after a period where SV outperforms the VFMF. I imagine there is some behavioral science reason for this feeling and that some would say if you want to hold VFMF you should just take the plunge.
I have heard it said (don't have a citation to an empirical study) that holding onto losers too long and selling winners too soon is one of the biggest mistakes investors make, i.e. sunk cost fallacy.
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Re: VFMF has had a bad year

Post by MotoTrojan »

whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am
rkhusky wrote: Fri Sep 18, 2020 7:10 am
vineviz wrote: Fri Sep 18, 2020 6:26 am I'd hope not, but given the Boglehead affinity for performance-chasing I wouldn't be surprised.
Yes, like so many that invest in small value stocks because they did well in the past. Or those that jump into momentum or quality or profitability or low volatility stocks because they performed well in the past.
I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.

I know Merriman makes an argument that you're better diversified by tilting, but I think we should all acknowledge that he would not be advocating such a strategy if he couldn't point to a historical number indicating a higher annual return.
The reason I tilt small and primarily value is to increase expected return and thus expected risk (I hold no bonds). It’s essentially leverage. If you call that performance chasing that’s your call, but I think there’s better justification for SCV beating the market (risk aside) than technology, which academics actually suggest should underperform.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by MotoTrojan »

markcoop wrote: Tue Sep 22, 2020 6:56 am I have considered switching my tilt to VFMF from SV but would be uncomfortable doing it in a year where VFMF, although having a bad year, has outperformed SV. I have tilted toward small value for about 20 years. I think the only scenario where I would make such a switch were after a period where SV outperforms the VFMF. I imagine there is some behavioral science reason for this feeling and that some would say if you want to hold VFMF you should just take the plunge.
What SV fund are you using? VFMF has a very healthy dose of HML factor exposure (by far its strongest exposure) so if you were using something more mellow in that regard you really may not be undercutting your value exposure that much by switching now, just complimenting it with quality and momentum. Could also increase your VFMF holding yo maintain your HML exposure overall.
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Re: VFMF has had a bad year

Post by Uncorrelated »

rkhusky wrote: Tue Sep 22, 2020 6:58 am
Uncorrelated wrote: Tue Sep 22, 2020 6:40 am If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
Large growth stocks and small value stocks are much more similar than are stocks and bonds.

Chasing correlations?
That is moving the goalposts, the important part isn't whether SVC and LCG are similar to each other, it's whether you have any trust in the underlying risk factors. Analyzing funds by checking their correlations is a deeply flawed approach that has been obsolete for at least 20 years now.

Statistically speaking, you should have as much confidence in MKT and TERM as in HmL.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by caklim00 »

I've wondered why the assets are so paltry for the Vanguard factor funds. AVUV has six times the assets of VFMF and Avantis is a startup not Vanguard and VFMF has been around for twice as long.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by Uncorrelated »

caklim00 wrote: Tue Sep 22, 2020 7:21 am I've wondered why the assets are so paltry for the Vanguard factor funds. AVUV has six times the assets of VFMF and Avantis is a startup not Vanguard and VFMF has been around for twice as long.
Vanguard does a pretty good job in hiding the fact VFMF exists at all. It doesn't show up in their list of vanguard US ETF's, nor do they employ marketing people that attempt to sell this fund.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by MotoTrojan »

caklim00 wrote: Tue Sep 22, 2020 7:21 am I've wondered why the assets are so paltry for the Vanguard factor funds. AVUV has six times the assets of VFMF and Avantis is a startup not Vanguard and VFMF has been around for twice as long.
VFVA is a better parallel to AVUV I would say and closes the gap a bit but still a large disparity. Frankly I think there is some name-brand recognition going on here; if you are a big-bad advisor, do you want to tell your client you are putting them into a brand new super-ETF run by some of the main folks that developed DFA's process? Or do you want to tell them you are moving them into a Vanguard fund?

Sure, VFVA (or VFMF) is not your typical market-cap weighted value fund like VBR, but to someone paying for their portfolio construction they may hear Vanguard and think cookie-cutter (AKA, why am I paying this fool 1% AUM).
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by markcoop »

MotoTrojan wrote: Tue Sep 22, 2020 7:09 am
markcoop wrote: Tue Sep 22, 2020 6:56 am I have considered switching my tilt to VFMF from SV but would be uncomfortable doing it in a year where VFMF, although having a bad year, has outperformed SV. I have tilted toward small value for about 20 years. I think the only scenario where I would make such a switch were after a period where SV outperforms the VFMF. I imagine there is some behavioral science reason for this feeling and that some would say if you want to hold VFMF you should just take the plunge.
What SV fund are you using? VFMF has a very healthy dose of HML factor exposure (by far its strongest exposure) so if you were using something more mellow in that regard you really may not be undercutting your value exposure that much by switching now, just complimenting it with quality and momentum. Could also increase your VFMF holding yo maintain your HML exposure overall.
That is a good point. The funds I am using are mild - in my 401K, there's a fund that tracks the R2K value index and in my Roth I use Vanguard's VBR ETF that tracks CRSP US Small Cap Value Index. About 50% of each.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by MotoTrojan »

markcoop wrote: Tue Sep 22, 2020 7:43 am
MotoTrojan wrote: Tue Sep 22, 2020 7:09 am
markcoop wrote: Tue Sep 22, 2020 6:56 am I have considered switching my tilt to VFMF from SV but would be uncomfortable doing it in a year where VFMF, although having a bad year, has outperformed SV. I have tilted toward small value for about 20 years. I think the only scenario where I would make such a switch were after a period where SV outperforms the VFMF. I imagine there is some behavioral science reason for this feeling and that some would say if you want to hold VFMF you should just take the plunge.
What SV fund are you using? VFMF has a very healthy dose of HML factor exposure (by far its strongest exposure) so if you were using something more mellow in that regard you really may not be undercutting your value exposure that much by switching now, just complimenting it with quality and momentum. Could also increase your VFMF holding yo maintain your HML exposure overall.
That is a good point. The funds I am using are mild - in my 401K, there's a fund that tracks the R2K value index and in my Roth I use Vanguard's VBR ETF that tracks CRSP US Small Cap Value Index. About 50% of each.
Could you clarify what you mean when you say 50% of each? Half your 401k is in R2K value and half your Roth (so your overall portfolio is 50% value)?

Take this short regression with a grain of salt but looks like since inception VFMF has had about 60% of the value exposure of VBR. Maybe if you ask Steve Reading nicely he can share his longer HML loading vs. VBR :). But you could increase VFMF a bit in your IRA and still maintain similar overall value exposure, or on the other side could increase R2K in the 401k to help on that side.

https://www.portfoliovisualizer.com/fac ... sion=false
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Re: VFMF has had a bad year

Post by whereskyle »

Uncorrelated wrote: Tue Sep 22, 2020 6:40 am
whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am
rkhusky wrote: Fri Sep 18, 2020 7:10 am
vineviz wrote: Fri Sep 18, 2020 6:26 am I'd hope not, but given the Boglehead affinity for performance-chasing I wouldn't be surprised.
Yes, like so many that invest in small value stocks because they did well in the past. Or those that jump into momentum or quality or profitability or low volatility stocks because they performed well in the past.
I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.

I know Merriman makes an argument that you're better diversified by tilting, but I think we should all acknowledge that he would not be advocating such a strategy if he couldn't point to a historical number indicating a higher annual return.
If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
What are those reasons if you care to share?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: VFMF has had a bad year

Post by whereskyle »

MotoTrojan wrote: Tue Sep 22, 2020 7:07 am
whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am
rkhusky wrote: Fri Sep 18, 2020 7:10 am
vineviz wrote: Fri Sep 18, 2020 6:26 am I'd hope not, but given the Boglehead affinity for performance-chasing I wouldn't be surprised.
Yes, like so many that invest in small value stocks because they did well in the past. Or those that jump into momentum or quality or profitability or low volatility stocks because they performed well in the past.
I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.

I know Merriman makes an argument that you're better diversified by tilting, but I think we should all acknowledge that he would not be advocating such a strategy if he couldn't point to a historical number indicating a higher annual return.
The reason I tilt small and primarily value is to increase expected return and thus expected risk (I hold no bonds). It’s essentially leverage. If you call that performance chasing that’s your call, but I think there’s better justification for SCV beating the market (risk aside) than technology, which academics actually suggest should underperform.
You're trying to say that your performance chasing is better than others and I think that is very silly. At this point, and off the cuff, "tech stocks" might even have better historical performance than small-value stocks (although I admit we have plenty of problems with comparing the two due to definitions of what is a tech stock. We of course have different ways of defining value stocks as well).

The only reason I know of that people tilt small-value is "to be aggressive," i.e, to take more risk and increase returns. Just because your factors were "discovered" in the 90s doesn't mean that tech stocks are not building a body of evidence that they provide better returns.

For the record, I'm not suggesting that tech stocks actually do provide better returns. I just think it's silly that a small-value investor would argue either that they are not chasing performance or that their performance chasing is better than any other when they cannot identify any reason why they tilt other than historical outperformance and higher risk taking.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
MotoTrojan
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Re: VFMF has had a bad year

Post by MotoTrojan »

whereskyle wrote: Tue Sep 22, 2020 10:13 am
MotoTrojan wrote: Tue Sep 22, 2020 7:07 am
whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am
rkhusky wrote: Fri Sep 18, 2020 7:10 am
Yes, like so many that invest in small value stocks because they did well in the past. Or those that jump into momentum or quality or profitability or low volatility stocks because they performed well in the past.
I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.

I know Merriman makes an argument that you're better diversified by tilting, but I think we should all acknowledge that he would not be advocating such a strategy if he couldn't point to a historical number indicating a higher annual return.
The reason I tilt small and primarily value is to increase expected return and thus expected risk (I hold no bonds). It’s essentially leverage. If you call that performance chasing that’s your call, but I think there’s better justification for SCV beating the market (risk aside) than technology, which academics actually suggest should underperform.
You're trying to say that your performance chasing is better than others and I think that is very silly. At this point, and off the cuff, "tech stocks" might even have better historical performance than small-value stocks (although I admit we have plenty of problems with comparing the two due to definitions of what is a tech stock. We of course have different ways of defining value stocks as well).

The only reason I know of that people tilt small-value is "to be aggressive," i.e, to take more risk and increase returns. Just because your factors were "discovered" in the 90s doesn't mean that tech stocks are not building a body of evidence that they provide better returns.

For the record, I'm not suggesting that tech stocks actually do provide better returns. I just think it's silly that a small-value investor would argue either that they are not chasing performance or that their performance chasing is better than any other when they cannot identify any reason why they tilt other than historical outperformance and higher risk taking.
I think there is far more evidence that growth (what tech is today) has underperformed than simply the period since the factors were discovered in the early 1990's. A decade of returns is meaningless in the big picture. If you think otherwise, that is okay too. Conviction is important.

Check-out the rolling returns differential here if you still want to focus on the recent 27 year period: https://www.portfoliovisualizer.com/bac ... ion2_2=100

I never said I am not taking more risk (being more "aggressive"), I just feel I have a more valid expectation to actually be compensated for that risk than someone in QQQ. If I am performance chasing, then so is someone who goes 100% equity at age 25 instead of 50/50 equity/bonds. They believe equity has a higher expected return (and risk) and are taking that risk (in my opinion, a smart move).

Someone holding tech today is taking more risk, but I am arguing there is no sound expectation to be compensated for that idiosyncratic risk.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by james22 »

Has there been any word regarding a Vanguard International Multifactor fund since the position posting a year or so ago?
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by MotoTrojan »

james22 wrote: Tue Sep 22, 2020 12:23 pm Has there been any word regarding a Vanguard International Multifactor fund since the position posting a year or so ago?
Or even just an International value fund with similar make-up. That would absolutely be something that would get my attention as I would hope the expense ratio is a bit more favorable than my current core ex-US holding in FNDC, and it would give me some large-cap ex-US exposure without having to add an additional fund.
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Re: VFMF has had a bad year

Post by Uncorrelated »

whereskyle wrote: Tue Sep 22, 2020 10:06 am
Uncorrelated wrote: Tue Sep 22, 2020 6:40 am
whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am
rkhusky wrote: Fri Sep 18, 2020 7:10 am
Yes, like so many that invest in small value stocks because they did well in the past. Or those that jump into momentum or quality or profitability or low volatility stocks because they performed well in the past.
I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.

I know Merriman makes an argument that you're better diversified by tilting, but I think we should all acknowledge that he would not be advocating such a strategy if he couldn't point to a historical number indicating a higher annual return.
If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
What are those reasons if you care to share?
There are multiple approaches:

The first approach is to assume an investor with arbitrary low risk aversion that is leverage constrained. For this investor, investing in a more risky position with similar (or even lower) sharpe ratio results in an increase in expected utility. This is almost guaranteed to be the case for every investor under 30.

The second approach is to use an investor whose human capital is correlated with growth stocks, for example one that works at a large cap growth stock. By the nature of his work, this investor has a positive allocation to growth, it makes sense to purchase value stocks to hedge this growth exposure, even if the expected return of HmL is zero.

The third approach is to assume that market-weight and tilting has similar expected return and volatility (and sharpe ratio), but more favorable skew.
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Re: VFMF has had a bad year

Post by DaufuskieNate »

Uncorrelated wrote: Tue Sep 22, 2020 12:59 pm
whereskyle wrote: Tue Sep 22, 2020 10:06 am
Uncorrelated wrote: Tue Sep 22, 2020 6:40 am
whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am

I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.

I know Merriman makes an argument that you're better diversified by tilting, but I think we should all acknowledge that he would not be advocating such a strategy if he couldn't point to a historical number indicating a higher annual return.
If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
What are those reasons if you care to share?
There are multiple approaches:

The first approach is to assume an investor with arbitrary low risk aversion that is leverage constrained. For this investor, investing in a more risky position with similar (or even lower) sharpe ratio results in an increase in expected utility. This is almost guaranteed to be the case for every investor under 30.

The second approach is to use an investor whose human capital is correlated with growth stocks, for example one that works at a large cap growth stock. By the nature of his work, this investor has a positive allocation to growth, it makes sense to purchase value stocks to hedge this growth exposure, even if the expected return of HmL is zero.

The third approach is to assume that market-weight and tilting has similar expected return and volatility (and sharpe ratio), but more favorable skew.
This is a good response. I think that investor utility functions often get lost in these discussions.
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Re: VFMF has had a bad year

Post by vineviz »

DaufuskieNate wrote: Tue Sep 22, 2020 1:11 pm
This is a good response. I think that investor utility functions often get lost in these discussions.
Agreed.

I think that if more people understood just how rooted their beliefs are in a (clearly faulty) assumption that all investors have identical needs and preferences we’d have a lot fewer arguments over investment theory.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: VFMF has had a bad year

Post by langlands »

Uncorrelated wrote: Tue Sep 22, 2020 7:19 am
rkhusky wrote: Tue Sep 22, 2020 6:58 am
Uncorrelated wrote: Tue Sep 22, 2020 6:40 am If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
Large growth stocks and small value stocks are much more similar than are stocks and bonds.

Chasing correlations?
That is moving the goalposts, the important part isn't whether SVC and LCG are similar to each other, it's whether you have any trust in the underlying risk factors. Analyzing funds by checking their correlations is a deeply flawed approach that has been obsolete for at least 20 years now.

Statistically speaking, you should have as much confidence in MKT and TERM as in HmL.
That last sentence is very interesting. I was about to contradict you, but then took a look at the data and specifically found this:
https://alphaarchitect.com/2019/12/26/i ... -premiums/. If you did a poll, I bet that there is a huge correlation between whether you tilt value and whether you tilt international. Overall, the market factor and value factor were perhaps of comparable statistical significance over the last 50-75 years internationally. But if you look at the US, the market factor has been way way stronger than the value factor.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by garlandwhizzer »

Robert T wrote:

So far VFMF looks okay (if wanting those types of tilts).

Here are the factor loads since inception (using daily data to increase sample size):

0.02 = Annual alpha
0.98 = Market
0.45 = Size
0.47 = Value
0.18 = Momentum
0.19 = Profitability [quality]
These factor loads are very impressive. The fund's performance since inception absolutely sucks, the lowest Sharpe Ratio I can ever recall seeing (0.05) for any fund. TSM absolutely killed it. If it's just a one factor fund, one could argue that such terrible results were because that particular factor had a period of underperformance. This fund included 5 factors, all of which were by factor models positive and yet the result was terrible. We can't blame it on a negative alpha or factors counteracting each other--they were all positive.

This fund also was supposed to have a 0.98 exposure to the market. Presumably TSM has 1.0 exposure the market which is only 0.02 different from VFMF, but TSM as measured by VTI had a 12.33% CAGR while VFMF had a 0.20% CAGR. That's an annual performance difference of 12.13% which is incredible. The idea that loading up a fund with multiple attractive factor loadings automatically produces future outperformance seems to be more a tenet of faith in true believers than real investing results certainly in this example.

It's not just VFMF, essentially all multi-factor funds have sucked since their inception. Remember how years ago when multi-factor funds first appeared they were touted to be the Holy Grail of factor investing? Many investors immediately loaded up on them. What they have done instead is demonstrate clearly the inadequacy of factor models to define future investing results. So far they have failed miserably. Nobody knows the future not when they first became available and not now either which I believe is the point.
Numbers from Portfolio Visualizer:

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

Garland Whizzer
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by MotoTrojan »

garlandwhizzer wrote: Tue Sep 22, 2020 1:46 pm
Robert T wrote:

So far VFMF looks okay (if wanting those types of tilts).

Here are the factor loads since inception (using daily data to increase sample size):

0.02 = Annual alpha
0.98 = Market
0.45 = Size
0.47 = Value
0.18 = Momentum
0.19 = Profitability [quality]
These factor loads are very impressive. The fund's performance since inception absolutely sucks, the lowest Sharpe Ratio I can ever recall seeing (0.05) for any fund. TSM absolutely killed it. If it's just a one factor fund, one could argue that such terrible results were because that particular factor had a period of underperformance. This fund included 5 factors, all of which were by factor models positive and yet the result was terrible. We can't blame it on a negative alpha or factors counteracting each other--they were all positive.

This fund also was supposed to have a 0.98 exposure to the market. Presumably TSM has 1.0 exposure the market which is only 0.02 different from VFMF, but TSM as measured by VTI had a 12.33% CAGR while VFMF had a 0.20% CAGR. That's an annual performance difference of 12.13% which is incredible. The idea that loading up a fund with multiple attractive factor loadings automatically produces future outperformance seems to be more a tenet of faith in true believers than real investing results certainly in this example.

It's not just VFMF, essentially all multi-factor funds have sucked since their inception. Remember how years ago when multi-factor funds first appeared they were touted to be the Holy Grail of factor investing? Many investors immediately loaded up on them. What they have done instead is demonstrate clearly the inadequacy of factor models to define future investing results. So far they have failed miserably. Nobody knows the future not when they first became available and not now either which I believe is the point.
Numbers from Portfolio Visualizer:

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

Garland Whizzer
Or maybe it has been a rare (but not unexpected) period in history where all/most factors outside of market-beta underperformed?
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by MotoTrojan »

markcoop wrote: Tue Sep 22, 2020 7:43 am
MotoTrojan wrote: Tue Sep 22, 2020 7:09 am
markcoop wrote: Tue Sep 22, 2020 6:56 am I have considered switching my tilt to VFMF from SV but would be uncomfortable doing it in a year where VFMF, although having a bad year, has outperformed SV. I have tilted toward small value for about 20 years. I think the only scenario where I would make such a switch were after a period where SV outperforms the VFMF. I imagine there is some behavioral science reason for this feeling and that some would say if you want to hold VFMF you should just take the plunge.
What SV fund are you using? VFMF has a very healthy dose of HML factor exposure (by far its strongest exposure) so if you were using something more mellow in that regard you really may not be undercutting your value exposure that much by switching now, just complimenting it with quality and momentum. Could also increase your VFMF holding yo maintain your HML exposure overall.
That is a good point. The funds I am using are mild - in my 401K, there's a fund that tracks the R2K value index and in my Roth I use Vanguard's VBR ETF that tracks CRSP US Small Cap Value Index. About 50% of each.
FYI with daily regression (not great but due to shorter life of VFMF it may be more representative) I am actually seeing the VFMF gets over 88% of the value exposure of VBR, so even closer than I noted above:

https://www.portfoliovisualizer.com/fac ... sion=false
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by vineviz »

garlandwhizzer wrote: Tue Sep 22, 2020 1:46 pmThe idea that loading up a fund with multiple attractive factor loadings automatically produces future outperformance seems to be more a tenet of faith in true believers than real investing results certainly in this example.
This “idea” seems to be one that anti-factor advocates ASSUME that factor investors have.

It’s a straw man, in other words.

If anything, factor investors are MORE likely to understand the nature of risk in investing than TSM investors don’t you think?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by HippoSir »

MotoTrojan wrote: Tue Sep 22, 2020 2:07 pm FYI with daily regression (not great but due to shorter life of VFMF it may be more representative) I am actually seeing the VFMF gets over 88% of the value exposure of VBR, so even closer than I noted above:

https://www.portfoliovisualizer.com/fac ... sion=false
Note by other value metrics (since VFMF is a composite), VFMF has even deeper exposure. I use:

https://alphaarchitect.com/fundscreener

to compare actual fund level holding exposures, VFMF has a surprisingly deep value tilt (especially EBIT/TEV).
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by MotoTrojan »

HippoSir wrote: Tue Sep 22, 2020 2:19 pm
MotoTrojan wrote: Tue Sep 22, 2020 2:07 pm FYI with daily regression (not great but due to shorter life of VFMF it may be more representative) I am actually seeing the VFMF gets over 88% of the value exposure of VBR, so even closer than I noted above:

https://www.portfoliovisualizer.com/fac ... sion=false
Note by other value metrics (since VFMF is a composite), VFMF has even deeper exposure. I use:

https://alphaarchitect.com/fundscreener

to compare actual fund level holding exposures, VFMF has a surprisingly deep value tilt (especially EBIT/TEV).
Most of that seems to come from the P/E portion relative to VBR.

VBR is 54% percentile TEV/EBIT and only 9.4% P/E while VFMF is 88% and 84% respectively, so compared to VBR P/E shows a much bigger distinction.

Also to be fair I believe this tool is only looking at current holdings, so a factor regression on returns is likely more meaningful.

VFVA interestingly is about even with VFMF on TEV/EBIT, but has a huge improvement in B/P going from 46% to a whopping 88%.

As a believer in TEV/EBIT (holder of QVAL) this makes VFMF look a little more interesting to me...
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Re: VFMF has had a bad year

Post by Uncorrelated »

langlands wrote: Tue Sep 22, 2020 1:45 pm
Uncorrelated wrote: Tue Sep 22, 2020 7:19 am
rkhusky wrote: Tue Sep 22, 2020 6:58 am
Uncorrelated wrote: Tue Sep 22, 2020 6:40 am If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
Large growth stocks and small value stocks are much more similar than are stocks and bonds.

Chasing correlations?
That is moving the goalposts, the important part isn't whether SVC and LCG are similar to each other, it's whether you have any trust in the underlying risk factors. Analyzing funds by checking their correlations is a deeply flawed approach that has been obsolete for at least 20 years now.

Statistically speaking, you should have as much confidence in MKT and TERM as in HmL.
That last sentence is very interesting. I was about to contradict you, but then took a look at the data and specifically found this:
https://alphaarchitect.com/2019/12/26/i ... -premiums/. If you did a poll, I bet that there is a huge correlation between whether you tilt value and whether you tilt international. Overall, the market factor and value factor were perhaps of comparable statistical significance over the last 50-75 years internationally. But if you look at the US, the market factor has been way way stronger than the value factor.
The sample period in the paper you linked is 1990-2018.

In the US 1963-2013, MKT had a t-stat of 2.74 and HmL 3.20 A Five-Factor Asset Pricing Model
In the US 1963-2016, the probability that MKT posts a negative return over a 10-year period is 15.60% or 17.79% depending on the assumptions, the probability that HmL posts a positive return is 8.95% and 10.90%. Volatility Lessons.
In the US 1926-2020, MKT had a t-stat of 4.19 and HmL had a t-stat of 3.09. (own calculations based on ken french data)

I don't think it's true that the market factor has been way stronger than the value factor in the US. The conclusions change depending on the time period used.
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Re: VFMF has had a bad year

Post by Steve Reading »

Uncorrelated wrote: Tue Sep 22, 2020 12:59 pm
whereskyle wrote: Tue Sep 22, 2020 10:06 am
Uncorrelated wrote: Tue Sep 22, 2020 6:40 am
whereskyle wrote: Tue Sep 22, 2020 6:05 am
MotoTrojan wrote: Fri Sep 18, 2020 7:17 am

I'd rather performance chase something that has a good long-run history but has done terrible in the last few years, than join this VGT/QQQ bandwagon of true performance-chasers :P.
The only reason to tilt small and value is to chase performance. Such tilting certainly doesn't reduce volatility or risk.

I know Merriman makes an argument that you're better diversified by tilting, but I think we should all acknowledge that he would not be advocating such a strategy if he couldn't point to a historical number indicating a higher annual return.
If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
What are those reasons if you care to share?
There are multiple approaches:

The first approach is to assume an investor with arbitrary low risk aversion that is leverage constrained. For this investor, investing in a more risky position with similar (or even lower) sharpe ratio results in an increase in expected utility. This is almost guaranteed to be the case for every investor under 30.

The second approach is to use an investor whose human capital is correlated with growth stocks, for example one that works at a large cap growth stock. By the nature of his work, this investor has a positive allocation to growth, it makes sense to purchase value stocks to hedge this growth exposure, even if the expected return of HmL is zero.

The third approach is to assume that market-weight and tilting has similar expected return and volatility (and sharpe ratio), but more favorable skew.
Mate, so true. I couldn't possibly agree more.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by HippoSir »

MotoTrojan wrote: Tue Sep 22, 2020 2:28 pm Also to be fair I believe this tool is only looking at current holdings, so a factor regression on returns is likely more meaningful.

VFVA interestingly is about even with VFMF on TEV/EBIT, but has a huge improvement in B/P going from 46% to a whopping 88%.

As a believer in TEV/EBIT (holder of QVAL) this makes VFMF look a little more interesting to me...
I tend to do both a factor regression and holdings level checks to determine the factor tilts on a fund. In an ideal world a regression tool would exist that allowed you to mix and match any individual or combination of common value/quality factors and run a regression, but such a thing is probably far too complex/valuable to make available for free. :D
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Re: VFMF has had a bad year

Post by langlands »

Uncorrelated wrote: Tue Sep 22, 2020 2:34 pm
langlands wrote: Tue Sep 22, 2020 1:45 pm
Uncorrelated wrote: Tue Sep 22, 2020 7:19 am
rkhusky wrote: Tue Sep 22, 2020 6:58 am
Uncorrelated wrote: Tue Sep 22, 2020 6:40 am If tilting to small and value is chasing performance, then so is tilting towards equities.

There are good reasons to tilt to small/value that don't depend on small/value offering higher risk adjusted returns (as measured by sharpe ratio).
Large growth stocks and small value stocks are much more similar than are stocks and bonds.

Chasing correlations?
That is moving the goalposts, the important part isn't whether SVC and LCG are similar to each other, it's whether you have any trust in the underlying risk factors. Analyzing funds by checking their correlations is a deeply flawed approach that has been obsolete for at least 20 years now.

Statistically speaking, you should have as much confidence in MKT and TERM as in HmL.
That last sentence is very interesting. I was about to contradict you, but then took a look at the data and specifically found this:
https://alphaarchitect.com/2019/12/26/i ... -premiums/. If you did a poll, I bet that there is a huge correlation between whether you tilt value and whether you tilt international. Overall, the market factor and value factor were perhaps of comparable statistical significance over the last 50-75 years internationally. But if you look at the US, the market factor has been way way stronger than the value factor.
The sample period in the paper you linked is 1990-2018.

In the US 1963-2013, MKT had a t-stat of 2.74 and HmL 3.20 A Five-Factor Asset Pricing Model
In the US 1963-2016, the probability that MKT posts a negative return over a 10-year period is 15.60% or 17.79% depending on the assumptions, the probability that HmL posts a positive return is 8.95% and 10.90%. Volatility Lessons.
In the US 1926-2020, MKT had a t-stat of 4.19 and HmL had a t-stat of 3.09. (own calculations based on ken french data)

I don't think it's true that the market factor has been way stronger than the value factor in the US. The conclusions change depending on the time period used.
Thanks for the extra data. So it looks like if one looks at international, value investing has a pretty strong track record historically and recently whereas if one looks at US, the track record is much weaker recently than historically. I'm not sure if there's a good explanation for this. I suppose the default answer is that it's just an aberration due to exceptional US tech performance that will normalize in the future.

I don't know how reputable this research is, but I found this interesting:

https://www.twocenturies.com/blog/2020/ ... er-history

That looks like pretty convincing evidence for the US value factor and it looks just about plausible that this is just a bad period. If the bad performance continues for another 10 years, it will just about strain the bounds of statistical credibility that this is just an aberration.
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Re: Vanguard Multifactor fund VFMF has had a bad year

Post by typical.investor »

markcoop wrote: Tue Sep 22, 2020 6:56 am I have considered switching my tilt to VFMF from SV but would be uncomfortable doing it in a year where VFMF, although having a bad year, has outperformed SV. I have tilted toward small value for about 20 years. I think the only scenario where I would make such a switch were after a period where SV outperforms the VFMF. I imagine there is some behavioral science reason for this feeling and that some would say if you want to hold VFMF you should just take the plunge.
No, I agree with you and think the same way.

You could always add momentum or multi-factor with new money, but I wouldn’t switch from SV when it’s behind to something that’s doing better. We know SV will underperform for sure when doing that.
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