Vanguard Large Value Options

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AdrianC
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Vanguard Large Value Options

Post by AdrianC »

I was looking at Vanguard's large value options using the advisor comparison tool:
https://advisors.vanguard.com/investmen ... undId1=VYM

The tool shows the 3x3 style boxes for each fund. Here are the total "Value" scores for each:

Vanguard High Dividend Yield ETF (VYM) 77
Vanguard Equity-Income Inv (VEIPX) 76
Vanguard US Value Factor ETF (VFVA) 70 (Classed as Mid-Cap Value but is really multi-cap)
Vanguard Value ETF (VTV) 68
Vanguard Windsor™ II Inv (VWNFX) 39

From this, its seems that VYM is the most "valuey", and Windsor II is hardly value at all. That make sense?

I know Windsor II is under new management. Top 4 holdings:
1 Microsoft Corp 6.65%
2 Vanguard Market Liquidity Inv 4.34%
3 Apple Inc 3.84%
4 Alphabet Inc A 2.64%

That doesn't look like value.
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nedsaid
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Re: Vanguard Large Value Options

Post by nedsaid »

Keep in mind that there is disagreement as to the definition of Value, we all agree that Value companies are cheaper than the market companies, but beyond that there is a lot of nuanced discussions. For example, I have argued that Book Value has decreasing importance and that investors should look at Price/Earnings, Price/Sales, Price/Cash Flow. Also behind every good valuation is a good story, Professor Damodaran gave the example of Uber, estimates of value went up when it rebranded itself as a logistics company rather than a taxi service. Peter Lynch talked about this too, he said there should be a story behind every stock you purchase. So there are intangible factors that affect intrinsic value estimates, one example being quality of management. We also know that cheap companies are not always good investments. What I am trying to say is that Value is in the eye of the beholder. Vanguard Value Index is probably plenty well good enough.
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whodidntante
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Re: Vanguard Large Value Options

Post by whodidntante »

Does anyone know how shipless Vanguard defines the style boxes? I wouldn't place any value (wakka wakka) on those without a definition.
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Re: Vanguard Large Value Options

Post by abuss368 »

The High Dividend fund is an excellent choice and I believe the yield is 3.65% or so. There are many threads on this fund and also the International High Dividend fund.
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texasfight
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Re: Vanguard Large Value Options

Post by texasfight »

VFVA is by far the most valuey. It holds a roughly equal small/mid/large split.

For pure large cap value you can use MGV (mega cap, so you are getting the 148 largest value stocks in market cap weight) or VTV (large cap, you are getting the 333 largest value stocks in market cap weight).
HippoSir
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Re: Vanguard Large Value Options

Post by HippoSir »

nedsaid wrote: Fri Oct 23, 2020 3:21 pm We also know that cheap companies are not always good investments. What I am trying to say is that Value is in the eye of the beholder. Vanguard Value Index is probably plenty well good enough.
I would agree with some of this, but I think nowadays most people agree that Value is not the opposite of Growth. You can have a cheap stock that is growing. Last time I looked, both VTV and VBR still use the "put equities on a spectrum of value and growth metrics and choose the ones in the value corner", which means they are weighting towards non-growth companies, not just cheap. I personally prefer to avoid such funds.

https://blog.thinknewfound.com/2016/02/ ... not-value/
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nedsaid
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Re: Vanguard Large Value Options

Post by nedsaid »

HippoSir wrote: Fri Oct 23, 2020 4:47 pm
nedsaid wrote: Fri Oct 23, 2020 3:21 pm We also know that cheap companies are not always good investments. What I am trying to say is that Value is in the eye of the beholder. Vanguard Value Index is probably plenty well good enough.
I would agree with some of this, but I think nowadays most people agree that Value is not the opposite of Growth. You can have a cheap stock that is growing. Last time I looked, both VTV and VBR still use the "put equities on a spectrum of value and growth metrics and choose the ones in the value corner", which means they are weighting towards non-growth companies, not just cheap. I personally prefer to avoid such funds.

https://blog.thinknewfound.com/2016/02/ ... not-value/
I have posted here many times that I would rather buy fine Cuban cigars when they go on sale than pick up cigar butts for the last few puffs. Companies can be cheap for very good reasons, cheap companies can go even cheaper, all the way to zero. That is why I often use the phrase "Value oriented".

A variation of the Value discipline is Growth At A Reasonable Price, which is closer to the way Warren Buffett invests rather than just buying cheap companies. Ideally, you want to buy good companies when they experience temporary problems or when they are out of favor on Wall Street. It is not always easy, however, to distinguish between temporary and permanent problems. Even better, buy a truly great company at a good price but these opportunities are rare indeed.

Charlie Munger had the right idea. He taught Buffett about Quality, Munger famously said that it is better to buy a great company at a good price than to buy a good company at a great price. Quality matters.

The Academic definition of Value is the cheapest 30% of the market as measured by such things as Price/Book, Price/Earnings, Price/Sales, Price to Cash Flow. My definition would be more like Benjamin Graham's, companies that trade at a discount to intrinsic value. Problem is intrinsic value depends upon the evaluation of intangible factors such as quality of management. Another thing you can look at are new products and services that are in the pipeline but not yet delivered to the consumer, it is a judgment call whether the analyst believes or not in the success of those new products and services. There is more to it than the numbers, as Professor Damodaran and Peter Lynch would say, behind every good valuation is a story.

One reason that I say Vanguard Value Index is "good enough" is that it contains the type of companies that I would like to own individually. Ditto for the Vanguard High Dividend Index. I don't see any clunkers in the top 25 or so holdings.

You raise a good point about the Styleboxes. They are a good tool but as in all tools, there are limitations. You have to check under the hood and do a bit deeper analysis.
A fool and his money are good for business.
Elysium
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Re: Vanguard Large Value Options

Post by Elysium »

AdrianC wrote: Fri Oct 23, 2020 1:50 pm I was looking at Vanguard's large value options using the advisor comparison tool:
https://advisors.vanguard.com/investmen ... undId1=VYM

The tool shows the 3x3 style boxes for each fund. Here are the total "Value" scores for each:

Vanguard High Dividend Yield ETF (VYM) 77
Vanguard Equity-Income Inv (VEIPX) 76
Vanguard US Value Factor ETF (VFVA) 70 (Classed as Mid-Cap Value but is really multi-cap)
Vanguard Value ETF (VTV) 68
Vanguard Windsor™ II Inv (VWNFX) 39

From this, its seems that VYM is the most "valuey", and Windsor II is hardly value at all. That make sense?

I know Windsor II is under new management. Top 4 holdings:
1 Microsoft Corp 6.65%
2 Vanguard Market Liquidity Inv 4.34%
3 Apple Inc 3.84%
4 Alphabet Inc A 2.64%

That doesn't look like value.
While I don't believe tilting to value is a great idea and that most people should not do it, if you were to look at how much value a fund is loaded with then the better way is to look at factor regressions.

Here is what that would tell you

That shows VYM, VEIPX, VTV are about the same HmL (the measure of value), VFVA has highest (and the riskiest, above market Rm-Rf risk), and VWNFX has the lowest (but lowest negative alpha out of all). I wouldn't own any of these funds though. The Dividend Appreciation ETF (VIG) has a modest amount of value, less risk than market, and slightly better quality.
Topic Author
AdrianC
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Re: Vanguard Large Value Options

Post by AdrianC »

Thanks, all. The factor regressions from Portfolio Visualizer were particularly interesting. I have Larry Swedroe's Factor book on the iPad. Should get around to reading it sometime.

There doesn't seem to be much to choose between Vanguard High Dividend Yield ETF (VYM) and Vanguard Value ETF (VTV).

Vanguard Windsor™ II Inv (VWNFX) is something of a dog, with -1.21% "Alpha". Unfortunately, that's the one we've owned in our 529 plans. Then again, it has done over 11% CAGR since we've owned it, so shouldn't complain too much.

Being a 'live below your means'/cheapskate I do like the idea of "value". Looks like VTV or VYM would be OK. The top holding of VTV is Berkshire, and I already have a lot of it, so I'm thinking VYM. It's in an IRA so taxation of dividends not an issue.
Scooter57
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Re: Vanguard Large Value Options

Post by Scooter57 »

Here is an article that takes a close look at VYM and what makes it a value index or a value trap.

VYM: The Dividend-Paying Total Stock Market ETF
https://seekingalpha.com/article/438103 ... market-etf
garlandwhizzer
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Re: Vanguard Large Value Options

Post by garlandwhizzer »

My personal preference for LCV is VEIPX, the Equity Income Fund which uses a combination of dividend yield and value to select its holdings. It is a multi-manager fund, one of which is Wellington Management, one of the only active management value managers that I actually trust. Wellington has an excellent long term track record for selecting value stocks in terms of risk adjusted returns. It takes a very hard and critical look at downside risk of each of its holdings which is a good idea IMO in value stocks many of which carry substantial risk that are not apparent in numbers in like PE, DIV, PB, etc.. The other manager is Vanguard's own Quantitative Equity Group which I also trust.

I realize that we're not supposed to go for active management in general but I believe this fund to be the exception to that rule. Its expense ratio is 0.27%, not dirt cheap but not too bad either. The long term performance of this fund gets a Morningstar 5 star rating, higher than TSM's 4 stars, and its performance relative to TSM and VIVAX is noted below from Portfolio Visualizer. Interestingly since 1993, it has produced a higher Sharpe ratio than either of the other two and in fact, it was ahead of TSM and way ahead of VIVAX in total return right up until the Covid-19 collapse which tanked all value stocks. It is a solid LC value holding with a high level (2.96%) of 100% qualified dividends and importantly does not take a lot of risk to get there.

https://www.portfoliovisualizer.com/bac ... ion3_3=100

Garland Whizzer
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AdrianC
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Re: Vanguard Large Value Options

Post by AdrianC »

Thanks. I must admit I hadn't really considered VEIPX. I really wanted an index ETF. Now you've prompted me to look again.

First thing I notice - there's an Admiral version VEIRX 0.18% ER. That's cheap.
https://investor.vanguard.com/mutual-fu ... view/veirx
Angst
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Re: Vanguard Large Value Options

Post by Angst »

whodidntante wrote: Fri Oct 23, 2020 4:14 pm Does anyone know how shipless Vanguard defines the style boxes? I wouldn't place any value (wakka wakka) on those without a definition.
They're from Morningstar but I don't know how they define value. Both websites below show the same numbers, and per Vanguard's advisors website "Compare Products" fine print at the bottom of the page:
Vanguard advisors wrote:All data supplied through the Compare Products tool is provided by Morningstar. While Vanguard believes that the data supplied by Morningstar is reliable, it does not review the information and cannot guarantee or warrant it to be accurate, complete, or timely. Vanguard is not responsible for any damages or losses arising from the use of any Morningstar or third party information.
https://advisors.vanguard.com/investments/tools/compare/
http://portfolios.morningstar.com/fund/summary?t=VYM&region=USA&culture=en-us
Angst
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Re: Vanguard Large Value Options

Post by Angst »

AdrianC wrote: Fri Oct 23, 2020 1:50 pm I was looking at Vanguard's large value options using the advisor comparison tool:
https://advisors.vanguard.com/investmen ... undId1=VYM

The tool shows the 3x3 style boxes for each fund. Here are the total "Value" scores for each:

[ Vanguard Energy Index ETF (VDE) 90 ]
Vanguard High Dividend Yield ETF (VYM) 77
Vanguard Equity-Income Inv (VEIPX) 76
Vanguard US Value Factor ETF (VFVA) 70 (Classed as Mid-Cap Value but is really multi-cap)
Vanguard Value ETF (VTV) 68
Vanguard Windsor™ II Inv (VWNFX) 39

From this, its seems that VYM is the most "valuey", and Windsor II is hardly value at all. That make sense?

I know Windsor II is under new management. Top 4 holdings:
1 Microsoft Corp 6.65%
2 Vanguard Market Liquidity Inv 4.34%
3 Apple Inc 3.84%
4 Alphabet Inc A 2.64%

That doesn't look like value.
If one's relying on Morningstar's definition of "value", perhaps one ought to consider the following fund:

Vanguard Energy Index ETF (VDE) 90

I've inserted it in [ your list ] above.
Note: It scores a 90% on value.

Here are its top 4 holdings:
Exxon Mobil Corp. 21.80%
Chevron Corp. 20.80%
ConocoPhillips 4.60%
Kinder Morgan Inc. 3.90%

:shock:
dml130
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Re: Vanguard Large Value Options

Post by dml130 »

Another approach towards large value could be the equal weight s&p 500 (RSP). It's not focused on traditional value metrics but ends up with more of a value (along with a little mid cap) tilt compared to the cap weighted index. For more traditional large cap value funds, to me MGV and VYM look pretty good.
dml130
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Re: Vanguard Large Value Options

Post by dml130 »

nedsaid wrote: Fri Oct 23, 2020 3:21 pm Keep in mind that there is disagreement as to the definition of Value, we all agree that Value companies are cheaper than the market companies, but beyond that there is a lot of nuanced discussions. For example, I have argued that Book Value has decreasing importance and that investors should look at Price/Earnings, Price/Sales, Price/Cash Flow. Also behind every good valuation is a good story, Professor Damodaran gave the example of Uber, estimates of value went up when it rebranded itself as a logistics company rather than a taxi service. Peter Lynch talked about this too, he said there should be a story behind every stock you purchase. So there are intangible factors that affect intrinsic value estimates, one example being quality of management. We also know that cheap companies are not always good investments. What I am trying to say is that Value is in the eye of the beholder. Vanguard Value Index is probably plenty well good enough.
What about the RAFI large indices? I like that those funds approach value in a more nuanced way. Does Vanguard have any equivalent large value (RAFI) funds?
000
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Re: Vanguard Large Value Options

Post by 000 »

What about the original Windsor? It seems to target a deeper value, and its top holdings contain little overlap with a broad index.
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