Factorheads Opinions Please VFMF/VSS

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Factorheads Opinions Please VFMF/VSS

Post by Morse Code »

My equity portfolio consists primarily of two ETFs, VFMF (Vanguard Multi-Factor) and VSS (int'l small cap index). In combination, these two give me simplicity, small and value tilts, emerging markets, and strike a cost balance I'm comfortable with; not as cheap as pure indexing, but not as pricey as the Avantis offerings. VSS is a blend, but I understand int'l small is "valuey" by it's very nature. Not sure how true that is.

I'm happy with these two and not really second-guessing myself, but I do like to re-visit my selections and get other opinions from time to time. Avantis seems to be the best-in-class choice these days, but what do you Factorheads think about VFMF/VSS and my rationale for using them? Any pros/cons I haven't considered?

Thanks in advance for your comments.
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Forester
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Re: Factorheads Opinions Please VFMF/VSS

Post by Forester »

Personally I would do this;

50% Vanguard all-world index fund VT (or VTI)
30% US scv
20% Intl scv

I would save the tilt for the SCV portion, aside from that take what the market gives you, otherwise all your money is beholden to the ins-and-outs of factor fund construction. My guess is the VFMF multifactor fund will tend to uptick in performance alongside SCV, I'd rather own something like VT or VTI, lower expense and less tracking error.
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Re: Factorheads Opinions Please VFMF/VSS

Post by Morse Code »

Forester wrote: Mon Apr 05, 2021 1:01 pm Personally I would do this;

50% Vanguard all-world index fund VT (or VTI)
30% US scv
20% Intl scv

I would save the tilt for the SCV portion, aside from that take what the market gives you, otherwise all your money is beholden to the ins-and-outs of factor fund construction. My guess is the VFMF multifactor fund will tend to uptick in performance alongside SCV, I'd rather own something like VT or VTI, lower expense and less tracking error.
Thanks for taking the time to respond, Forester. Much appreciated.
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Re: Factorheads Opinions Please VFMF/VSS

Post by whereskyle »

Forester wrote: Mon Apr 05, 2021 1:01 pm Personally I would do this;

50% Vanguard all-world index fund VT (or VTI)
30% US scv
20% Intl scv

I would save the tilt for the SCV portion, aside from that take what the market gives you, otherwise all your money is beholden to the ins-and-outs of factor fund construction. My guess is the VFMF multifactor fund will tend to uptick in performance alongside SCV, I'd rather own something like VT or VTI, lower expense and less tracking error.
I think this should work fine but I do pretty much the same thing except I'm tilting to small blend rather than to small value.
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Re: Factorheads Opinions Please VFMF/VSS

Post by HippoSir »

Morse Code wrote: Mon Apr 05, 2021 12:07 pm I'm happy with these two and not really second-guessing myself, but I do like to re-visit my selections and get other opinions from time to time. Avantis seems to be the best-in-class choice these days, but what do you Factorheads think about VFMF/VSS and my rationale for using them? Any pros/cons I haven't considered?
I actually own both AVUV and VFMF since they end up having very different factor loads. VFMF is a far more "multi" multi-factor fund (and hence loads very well on quality and has neutral to positive momentum). AVUV targets profitability and has a momentum screen, but focuses on small and value far more heavily than the other factors.
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Re: Factorheads Opinions Please VFMF/VSS

Post by grabiner »

I use VFVA (Vanguard Factor Value ETF) rather than VFMF; I have more faith in the value factor, and don't want to give up the deep-value exposure to hold other factors.

I do use VSS for international small-cap blend, but I also hold value factors in international stock: IVLU (iShares EAFE Factor Value ETF) for large-cap value and AVDV (Avantis International Small-Cap Value ETF) for small-cap value.
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Re: Factorheads Opinions Please VFMF/VSS

Post by Morse Code »

grabiner wrote: Mon Apr 05, 2021 8:48 pm I use VFVA (Vanguard Factor Value ETF) rather than VFMF; I have more faith in the value factor, and don't want to give up the deep-value exposure to hold other factors.

I do use VSS for international small-cap blend, but I also hold value factors in international stock: IVLU (iShares EAFE Factor Value ETF) for large-cap value and AVDV (Avantis International Small-Cap Value ETF) for small-cap value.
Thanks for your thoughts on these funds, grabiner. It appears you're not averse to holding several funds. I love the simplicity of two funds split equally for my entire equity portfolio, even if it's not completely rational. I just wonder if I'm getting enough value and emerging markets exposure with VFMF/VSS. Obviously, you feel a change to VFVA/AVDV would be an improvement.

What do others think?
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Re: Factorheads Opinions Please VFMF/VSS

Post by jhfenton »

I could see holding that. At one point a few years ago, I did swap all of my developed international (VEA/VTMGX) for VSS just to simplify things. But I still held additional emerging markets (VWO/VEMAX) separately. And I don't think it's unreasonable to hold VFMF as your core (or only) US equity holding.

Having two 401(k)s, though, with limited investment options makes things more complicated. My 401(k) has VTMGX but no other useful international funds (and my wife's has no usable international funds). So I can't keep things as simple as I would like while maintaining the exposures I would like.

Just to add a bit more complexity, I also last summer swapped one of our two positions in VSS out for AVDV.
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Re: Factorheads Opinions Please VFMF/VSS

Post by pascalwager »

Morse Code wrote: Tue Apr 06, 2021 7:20 am
grabiner wrote: Mon Apr 05, 2021 8:48 pm I use VFVA (Vanguard Factor Value ETF) rather than VFMF; I have more faith in the value factor, and don't want to give up the deep-value exposure to hold other factors.

I do use VSS for international small-cap blend, but I also hold value factors in international stock: IVLU (iShares EAFE Factor Value ETF) for large-cap value and AVDV (Avantis International Small-Cap Value ETF) for small-cap value.
Thanks for your thoughts on these funds, grabiner. It appears you're not averse to holding several funds. I love the simplicity of two funds split equally for my entire equity portfolio, even if it's not completely rational. I just wonder if I'm getting enough value and emerging markets exposure with VFMF/VSS. Obviously, you feel a change to VFVA/AVDV would be an improvement.

What do others think?
I use VSS instead of VXUS as much as possible (available), but If you're really committed to two funds, then I'd consider using VXUS instead of VSS for better diversification with VFMF (not much large cap). Or maybe you prefer the size factor even at the cost of diversification?
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Re: Factorheads Opinions Please VFMF/VSS

Post by MotoTrojan »

Seems like a reasonable portfolio to me, although I would prefer to have some actual value exposure ex-US (not many great options that include developed and EM though, and ER is quite a bit higher than VSS's).

My biggest fear with VFMF would probably be will Vanguard ever drop it, otherwise I think it is a great fund and core holding if you are okay with tracking error.
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Re: Factorheads Opinions Please VFMF/VSS

Post by pascalwager »

grabiner wrote: Mon Apr 05, 2021 8:48 pm I use VFVA (Vanguard Factor Value ETF) rather than VFMF; I have more faith in the value factor, and don't want to give up the deep-value exposure to hold other factors.

I do use VSS for international small-cap blend, but I also hold value factors in international stock: IVLU (iShares EAFE Factor Value ETF) for large-cap value and AVDV (Avantis International Small-Cap Value ETF) for small-cap value.
VFVA looks like an appealing fund--I just reviewed it on M* for the first time.

Just daydreaming...but I can imagine converting my Roth to the following island account:

VFVA 50%
VXUS 33%
XCEM 17%

XCEM is an EM Core ex-China fund to reduce single-country risk. The EM component of VXUS, of course, does include China.
Last edited by pascalwager on Tue Apr 06, 2021 10:21 pm, edited 1 time in total.
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Re: Factorheads Opinions Please VFMF/VSS

Post by MotoTrojan »

pascalwager wrote: Tue Apr 06, 2021 9:29 pm
grabiner wrote: Mon Apr 05, 2021 8:48 pm I use VFVA (Vanguard Factor Value ETF) rather than VFMF; I have more faith in the value factor, and don't want to give up the deep-value exposure to hold other factors.

I do use VSS for international small-cap blend, but I also hold value factors in international stock: IVLU (iShares EAFE Factor Value ETF) for large-cap value and AVDV (Avantis International Small-Cap Value ETF) for small-cap value.
VFVA looks like an appealing fund--I just reviewed it on M* for the first time.

Just daydreaming...but I can imagine converting my Roth to the following island account:

VFVA 50%
VXUS 33%
VCEM 17%

VCEM is an EM Core ex-China fund to reduce single-country risk. The EM component of VXUS, of course, does include China.
Nice portfolio idea there but if you want to avoid China and are onboard with value you could use an EM-value fund which will tilt away from China.

VFVA is nice indeed, I just wish it incorporated quality (like VFMF does). In that respect I still prefer the true factorhead funds, QVAL & IVAL which have incredible quality loading for how deep value they are (cheapest ~10% of their universe in EBIT/EV).
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Re: Factorheads Opinions Please VFMF/VSS

Post by pascalwager »

MotoTrojan wrote: Tue Apr 06, 2021 9:31 pm
pascalwager wrote: Tue Apr 06, 2021 9:29 pm
grabiner wrote: Mon Apr 05, 2021 8:48 pm I use VFVA (Vanguard Factor Value ETF) rather than VFMF; I have more faith in the value factor, and don't want to give up the deep-value exposure to hold other factors.

I do use VSS for international small-cap blend, but I also hold value factors in international stock: IVLU (iShares EAFE Factor Value ETF) for large-cap value and AVDV (Avantis International Small-Cap Value ETF) for small-cap value.
VFVA looks like an appealing fund--I just reviewed it on M* for the first time.

Just daydreaming...but I can imagine converting my Roth to the following island account:

VFVA 50%
VXUS 33%
VCEM 17%

VCEM is an EM Core ex-China fund to reduce single-country risk. The EM component of VXUS, of course, does include China.
Nice portfolio idea there but if you want to avoid China and are onboard with value you could use an EM-value fund which will tilt away from China.

VFVA is nice indeed, I just wish it incorporated quality (like VFMF does). In that respect I still prefer the true factorhead funds, QVAL & IVAL which have incredible quality loading for how deep value they are (cheapest ~10% of their universe in EBIT/EV).
Sorry, it's "XCEM", not "VCEM".
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Re: Factorheads Opinions Please VFMF/VSS

Post by MotoTrojan »

pascalwager wrote: Tue Apr 06, 2021 10:24 pm

Sorry, it's "XCEM", not "VCEM".
Thanks for clarifying, pretty reasonable ER at 16 bp.
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Re: Factorheads Opinions Please VFMF/VSS

Post by 000 »

pascalwager wrote: Tue Apr 06, 2021 10:24 pm Sorry, it's "XCEM", not "VCEM".
Although the low ER is nice, the fact that XCEM has only 99 stocks means you're mostly just getting large caps - is that a problem?
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Re: Factorheads Opinions Please VFMF/VSS

Post by pascalwager »

000 wrote: Tue Apr 06, 2021 10:37 pm
pascalwager wrote: Tue Apr 06, 2021 10:24 pm Sorry, it's "XCEM", not "VCEM".
Although the low ER is nice, the fact that XCEM has only 99 stocks means you're mostly just getting large caps - is that a problem?
You're correct, but VFVA contributes about 22% in small caps to the overall stock portfolio. I think that's enough for many Bogleheads, but not all.
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Re: Factorheads Opinions Please VFMF/VSS

Post by YRT70 »

Morse Code wrote: Mon Apr 05, 2021 12:07 pm My equity portfolio consists primarily of two ETFs, VFMF (Vanguard Multi-Factor) and VSS (int'l small cap index). In combination, these two give me simplicity, small and value tilts, emerging markets, and strike a cost balance I'm comfortable with; not as cheap as pure indexing, but not as pricey as the Avantis offerings. VSS is a blend, but I understand int'l small is "valuey" by it's very nature. Not sure how true that is.

I'm happy with these two and not really second-guessing myself, but I do like to re-visit my selections and get other opinions from time to time. Avantis seems to be the best-in-class choice these days, but what do you Factorheads think about VFMF/VSS and my rationale for using them? Any pros/cons I haven't considered?

Thanks in advance for your comments.
I like low fees as well but as far as I know VSS will not provide meaningful value and profitability exposure. AVDV will. If factors return even half their historic premiums I think AVDV's performance will make up for the slightly higher TER. Ben Felix has included some calculations here: https://www.pwlcapital.com/wp-content/u ... h-ETFs.pdf
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Re: Factorheads Opinions Please VFMF/VSS

Post by Morse Code »

Thanks for the responses. It sounds like most of you are Luke-warm on VSS as a factor fund.
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Re: Factorheads Opinions Please VFMF/VSS

Post by muffins14 »

You could split it so 50% of international comes from VSS and 50% from AVDV, for example. Or, maybe give up the desire for only two funds

For me, I have about 20% of my international from a large allocation to VT, and then the rest is from VWO, AVDV, and FNDC such that I have about 60% of my international funds in developed markets and 40% in emerging markets.

I hold the FNDC in my taxable account, AVDV in tax-advantaged accounts, and VWO in both.

I like having at least some exposure to the large-caps.
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Re: Factorheads Opinions Please VFMF/VSS

Post by pascalwager »

Morse Code wrote: Wed Apr 07, 2021 9:52 am Thanks for the responses. It sounds like most of you are Luke-warm on VSS as a factor fund.
To me, VSS is just a diversifier with respect to US large cap, and that's how I use it. I don't expect a factor premium from small cap. But as a retiree, equity diversification seems important to me.
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