AOR does not not have homecountry bias - VSMGX not sure

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invest2bfree
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AOR does not not have homecountry bias - VSMGX not sure

Post by invest2bfree »

AOR - iShares Core Growth Allocation ETF

This is a pure 60/40 allocation of global stocks and bonds.

Here is the methodology document from S&P-
http://www.spglobal.com/spdji/en/docume ... t-risk.pdf

The following steps are then taken to determine weights for each constituent:
a. The float-adjusted market capitalization of the U.S. dollar versions of the S&P Developed
BMI and S&P Emerging BMI are used to determine the relative weighting of the
developed and emerging market allocations to the equity sleeve of each index.
b. Within developed markets, the relative weighting of the U.S. market is determined based
on the relative proportions of the float-adjusted market capitalization of the U.S. dollar
versions of the S&P United States BMI, and S&P Developed Ex-U.S. BMI within the S&P
Developed BMI.
c. The weight of the U.S. market determined in step (b) is split among the capitalization
sizes (large, mid, and small) in relative proportion of the float-adjusted market
capitalization of the S&P 500, S&P MidCap 400, and S&P SmallCap 600.
d. Finally, 85% of the total fixed income allocation within each index is allocated to the
iShares Core Total USD Bond Market ETF (IUSB) with the remaining 15% allocated to
the iShares Core International Aggregate Bond ETF (IAGG).


Equity portion of it is free floating to world market cap. So basically should mimic VT/BND/BNDX.




I suspect VSMGX is the same but can anybody confirm?


Performance look very similar for all three-

https://www.portfoliovisualizer.com/bac ... ation5_3=6
AOR - 65%, VGSTX - 35%
MrJedi
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Re: AOR does not not have homecountry bias - VSMGX not sure

Post by MrJedi »

VSMGX is a fund of funds and holds US total market and international total market separately. It appears close to market weight based on the ratio but I'm not sure it is explicitly setup to fixate on that.

https://investor.vanguard.com/mutual-fu ... view/vsmgx
Topic Author
invest2bfree
Posts: 468
Joined: Sun Jan 12, 2020 9:44 am

Re: AOR does not not have homecountry bias - VSMGX not sure

Post by invest2bfree »

MrJedi wrote: Thu Jan 13, 2022 9:37 am VSMGX is a fund of funds and holds US total market and international total market separately. It appears close to market weight based on the ratio but I'm not sure it is explicitly setup to fixate on that.

https://investor.vanguard.com/mutual-fu ... view/vsmgx
Okay Thanks, If it does not have home country bias then I like it better.
AOR - 65%, VGSTX - 35%
sycamore
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Re: AOR does not not have homecountry bias - VSMGX not sure

Post by sycamore »

invest2bfree wrote: Thu Jan 13, 2022 9:55 am
MrJedi wrote: Thu Jan 13, 2022 9:37 am VSMGX is a fund of funds and holds US total market and international total market separately. It appears close to market weight based on the ratio but I'm not sure it is explicitly setup to fixate on that.

https://investor.vanguard.com/mutual-fu ... view/vsmgx
Okay Thanks, If it does not have home country bias then I like it better.
Vanguard's LifeStrategy funds are not world market-cap weighted. But - AFAIK - they're also not intentionally set up to always have home country bias -- browse to VSMGX's Portfolio & Management page, click on the "strategy and policy" link and you'll see:
The targeted percentage of the fund’s assets allocated to each of the underlying funds is: Vanguard Total Stock Market Index Fund 36%, Vanguard Total Bond Market II Index Fund 28%, Vanguard Total International Stock Index Fund 24%, and Vanguard Total International Bond Index Fund/Vanguard Total International Bond II Index Fund 12%
So they're using a fixed US/International ratio of 60/40 for stocks and 70/30 for bonds.

Right now US stocks just happens to be around 60% of total (at least per the VT portfolio, see https://www.morningstar.com/etfs/arcx/vt/portfolio).

I wonder... as a practical matter, how do you define home country bias?

Does it mean that a fund always has more US stocks than indicated by its portion of world market-cap? If so, a fund would have to have a dynamic asset allocation because the US's portion of world market cap is always changing.

LS has a fixed US/International ratio so there can be times when its US allocation is more or less than world market-cap.

Of course, Vanguard has previously changed the ratios used by LS funds, and maybe they'll change them again.
sycamore
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Re: AOR does not not have homecountry bias - VSMGX not sure

Post by sycamore »

invest2bfree wrote: Thu Jan 13, 2022 9:06 am ... Equity portion of it is free floating to world market cap. So basically should mimic VT/BND/BNDX.
Technically the AOR fund's return should mimic VT/BND/BNDX to the extent that the fund manager rebalances often enough. Not trying to raise doubts, just pointing out that I don't know how often iShares rebalances the fund -- does it do it daily, monthly, quarterly, yearly? I would guess daily but if mimicking world market cap is a key criterion for choose AOR, I'd want to know just how closely the mimicking will be.

Side note: Vanguard also has a Total World Bond fund called BNDW. It's a fund of funds containing BND and BNDX.
TdF fan
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Re: AOR does not not have homecountry bias - VSMGX not sure

Post by TdF fan »

Thank you for pointing out that iShares allocation etf's have a global market capitalization weighting for the equity portion. I had previously noticed that the US/International ratio was about 55%:45%, but always assumed that was their specific allocation, not that they were following the market cap weight.

But note that their bond allocation is fixed at 85% US/15% exUS, which is not anywhere close to the actual global cap weight, so AOR will not mimic VT/BND/BNDX at world cap weights, if that is what you are going for.
Topic Author
invest2bfree
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Re: AOR does not not have homecountry bias - VSMGX not sure

Post by invest2bfree »

sycamore wrote: Thu Jan 13, 2022 10:39 am
invest2bfree wrote: Thu Jan 13, 2022 9:06 am ... Equity portion of it is free floating to world market cap. So basically should mimic VT/BND/BNDX.
Technically the AOR fund's return should mimic VT/BND/BNDX to the extent that the fund manager rebalances often enough. Not trying to raise doubts, just pointing out that I don't know how often iShares rebalances the fund -- does it do it daily, monthly, quarterly, yearly? I would guess daily but if mimicking world market cap is a key criterion for choose AOR, I'd want to know just how closely the mimicking will be.

Side note: Vanguard also has a Total World Bond fund called BNDW. It's a fund of funds containing BND and BNDX.
AOR does it biannually, but they are more strict on the stock\bond side which is 60/40.

Within the stock they just adjust based on world market cap.
AOR - 65%, VGSTX - 35%
Topic Author
invest2bfree
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Re: AOR does not not have homecountry bias - VSMGX not sure

Post by invest2bfree »

TdF fan wrote: Thu Jan 13, 2022 10:55 am Thank you for pointing out that iShares allocation etf's have a global market capitalization weighting for the equity portion. I had previously noticed that the US/International ratio was about 55%:45%, but always assumed that was their specific allocation, not that they were following the market cap weight.

But note that their bond allocation is fixed at 85% US/15% exUS, which is not anywhere close to the actual global cap weight, so AOR will not mimic VT/BND/BNDX at world cap weights, if that is what you are going for.
Actually Iam more concerned about the stock side.

Iam actually happy that they overweight BND at 85%. I prefer the bond side to be fully US based. Plus xUS bond is currency hedged hence it adds no value.
AOR - 65%, VGSTX - 35%
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Horton
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Re: AOR does not not have homecountry bias - VSMGX not sure

Post by Horton »

Curious, why do you own VGSTX?
My IPS - use target date funds (except in taxable)
Topic Author
invest2bfree
Posts: 468
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Re: AOR does not not have homecountry bias - VSMGX not sure

Post by invest2bfree »

Horton wrote: Thu Jan 13, 2022 6:04 pm Curious, why do you own VGSTX?
I like to split my funds between Active and Passive.

I always go back to 2000 and see how the funds performed at the top of the bubble.

Star did pretty well against the index and it has minimal manager risk. You get fund of funds like a hedge fund for just .31 expense.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
AOR - 65%, VGSTX - 35%
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