Vanguard Global Value VDVA Turnover Rate

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Topic Author
chd1985
Posts: 12
Joined: Sat Feb 29, 2020 10:40 am

Vanguard Global Value VDVA Turnover Rate

Post by chd1985 »

Hello guys

I have some shares of VDVA and IWVL.
IWVL follows the MSCI World Dvlp Value and VDVA is an active fund with proprietary algorithm.
Due to the worst calendar year return for VDVA, I am searching for some reasons.

In 2019 its turnover rate was 77%.
Now I am asking you:

1) Who can tell for sure the VDVA algorithm works?
2) Why such a high turnover rate? Is the ETF giving time for the shares to come back from the lows or is it trading all the time?
3) Do you trust Vanguard for active funds factor-weighted?
4) What is your opinion about it?

Thank you all.
Cássio, from Brazil.
Fortune Seeker
Posts: 108
Joined: Mon Apr 13, 2020 9:52 am
Location: UK

Re: Vanguard Global Value VDVA Turnover Rate

Post by Fortune Seeker »

Hi, you can't really know and there's no guarantee. But criteria Vanguard uses for their fund are nothing special (they are pretty much same as iShares Edge MSCI World Value Factor UCITS ETF IWVU), and there's only so much harm or good that can come from tweaking them around.

Difference in performance is most likely explained by Vanguard's fund contating mostly smaller companies (Vanguard's fund only has around 35% in large caps, while Ishares fund has almost 75%). Small companies underperformed comparing to large caps, so it is expected that mid cap value fund will perform worse.

Vanguard has been running their value funds for decades and in general they know their stuff. It should be fine.
krasnall
Posts: 22
Joined: Wed Sep 16, 2020 10:37 am

Re: Vanguard Global Value VDVA Turnover Rate

Post by krasnall »

This fund (also known as VVAL or VGVL, depending on exchange) has a high turnover by design. It it not market cap weighted, but instead it weights its holdings by factor loading. It also overweights mid and small cap stocks. It might rebalance more often than a typical index fund (which is usually rebalanced quarterly and if market cap weighted the rebalancing is not as dramatic). I don't know how often it rebalances, but it could even rebalance daily as factors change for each individual holding.

It is my understanding that this fund is similar to the Canadian VVL ETF. You can find a more detailed description here: https://www.vanguardcanada.ca/advisors/ ... s/16011/CA

I recently did a 5 factor regression (Jan 2016 - Jun 2020) on VVAL/VDVA and here are the results:

Code: Select all

	Loading Std Error	t Stat	P-value
Alpha 	-0.17	0.16		-1.08	0.28
Mkt-RF	1.27	0.04		28.50	0.00
SMB	0.41	0.13		3.28	0.00
HML	0.86	0.12		7.46	0.00
RMW	0.21	0.17		1.19	0.24
CMA	-0.40	0.19		-2.17	0.04
You can see that both size and value factors are statistically significant and the loading on both it quite high: 0.41 on size and 0.86 on value.

Compare it to IWVL which tracks the MSCI World Value Factor index (Jan 2017 - Jun 2020):

Code: Select all

	Loading Std Error	t Stat	P-value
Alpha 	-0.11	0.21		-0.50	0.62
Mkt-RF	0.97	0.05		19.96	0.00
SMB	-0.04	0.15		-0.27	0.79
HML	0.56	0.14		3.90	0.00
RMW	0.05	0.24		0.19	0.85
CMA	-0.06	0.26		-0.25	0.80
This ETF has a totally different loading: only 0.56 on value and basically none on small size.

IWVL is also sector neutral - sector allocations are the same as in the MSCI World index, which means tech is the most represented sector in this ETF (19%) while tech in VVAL has a 5% share. On the other hand, IWVL does not maintain a market cap weighted geographical allocation - it's 37% US, 30% Japan, 8% UK, etc., while VVAL keeps a market cap weighted geographical exposure (63.5% US, 8.5% Japan, 5% UK, etc.).

Those funds are very different and their performance shouldn't be directly compared. Among those two IWVL is a LCV fund with a somewhat value oriented geographical allocation, while VVAL is a 1/3 LCV, 1/3 MCV, 1/3 SCV with a value oriented sector allocation.

If you are trying to get exposure to global value and size factors VVAL is probably the best UCITS ETF you can find. Whether the factor premiums will be larger than the costs associated with high turnover and dividend tax leakage is another question.
Last edited by krasnall on Sat Oct 03, 2020 5:58 am, edited 1 time in total.
Topic Author
chd1985
Posts: 12
Joined: Sat Feb 29, 2020 10:40 am

Re: Vanguard Global Value VDVA Turnover Rate

Post by chd1985 »

krasnall wrote: Fri Oct 02, 2020 7:16 pm This fund (also knows as VVAL or VGVL, depending on exchange) has a high turnover by design. It it not market cap weighted, but instead it weights its holdings by factor loading. It also overweights mid and small cap stocks. It might rebalance more often than a typical index fund (which is usually rebalanced quarterly and if market cap weighted the rebalancing is not as dramatic). I don't know how often it rebalances, but it could even rebalance daily as factors change for each individual holding.

It is my understanding that this fund is similar to the Canadian VVL ETF. You can find a more detailed description here: https://www.vanguardcanada.ca/advisors/ ... s/16011/CA

I recently did a 5 factor regression (Jan 2016 - Jun 2020) on VVAL/VDVA and here are the results:

Code: Select all

	Loading Std Error	t Stat	P-value
Alpha 	-0.17	0.16		-1.08	0.28
Mkt-RF	1.27	0.04		28.50	0.00
SMB	0.41	0.13		3.28	0.00
HML	0.86	0.12		7.46	0.00
RMW	0.21	0.17		1.19	0.24
CMA	-0.40	0.19		-2.17	0.04
You can see that both size and value factors are statistically significant and the loading on both it quite high: 0.41 on size and 0.86 on value.

Compare it to the IWVL which tracks MSCI World Value Factor index (Jan 2017 - Jun 2020):

Code: Select all

	Loading Std Error	t Stat	P-value
Alpha 	-0.11	0.21		-0.50	0.62
Mkt-RF	0.97	0.05		19.96	0.00
SMB	-0.04	0.15		-0.27	0.79
HML	0.56	0.14		3.90	0.00
RMW	0.05	0.24		0.19	0.85
CMA	-0.06	0.26		-0.25	0.80
This ETF has a totally different loading: only 0.56 on value and basically none on small size.

IWVL is also sector neutral - sector exposure is the same as in MSCI World index, which means tech is the most represented sector in this ETF (19%) while tech in VVAL has a 5% share. On the other hand, IWVL does not maintain a market cap weighted geographical allocation - it's 37% US, 30% Japan, 8% UK, etc., while VVAL keeps a market cap weighted geographical exposure (63.5% US, 8.5% Japan, 5% UK, etc.).

Those funds are very different and their performance shouldn't be directly compared. Among those two IWVL is a LCV fund with a somewhat value oriented geographical allocation, while VVAL is a 1/3 LCV, 1/3 MCV, 1/3 SCV with a value oriented sector allocation.

If you are trying to get exposure to global value and size factors VVAL is probably the best UCITS ETF you can find. Whether the factor premiums will be larger than the costs associated with high turnover and dividend tax leakage is another question.
Thanks so much you both. You guys are awesome..
Valuethinker
Posts: 41447
Joined: Fri May 11, 2007 11:07 am

Re: Vanguard Global Value VDVA Turnover Rate

Post by Valuethinker »

chd1985 wrote: Fri Oct 02, 2020 9:16 pm
krasnall wrote: Fri Oct 02, 2020 7:16 pm This fund (also knows as VVAL or VGVL, depending on exchange) has a high turnover by design. It it not market cap weighted, but instead it weights its holdings by factor loading. It also overweights mid and small cap stocks. It might rebalance more often than a typical index fund (which is usually rebalanced quarterly and if market cap weighted the rebalancing is not as dramatic). I don't know how often it rebalances, but it could even rebalance daily as factors change for each individual holding.

It is my understanding that this fund is similar to the Canadian VVL ETF. You can find a more detailed description here: https://www.vanguardcanada.ca/advisors/ ... s/16011/CA

I recently did a 5 factor regression (Jan 2016 - Jun 2020) on VVAL/VDVA and here are the results:

Code: Select all

	Loading Std Error	t Stat	P-value
Alpha 	-0.17	0.16		-1.08	0.28
Mkt-RF	1.27	0.04		28.50	0.00
SMB	0.41	0.13		3.28	0.00
HML	0.86	0.12		7.46	0.00
RMW	0.21	0.17		1.19	0.24
CMA	-0.40	0.19		-2.17	0.04
You can see that both size and value factors are statistically significant and the loading on both it quite high: 0.41 on size and 0.86 on value.

Compare it to the IWVL which tracks MSCI World Value Factor index (Jan 2017 - Jun 2020):

Code: Select all

	Loading Std Error	t Stat	P-value
Alpha 	-0.11	0.21		-0.50	0.62
Mkt-RF	0.97	0.05		19.96	0.00
SMB	-0.04	0.15		-0.27	0.79
HML	0.56	0.14		3.90	0.00
RMW	0.05	0.24		0.19	0.85
CMA	-0.06	0.26		-0.25	0.80
This ETF has a totally different loading: only 0.56 on value and basically none on small size.

IWVL is also sector neutral - sector exposure is the same as in MSCI World index, which means tech is the most represented sector in this ETF (19%) while tech in VVAL has a 5% share. On the other hand, IWVL does not maintain a market cap weighted geographical allocation - it's 37% US, 30% Japan, 8% UK, etc., while VVAL keeps a market cap weighted geographical exposure (63.5% US, 8.5% Japan, 5% UK, etc.).

Those funds are very different and their performance shouldn't be directly compared. Among those two IWVL is a LCV fund with a somewhat value oriented geographical allocation, while VVAL is a 1/3 LCV, 1/3 MCV, 1/3 SCV with a value oriented sector allocation.

If you are trying to get exposure to global value and size factors VVAL is probably the best UCITS ETF you can find. Whether the factor premiums will be larger than the costs associated with high turnover and dividend tax leakage is another question.
Thanks so much you both. You guys are awesome..
Yes this was incredibly helpful. I hold both, was aware of differences in country allocation but mot the other factors.

Thank you.
krasnall
Posts: 22
Joined: Wed Sep 16, 2020 10:37 am

Re: Vanguard Global Value VDVA Turnover Rate

Post by krasnall »

chd1985 wrote:Fri Oct 02, 2020 12:33 pmWhy such a high turnover rate?
OK, so I decided to look into that again since the turnover rates are very different for VVAL and VVL (the Canadian-listed equivalent). I also looked into Vanguard All-World UCITS ETF and noticed a negative (-12%) turnover rate. That added to my confusion.

I checked the data on Vanguard websites. Turnover as of 30 Jun 2020: VVAL: 76.7%, VVL: 38.26%.
More data from VVL's Annual Management Report of Fund Performance:

Code: Select all

Financial Years Ended March 31:	2020	2019	2018	2017
Portfolio turnover rate:	20.33%	37.74%	55.51%	45.85%
This is defined in the document as: The ETF’s portfolio turnover rate indicates how actively the ETF’s sub-advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the ETF buying and selling all of the securities in its portfolio once in the course of the year.

Seems like a logical definition to me. Then I found this Morningstar article about turnover rates and this blog post about the differences in turnover rates calculations. In short, in Europe turnover is calculated as:

Code: Select all

Turnover = [(Purchases plus Sales) – (Cash in plus Cash out)]/Avg Net Assets
In other words, if the fund has no inflows and outflows, the turnover rate according to UCITS definition will be around twice as high as the turnover of a Canadian ETF. Which matches the difference between VVAL and VVL.

So, to answer your question: most likely the real turnover rate (what you understand as turnover) is not what you read it is.
Topic Author
chd1985
Posts: 12
Joined: Sat Feb 29, 2020 10:40 am

Re: Vanguard Global Value VDVA Turnover Rate

Post by chd1985 »

krasnall wrote: Sat Oct 03, 2020 11:26 am
chd1985 wrote:Fri Oct 02, 2020 12:33 pmWhy such a high turnover rate?
OK, so I decided to look into that again since the turnover rates are very different for VVAL and VVL (the Canadian-listed equivalent). I also looked into Vanguard All-World UCITS ETF and noticed a negative (-12%) turnover rate. That added to my confusion.

I checked the data on Vanguard websites. Turnover as of 30 Jun 2020: VVAL: 76.7%, VVL: 38.26%.
More data from VVL's Annual Management Report of Fund Performance:

Code: Select all

Financial Years Ended March 31:	2020	2019	2018	2017
Portfolio turnover rate:	20.33%	37.74%	55.51%	45.85%
This is defined in the document as: The ETF’s portfolio turnover rate indicates how actively the ETF’s sub-advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the ETF buying and selling all of the securities in its portfolio once in the course of the year.

Seems like a logical definition to me. Then I found this Morningstar article about turnover rates and this blog post about the differences in turnover rates calculations. In short, in Europe turnover is calculated as:

Code: Select all

Turnover = [(Purchases plus Sales) – (Cash in plus Cash out)]/Avg Net Assets
In other words, if the fund has no inflows and outflows, the turnover rate according to UCITS definition will be around twice as high as the turnover of a Canadian ETF. Which matches the difference between VVAL and VVL.

So, to answer your question: most likely the real turnover rate (what you understand as turnover) is not what you read it is.
Awesome

Simply awesome
Thanks
Valuethinker
Posts: 41447
Joined: Fri May 11, 2007 11:07 am

Re: Vanguard Global Value VDVA Turnover Rate

Post by Valuethinker »

krasnall wrote: Fri Oct 02, 2020 7:16 pm This fund (also known as VVAL or VGVL, depending on exchange) has a high turnover by design. It it not market cap weighted, but instead it weights its holdings by factor loading. It also overweights mid and small cap stocks. It might rebalance more often than a typical index fund (which is usually rebalanced quarterly and if market cap weighted the rebalancing is not as dramatic). I don't know how often it rebalances, but it could even rebalance daily as factors change for each individual holding.

It is my understanding that this fund is similar to the Canadian VVL ETF. You can find a more detailed description here: https://www.vanguardcanada.ca/advisors/ ... s/16011/CA

I recently did a 5 factor regression (Jan 2016 - Jun 2020) on VVAL/VDVA and here are the results:

Code: Select all

	Loading Std Error	t Stat	P-value
Alpha 	-0.17	0.16		-1.08	0.28
Mkt-RF	1.27	0.04		28.50	0.00
SMB	0.41	0.13		3.28	0.00
HML	0.86	0.12		7.46	0.00
RMW	0.21	0.17		1.19	0.24
CMA	-0.40	0.19		-2.17	0.04
You can see that both size and value factors are statistically significant and the loading on both it quite high: 0.41 on size and 0.86 on value.

Compare it to IWVL which tracks the MSCI World Value Factor index (Jan 2017 - Jun 2020):

Code: Select all

	Loading Std Error	t Stat	P-value
Alpha 	-0.11	0.21		-0.50	0.62
Mkt-RF	0.97	0.05		19.96	0.00
SMB	-0.04	0.15		-0.27	0.79
HML	0.56	0.14		3.90	0.00
RMW	0.05	0.24		0.19	0.85
CMA	-0.06	0.26		-0.25	0.80
This ETF has a totally different loading: only 0.56 on value and basically none on small size.

IWVL is also sector neutral - sector allocations are the same as in the MSCI World index, which means tech is the most represented sector in this ETF (19%) while tech in VVAL has a 5% share. On the other hand, IWVL does not maintain a market cap weighted geographical allocation - it's 37% US, 30% Japan, 8% UK, etc., while VVAL keeps a market cap weighted geographical exposure (63.5% US, 8.5% Japan, 5% UK, etc.).

Those funds are very different and their performance shouldn't be directly compared. Among those two IWVL is a LCV fund with a somewhat value oriented geographical allocation, while VVAL is a 1/3 LCV, 1/3 MCV, 1/3 SCV with a value oriented sector allocation.

If you are trying to get exposure to global value and size factors VVAL is probably the best UCITS ETF you can find. Whether the factor premiums will be larger than the costs associated with high turnover and dividend tax leakage is another question.
Could I ask where you got your factor loadings from?

Where was the input data?

And how did you run the regressions?
krasnall
Posts: 22
Joined: Wed Sep 16, 2020 10:37 am

Re: Vanguard Global Value VDVA Turnover Rate

Post by krasnall »

Sure. It was the first time I run my own regression. Monthly returns come from Vanguard and iShares websites. Factor data (Fama/French Developed 5 Factors) comes from Ken French's website. Regression was done in Excel according to instructions from William Bernstein's website. Feel free to download the spreadsheet.
Valuethinker
Posts: 41447
Joined: Fri May 11, 2007 11:07 am

Re: Vanguard Global Value VDVA Turnover Rate

Post by Valuethinker »

krasnall wrote: Sun Oct 04, 2020 5:59 am Sure. It was the first time I run my own regression. Monthly returns come from Vanguard and iShares websites. Factor data (Fama/French Developed 5 Factors) comes from Ken French's website. Regression was done in Excel according to instructions from William Bernstein's website. Feel free to download the spreadsheet.
Thank you.
GermanDoc
Posts: 21
Joined: Tue Sep 10, 2019 4:48 am

Re: Vanguard Global Value VDVA Turnover Rate

Post by GermanDoc »

@krasnall
Thank you for sharing your work!
I didn't know that VDVA existed so I used the MSCI World Value an I am not thinking about putting my future contributions and rebalancing towards VDVA.
90/10: 36% Vang. developed wrld., 13,5% Vang. EM, 13,5% Vang. EM Bonds, 13,5% SPDR Wrld SC, 13,5% Xtr. Wrld Value, 10% AGGH
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