Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

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lack_ey
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Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Sun Mar 11, 2018 3:04 pm

EDIT: Now with momentum factor data!

edit: For currently analyzed funds and thumbnails for all images, see this post:
viewtopic.php?f=10&t=244016&newpost=382 ... d#p3827162


===========

Ever wanted a more granular look inside Morningstar's style boxes for a fund? I've got plenty of that here, probably with other statistics coming.

The idea was inspired by jhfenton's look at Vanguard factor ETF portfolio statistics here:
viewtopic.php?f=10&t=243750

Rather than use Morningstar's own portfolio analysis tools, I've downloaded key stats from individual Morningstar stock pages to use for my own analysis. So far I've just generated some graphs from the data, but I could also calculate fund-wide price/earnings, price/book, price/sales, and some other stats.

In addition, I think I can extract 12-2 momentum (past year return, other than the past month), which is probably my next step.
edit: it's 2-12, not 12-2 (I got the name wrong). this is done

I'll take requests for US stock funds for which portfolio holdings data is in a convenient format for my purposes. Specifically, I want an easy-to-read list of holdings, ticker symbols, and number of shares (weightings would be okay too). For example, for DFA they only have portfolio data that I can see on the website in .pdf format, and they don't list ticker symbols. That would take more work to process, which I don't think I'm going to bother with for now, or ever. I don't personally have DFA access anyway. Likewise, it looks like AQR only provides pdfs with the same info, no tickers. I wonder if it's a mutual fund reporting thing.

For Vanguard and iShares funds I already wrote the processing required, so I can just download and use those files, and my script will automatically download the data and generate the plots.

So far I've got this (click image for full size, or one of the fund names):

Image

For the P/E vs. market cap graphs, the x-axis is forward P/E, the y-axis is market cap, and the dots each indicate different stocks within the fund. The dot size corresponds to the fund's weighting in that particular stock. Negative P/E values are for these purposes treated as very positive and fall to the right of the shown area, though they should be included in the right-most histogram bin you see on the top.

For the momentum vs. market cap graphs, the x-axis is 12-2 Return (trailing 12-month return, except ignoring the last month), with the y-axis again being market cap. You can really see the rightward shift (to higher prior return) in the momentum and multifactor funds. I plot return on a log scale where 1 means a return of 0%, 2 means a return of +100%, 4 means a return of +300%, 0.5 means a return of -50%, and so on.


Full album link:
http://hostimg.co/a/duJV
Last edited by lack_ey on Mon Mar 12, 2018 10:14 pm, edited 13 times in total.

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Re: P/E vs. Market Cap visualizations (and more?) for new Vanguard factor ETFs and others

Post by Horton » Sun Mar 11, 2018 3:10 pm

Pretty neat once you get oriented to the information presented.

One thing I drew from the charts is that the new Vanguard factor ETFs have more spread than I would have otherwise expected across the size factor (small/mid/large). How about Total Stock Market as a comparison?

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Re: P/E vs. Market Cap visualizations (and more?) for new Vanguard factor ETFs and others

Post by lack_ey » Sun Mar 11, 2018 3:21 pm

DallasGuy wrote:
Sun Mar 11, 2018 3:10 pm
Pretty neat once you get oriented to the information presented.

One thing I drew from the charts is that the new Vanguard factor ETFs have more spread than I would have otherwise expected across the size factor (small/mid/large). How about Total Stock Market as a comparison?
Maybe sometime tonight. The script would first have to download data for pretty much every US stock first. That said, I already have 2085 stock pages downloaded, and each page is around 2 MB once it loads the tables in. Over halfway there. :twisted:

I imagine with an actual Morningstar subscription, maybe some institutional services (?), there would be more convenient and lightweight ways of getting the raw data. They probably don't particularly like their servers getting hammered by this, but I figure on a weekend or after-hours they have some capacity. And look how many ads they're serving me! (The .html for each page doesn't have the data, so I need the page to actually load so it fills in the tables with data from whatever backend they're using—I didn't look too carefully and don't know much about HTML or JavaScript or whatever anyway)

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Re: P/E vs. Market Cap visualizations (and more?) for new Vanguard factor ETFs and others

Post by nedsaid » Sun Mar 11, 2018 3:33 pm

Lack_ey, I want to congratulate you on your excellent work. Thanks for taking time to get the data and to produce the graphs. As they say, a picture is worth a thousand words. It is very illuminating.
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Re: P/E vs. Market Cap visualizations (and more?) for new Vanguard factor ETFs and others

Post by Horton » Sun Mar 11, 2018 3:34 pm

lack_ey wrote:
Sun Mar 11, 2018 3:21 pm
DallasGuy wrote:
Sun Mar 11, 2018 3:10 pm
Pretty neat once you get oriented to the information presented.

One thing I drew from the charts is that the new Vanguard factor ETFs have more spread than I would have otherwise expected across the size factor (small/mid/large). How about Total Stock Market as a comparison?
Maybe sometime tonight. The script would first have to download data for pretty much every US stock first. That said, I already have 2085 stock pages downloaded, and each page is around 2 MB once it loads the tables in. Over halfway there. :twisted:

I imagine with an actual Morningstar subscription, maybe some institutional services (?), there would be more convenient and lightweight ways of getting the raw data. They probably don't particularly like their servers getting hammered by this, but I figure on a weekend or after-hours they have some capacity. And look how many ads they're serving me! (The .html for each page doesn't have the data, so I need the page to actually load so it fills in the tables with data from whatever backend they're using—I didn't look too carefully and don't know much about HTML or JavaScript or whatever anyway)
What software are you using to prepare the graphs? R?

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Re: P/E vs. Market Cap visualizations (and more?) for new Vanguard factor ETFs and others

Post by lack_ey » Sun Mar 11, 2018 3:46 pm

DallasGuy wrote:
Sun Mar 11, 2018 3:34 pm
What software are you using to prepare the graphs? R?
The whole thing is in Python, including reading the data, scraping Morningstar (and Yahoo), cleaning, graphing, etc. I've used R before for some of this plotting and data analysis, but I wanted to learn more about plotting in Python.

I'm using the seaborn package with matplotlib. Seaborn can set up the 1-D distribution plots in the margins, which is kind of neat. It supports fitting a curve rather than just a histogram, but only on unweighted data. Oh, the limitations. It also is a bit unfriendly to log-scale data: I actually do a log transform of the data first, plot the transformed data, and then relabel the axes, which is something of a hack, but it's all good in the end.

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Re: P/E vs. Market Cap visualizations (and more?) for new Vanguard factor ETFs and others

Post by Horton » Sun Mar 11, 2018 3:57 pm

lack_ey wrote:
Sun Mar 11, 2018 3:46 pm
The whole thing is in Python, including reading the data, scraping Morningstar (and Yahoo), cleaning, graphing, etc. I've used R before for some of this plotting and data analysis, but I wanted to learn more about plotting in Python.

I'm using the seaborn package with matplotlib. Seaborn can set up the 1-D distribution plots in the margins, which is kind of neat. It supports fitting a curve rather than just a histogram, but only on unweighted data. Oh, the limitations. It also is a bit unfriendly to log-scale data: I actually do a log transform of the data first, plot the transformed data, and then relabel the axes, which is something of a hack, but it's all good in the end.
Very cool.

I've been trying to learn R in my spare time, but haven't spent any time with Python yet. From what I know about R though, I can tell that there is a lot of effort and time behind the charts you posted. Well done! :sharebeer

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Re: P/E vs. Market Cap visualizations (and more?) for new Vanguard factor ETFs and others

Post by jhfenton » Sun Mar 11, 2018 7:40 pm

lack_ey wrote:
Sun Mar 11, 2018 3:04 pm
Full album link on imgur:
https://imgur.com/a/hRoU6
Thanks, lack_ey. :beer Those are nifty and interesting. I like the spread and diversity in the new Vanguard funds.

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Re: P/E vs. Market Cap visualizations (and more?) for new Vanguard factor ETFs and others

Post by lack_ey » Sun Mar 11, 2018 10:00 pm

I updated the first post with some new graphs, including Momentum vs. Market Cap graphs. That's right: the style box Morningstar doesn't show.

Image

I use the traditional academic 12-2 momentum definition (trailing 12 month return, except ignoring the last month). I plot this on a log scale where 1 means a return of 0%, 2 means a return of +100%, 4 means a return of +300%, 0.5 means a return of -50%, and so on.

edit: it should actually be called 2-12 I think, not 12-2.

In general one can scale return by the stock's beta, volatility, or something similar, and potentially use multiple lookback periods and not just the 12-2 figure. The MSCI index iShares uses takes 12-month and 6-month return (excluding the most recent month) and then divides by volatility over the past 3 years, which is a reasonable and potentially effective enhancement.

In any case, we see that Vanguard's fund does reach into smaller caps, which I think a lot of people might appreciate.

New imgur album:
https://imgur.com/a/azhbl


...looks like a plot for a total market fund may have to come later. It's still downloading, though it's at least on micro caps at this point, around $200M. In the meantime, let me take a look at importing Guggenheim's portfolio data format so we can look at RZV.
Last edited by lack_ey on Mon Mar 12, 2018 8:01 pm, edited 1 time in total.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Sun Mar 11, 2018 11:28 pm

Update: I added these three.

Guggenheim S&P Smallcap 600 Pure Value ETF (RZV)
iShares Core S&P Small Cap ETF (IJR)
iShares S&P Small-Cap 600 Value ETF (IJS)

We see some of the weaknesses of only using one value measure. These two stocks are in RZV, for example.

Code: Select all

Ticker  Name                   Forward PE  Trailing PE  P/Sales   P/Book
FOSL    Fossil Group             149.25         NaN       0.24     1.15  
ANF     Abercrombie & Fitch      192.31         NaN       0.46     1.31
NaN because trailing PE is probably negative and they won't show the number directly there.

Better would be to mimic the index providers and compute a composite value measure.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by Theoretical » Mon Mar 12, 2018 1:45 am

I'm loving this data. One question I had was how the value fund shakes out for momentum and momentum fund for value.

Also, price to sales (cash flow too) is really looking like the uber-value play these days. 4 dollars of sales per dollar of price is absolutely crazy.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by jhfenton » Mon Mar 12, 2018 7:32 am

lack_ey wrote:
Sun Mar 11, 2018 3:04 pm
EDIT: Now with momentum factor data!
That is spectacular. And it really makes the Vanguard factor funds look appealing.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by matjen » Mon Mar 12, 2018 7:39 am

Great work lack_ey! Thank you for sharing.
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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by nisiprius » Mon Mar 12, 2018 8:07 am

Bravo!
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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Mon Mar 12, 2018 11:40 am

DallasGuy wrote:
Sun Mar 11, 2018 3:10 pm
How about Total Stock Market as a comparison?
Okay, I'm checking back on what ran last night, and the total stock is done, for reference. Updating again with that.

Image
Image

New album link:
https://imgur.com/a/g0XAw


I realized that it's actually 2-12 momentum, not 12-2. Um, you knew what I meant.

Looking at it now, I'm not sure that the weights (dot sizes) are actually correct, in the sense that I may be running up into the minimum size allowed. Maybe? Well, at least the histograms should be okay and properly convey the 1-D densities. Just be warned that the small dots may look larger than they actually are.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by SimpleGift » Mon Mar 12, 2018 12:18 pm

Wonderful visual presentations of the fund data, lack_ey. Appreciate all the hard work involved.

Morningstar now has something to learn from your graphical representation of their own fund data!
Cordially, Todd

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by Justin W » Mon Mar 12, 2018 2:14 pm

This is awesome. Thanks so much, lack_ey. I'd be interested to see Schwab's Fundamental US Small (FNDA) as a comparison to the other small and small value funds you have.
Last edited by Justin W on Tue Mar 13, 2018 5:00 pm, edited 1 time in total.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by Angst » Mon Mar 12, 2018 2:39 pm

lack_ey wrote:
Mon Mar 12, 2018 11:40 am

New album link:
https://imgur.com/a/g0XAw

I realized that it's actually 2-12 momentum, not 12-2. Um, you knew what I meant.

Looking at it now, I'm not sure that the weights (dot sizes) are actually correct, in the sense that I may be running up into the minimum size allowed. Maybe? Well, at least the histograms should be okay and properly convey the 1-D densities. Just be warned that the small dots may look larger than they actually are.
Very nice lack_ey, thank you for doing this!
Btw, is the "New album link" here cumulative, i.e. does it include all the images posted in your previous 2 or 3 links?
At some point after you've digested all of this, perhaps you'll post something of a "greatest hits", highlighting specific images/comparisons you found particularly useful or revealing. So far, from my understanding, VFVA and VFMF in particular continue to compare favorably. Thanks again. :beer

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Mon Mar 12, 2018 3:02 pm

Angst wrote:
Mon Mar 12, 2018 2:39 pm
Very nice lack_ey, thank you for doing this!
Btw, is the "New album link" here cumulative, i.e. does it include all the images posted in your previous 2 or 3 links?
At some point after you've digested all of this, perhaps you'll post something of a "greatest hits", highlighting specific images/comparisons you found particularly useful or revealing. So far, from my understanding, VFVA and VFMF in particular continue to compare favorably. Thanks again. :beer
Cumulative. I actually deleted the previous albums earlier when I was trying and failing to upload some of the images. Something about the website or my internet connection did not like batch uploading of all images at once, and I thought it might have to do with reuploading the same figures, so I just wiped it clean. Long story short: any link that still works is to the full list.


I'll take another look tonight or tomorrow to do more of a guided tour of highlights and commentary.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Mon Mar 12, 2018 10:12 pm

With respect to all factor funds, the definitions used may not line up with what I am plotting here. With Vanguard's new factor funds, according to jhfenton's friend's information, they use three different metrics for each factor. For example, for value, that includes book to price, forward P/E, and cash flow to price. CRSP considers five value measures, as detailed in their methodology, and they are the index provider for Vanguard's main US equity funds. As such, a lower score on these graphs may not necessarily mean a weak tilt: just one that doesn't align as much with the metric shown. That said, there are still some import trends that can be captured here, and overall fund-wide impressions should be reasonably accurate. After all, most metrics for each factor should be significantly correlated.


In any case, I have some new graphs tonight. I think I like hostimg a bit more for this so I'll just use that instead of imgur. Thumbnails below, each linking to the full-sized image. For every pair of images, the P/E graph is on the left and momentum on the right. I'll do some commentary and/or a summary some other time. For now I recommend you compare the multi-factor funds and check out the last two graphs, which are for Vanguard's market neutral fund, if only because the colors look rad.


Total market and S&P 500 index funds for reference:
Image Image Image Image

Vanguard single-factor funds:
Image Image Image Image
Image Image Image Image
Image Image

iShares single-factor funds:
Image Image Image Image
Image Image

Multifactor funds from Vanguard, iShares, Goldman Sachs, John Hancock (run by DFA):
Image Image Image Image
Image Image Image Image

Market cap-weighted size and value funds:
Image Image Image Image
Image Image Image Image
Image Image Image Image

Powershares and Schwab RAFI (fundamental index) funds:
Image Image Image Image
Image Image Image Image
Image Image

Some other Vanguard Quantitative Equity Group funds [WARNING: holdings data is more stale (out of date) for traditional mutual funds]:
Image Image Image Image
Image Image Image Image

Fund list:
Vanguard Value ETF (VTV)
Vanguard Mid-Cap Value ETF (VOE)
Vanguard Small-Cap Value ETF (VBR)
Vanguard U.S. Value Factor ETF (VFVA)
Vanguard U.S. Liquidity Factor ETF (VFLQ)
Vanguard U.S. Minimum Volatility ETF (VFMV)
Vanguard U.S. Momentum Factor ETF (VFMO)
Vanguard U.S. Quality Factor ETF (VFQY)
Vanguard U.S. Multifactor ETF (VFMF)
Vanguard Total Stock Market ETF (VTI)
Vanguard U.S. Value Fund (VUVLX)
Vanguard Strategic Equity Fund (VSEQX)
Vanguard Strategic Small-Cap Equity Fund (VSTCX)
Vanguard Market Neutral Fund (VMNFX)
iShares Core S&P 500 ETF (IVV)
iShares Core S&P Small Cap ETF (IJR)
iShares S&P Small-Cap 600 Value ETF (IJS)
iShares Edge MSCI USA Momentum Factor ETF (MTUM)
iShares Edge MSCI USA Value Factor ETF (VLUE)
iShares Edge MSCI Multifactor USA ETF (LRGF)
iShares Edge MSCI Min Vol USA ETF (USMV)
Schwab Fundamental US Broad Market Index ETF (FNDB)
Schwab Fundamental US Large Co. Index ETF (FNDX)
Schwab Fundamental US Small Co. Index ETF (FNDA)
PowerShares FTSE RAFI U.S. 1000 Portfolio (PRF)
PowerShares FTSE RAFI US 1500 Small-Mid Portfolio (PRFZ)
John Hancock Multifactor Large Cap ETF (JHML)
Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC)
Guggenheim S&P Smallcap 600 Pure Value ETF (RZV)

Full album link:
http://hostimg.co/a/duJV


edit: added some RAFI (fundamental index) funds by request below
Last edited by lack_ey on Fri Mar 16, 2018 3:46 pm, edited 3 times in total.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by Theoretical » Mon Mar 12, 2018 10:34 pm

This is so incredibly impressive. What I'm seeing here is that the Quant Equity Group is producing some really impressive portfolios for the factor crowd, and that are sharper and smaller-cap tilts than their peers with iShares and especially the John Hancock ETFs. They have embraced the tracking error, while not putting a negative momentum spin on the value fund.

Seeing this I'm going to laugh if they do a Global Small Cap Multifactor ETF.

VMNFX's is downright fascinating, especially because the factor tilts have been getting deeper and deeper as the months go by (look at regressions and you see a major increase in the tilts over the last few years.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Mon Mar 12, 2018 10:53 pm

Theoretical wrote:
Mon Mar 12, 2018 10:34 pm
They [Vanguard] have embraced the tracking error, while not putting a negative momentum spin on the value fund.
Be careful here. Trailing 2-12 return was positive for the market, so every fund should naturally be biased to the right of 1 on my momentum plot scale. That is, with 1 being 0% return.

Take a look at the Value factor ETF's momentum plot relative to the total market's momentum plot. You can see this clearly with the 1-D distributions (histogram) at the top: the Value factor ETF has its mass shifted leftwards (to lower momentum) relative to the total market index fund. And lower momentum than the total market index means negative momentum loading.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by Theoretical » Mon Mar 12, 2018 10:56 pm

Ooh I see. That could make the big difference between VF etf and DFA right there.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Mon Mar 12, 2018 11:39 pm

Theoretical wrote:
Mon Mar 12, 2018 10:56 pm
Ooh I see. That could make the big difference between VF etf and DFA right there.
DFA trades some around negative momentum, but that doesn't prevent their value funds from getting negative momentum exposure. If they're holding a value stock that's picking up negative momentum, it's not like they'll sell it, I don't think.

They're doing more than ignoring it completely, I suppose, which maybe is how Vanguard's single-factor funds handle momentum.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by Theoretical » Tue Mar 13, 2018 3:54 pm

One set of funds I'd be really curious about are the fundamental index funds, especially with the recent PowerShares rebalance.

PRF, PRFZ, FNDX, FNDB, and FNDA

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Tue Mar 13, 2018 5:13 pm

Theoretical wrote:
Tue Mar 13, 2018 3:54 pm
One set of funds I'd be really curious about are the fundamental index funds, especially with the recent PowerShares rebalance.

PRF, PRFZ, FNDX, FNDB, and FNDA
Hm, two new fund companies here. I didn't have any Powershares or Schwab yet. A few dumb programming errors later, like copy+paste+forget-to-change...

Image Image Image Image
Image Image Image Image
Image Image

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Wed Mar 14, 2018 7:22 pm

Okay, some comments as promised...

For fund comparisons I recommend opening up images for different funds in adjacent browser tabs and then using keyboard shortcuts to quickly flip between the two (Ctrl+PgUp and Ctrl+PgDn)

As a warning in interpreting the momentum graphs: these are scaled around 1 being a 0% return, but in the past year, the market as a whole was up. Check the total market fund as a reference for the average return. Other funds shifted left of the total market have negative (cross-sectional) momentum; those shifted to the right have positive momentum. Also, keep in mind that the value loading on momentum strategies and the momentum loading on value strategies varies over time. Over periods in which value stocks underperform, as in the window we examine here, they should be more at odds with each other.

Vanguard's new factor funds are very clearly not market cap weighted and reach deep into mid caps and small caps. All have significant weightings, not far from the 50% range even, below $10 billion market cap. For those who believe factor weightings can achieve superior performance and more so in small caps (larger effect size in smaller stocks), this should look very attractive. The iShares factor funds focus almost exclusively on $10 billion and higher stocks, as do some competitors.

The Vanguard momentum and value factor funds, as well as the multifactor fund, seem to be achieving higher factor loads than the competitors as well. The multifactor fund looks to have more of a value tilt than the fundamental indexing products, all while having positive rather than negative momentum.

Goldman Sachs has the cheapest multifactor fund at 9 bp expense ratio, but its tilts are modest. Look at the weightings in all the largest stocks it has relative to in the S&P 500 or total market. At least it will have low tracking error.

I don't have volatility data, but unsurprisingly, min vol funds tend to own stocks that didn't stray too far from the market return.

We can clearly see what fundamental indexing accomplishes: a value tilt by reweighting securities. Compare FNDB and VTI. You see much the same securities but the leftward dots are weighted more with the fundamental indexing, with perhaps the biggest effects not actually visible on the plot (other than in the histogram bin) because I chose the axes such that very high P/E values above 100 are off to the right side. This comes with a slight negative momentum load.

The existing Vanguard Quantitative Equity Group funds such as Vanguard Strategic Equity (coincidentally, ER = 0.18%) and Vanguard Market Neutral have evolved over the years and recently look like dedicated factor tilters. Strategic Equity looks pretty similar to to the multifactor ETF, to be honest, except excluding stocks above $30 billion, perhaps even better again from the perspective of those who want tilts in smaller stocks. Strategic Small-Cap Equity is similar but even smaller.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by Justin W » Thu Mar 15, 2018 5:28 pm

The existing Vanguard Quantitative Equity Group funds such as Vanguard Strategic Equity (coincidentally, ER = 0.18%) and Vanguard Market Neutral have evolved over the years and recently look like dedicated factor tilters. Strategic Equity looks pretty similar to to the multifactor ETF, to be honest, except excluding stocks above $30 billion, perhaps even better again from the perspective of those who want tilts in smaller stocks. Strategic Small-Cap Equity is similar but even smaller.
It may be the case these other three funds managed by Vanguard Quantitative Equity Group have a momentum and value tilt—but based on the individual stocks in the plot, there doesn't appear to be significant overlap in mid- and small-cap holdings between them and the new Vanguard multifactor fund. That (along with the descriptions of them on Vanguard's website) would lead me to believe that these three funds don't use the same methodology in choosing stocks as the new multifactor fund.

Personally, that makes me more comfortable with the multifactor fund than these other three, which are more of a black box and may continue to change in the future.

In any case, thanks again for these diagrams.

Justin

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Thu Mar 15, 2018 5:40 pm

Justin W wrote:
Thu Mar 15, 2018 5:28 pm
The existing Vanguard Quantitative Equity Group funds such as Vanguard Strategic Equity (coincidentally, ER = 0.18%) and Vanguard Market Neutral have evolved over the years and recently look like dedicated factor tilters. Strategic Equity looks pretty similar to to the multifactor ETF, to be honest, except excluding stocks above $30 billion, perhaps even better again from the perspective of those who want tilts in smaller stocks. Strategic Small-Cap Equity is similar but even smaller.
It may be the case these other three funds managed by Vanguard Quantitative Equity Group have a momentum and value tilt—but based on the individual stocks in the plot, there doesn't appear to be significant overlap in mid- and small-cap holdings between them and the new Vanguard multifactor fund. That (along with the descriptions of them on Vanguard's website) would lead me to believe that these three funds don't use the same methodology in choosing stocks as the new multifactor fund.

Personally, that makes me more comfortable with the multifactor fund than these other three, which are more of a black box and may continue to change in the future.

In any case, thanks again for these diagrams.

Justin
At least as of when I looked at those other funds previously, they screen on
  • High quality - healthy balance sheets, steady cash flow
  • Effective use of capital - sound investment policies favoring internal rather than external funding
  • Consistent earnings growth
  • Strong market sentiment - determined by analyst ratings, price momentum, etc.
  • Valuation - lower preferred
So it overlaps with the multifactor fund screens but as you observed leads to distinct results with differing holdings.

If you run a returns-based analysis for these funds (not really possible of course with the new factor funds, which aren't old enough, hence the motivation to do a holdings-based analysis), you do find positive factor loadings on value, momentum, and quality. Here's a regression of daily returns on factor data:
Image
https://www.portfoliovisualizer.com/fac ... sion=false

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by Tyler9000 » Thu Mar 15, 2018 5:44 pm

I've got nothing much to add to your analysis, but the visuals are simply terrific. Great work!

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by MJW » Thu Mar 15, 2018 9:44 pm

lack_ey wrote:
Thu Mar 15, 2018 5:40 pm
If you run a returns-based analysis for these funds (not really possible of course with the new factor funds, which aren't old enough, hence the motivation to do a holdings-based analysis), you do find positive factor loadings on value, momentum, and quality. Here's a regression of daily returns on factor data:
Image
https://www.portfoliovisualizer.com/fac ... sion=false
For whatever it's worth, Strategic Equity's returns are virtually identical to the mid-cap index over the past 20 years. Sharpe and Sortino ratios are essentially the same, as well.

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Re: Momentum and P/E vs. Market Cap visualizations for new Vanguard factor ETFs and others

Post by lack_ey » Fri Mar 16, 2018 3:48 pm

MJW wrote:
Thu Mar 15, 2018 9:44 pm
For whatever it's worth, Strategic Equity's returns are virtually identical to the mid-cap index over the past 20 years. Sharpe and Sortino ratios are essentially the same, as well.
Yeah, I'm a little wary of looking at relative returns data because those are not particularly indicative and consistent, more so especially for these funds, which have evolved over time.

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