Best Multifactor Funds to use for Tilting/Replacement?

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AndroAsc
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Best Multifactor Funds to use for Tilting/Replacement?

Post by AndroAsc » Thu Oct 11, 2018 2:21 pm

I'm trying to compile a list of reasonable/good multifactor funds to use for tilting or replacement of the standard total market index funds. In practice, it will not be a full replacement, since 401ks don't really have these fund options.

Criteria for fund selection will be:
- Low ER (no more than 2-3X more than their index fund counterparts)
- Reasonable AUM, and will be around for many decades
- No stock manager active management. Passive management through algos that are updated/change infrequently aka like DFA funds are ok. Algos should also invest in factors simultaneously and not switch factors from year to year.
- Available to most investors. So no DFA or AQR here since you need $1mil assets to qualify
- Should be fairly tax efficient, since these will be held in taxable accounts

I'm looking at 3 categories: US, International (Developed) and Emerging. Preferably looking for simplicity as well, so one factor-fund to rule them all for each category.

US:
a) Vanguard U.S. Multifactor ETF (VFMF)
b) iShares Edge MSCI Multifactor USA ETF (LRGF) + iShares Edge MSCI Multifactor USA Small-Cap ETF (SMLF)
c) John Hancock Multifactor Large Cap ETF managed by DFA (HML)

International (Developed):
a) iShares Edge MSCI Multifactor USA ETF (INTF) + iShares Edge MSCI Multifactor Intl Small-Cap ETF (ISCF)

Emerging:
a) iShares Edge MSCI Multifactor Emerging Markets ETF (EMGF)

I know there's the Goldman-Sachs activeBeta ETFs, but those are more like a fund of funds of separate factor funds, and not doing an aggregate factor fund screen criteria.

For US, I'm probably going with Vanguard Multifactor fund, and the iShares option for International and Emerging, but simply because I'm not sure if there are better options. What options are you aware of, and what would you use?

HippoSir
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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by HippoSir » Thu Oct 11, 2018 3:35 pm

After similar requirements and a lot of (probably too much) research, I arrived at largely the same list of funds and went with: VFMF+INTF+ISCF+EMGF. I'm using INTF+ISCF+EMGF as a replacement for any other fund, and VFMF as a tilt (combined with VTSAX).

Note the ishares funds seem relatively light on factors compared to vanguard funds so may be more suitable as a replacement rather than tilt. Their performance has generally been only slightly better than the indexes they choose from as far as I can tell.

I'm hoping vanguard moves into the international multifactor space, their ER is attractive and they seem to have deep factor exposure. I personally don't like the "sleeve" approach that the Goldman funds (and others use) so I've avoided them entirely.

Wisdomtree has some interesting international multifactor funds:

https://www.wisdomtree.com/etfs/equity/emmf
https://www.wisdomtree.com/etfs/equity/dwmf

But they're very new and have minimal AUM. Considering I've already had trouble trading ISCF, I have no desire to go any smaller.

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AndroAsc
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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by AndroAsc » Thu Oct 11, 2018 10:25 pm

HippoSir wrote:
Thu Oct 11, 2018 3:35 pm
After similar requirements and a lot of (probably too much) research, I arrived at largely the same list of funds and went with: VFMF+INTF+ISCF+EMGF. I'm using INTF+ISCF+EMGF as a replacement for any other fund, and VFMF as a tilt (combined with VTSAX).

Note the ishares funds seem relatively light on factors compared to vanguard funds so may be more suitable as a replacement rather than tilt. Their performance has generally been only slightly better than the indexes they choose from as far as I can tell.

I'm hoping vanguard moves into the international multifactor space, their ER is attractive and they seem to have deep factor exposure. I personally don't like the "sleeve" approach that the Goldman funds (and others use) so I've avoided them entirely.

Wisdomtree has some interesting international multifactor funds:

https://www.wisdomtree.com/etfs/equity/emmf
https://www.wisdomtree.com/etfs/equity/dwmf

But they're very new and have minimal AUM. Considering I've already had trouble trading ISCF, I have no desire to go any smaller.
How do you figure out whether the funds are light or heavy on factors? Is there any tools that can be used?

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by jhfenton » Fri Oct 12, 2018 9:52 am

HippoSir wrote:
Thu Oct 11, 2018 3:35 pm
Note the ishares funds seem relatively light on factors compared to vanguard funds so may be more suitable as a replacement rather than tilt. Their performance has generally been only slightly better than the indexes they choose from as far as I can tell.

I'm hoping vanguard moves into the international multifactor space, their ER is attractive and they seem to have deep factor exposure. I personally don't like the "sleeve" approach that the Goldman funds (and others use) so I've avoided them entirely.
I agree with all of this.

I'm using VFMF/VMFMX and VFVA (the single-factor value fund) for all of our non-401(k) U.S. and EMGF for some of our emerging markets. I also still have quite a bit of vanilla VEMAX/Vanguard FTSE Emerging Markets Index Admiral.

For the rest of ex-US, we own VSS (Vanguard FTSE All-World ex-US Small Cap). It's our largest holding. I have my eye on ISCF, but I don't find it as compelling as EMGF.

We also have DFSTX/DFA US Small Cap I and VMVAX/Vanguard Mid Cap Value Index Admiral in my 401(k), and a little bit of VTIAX/Vanguard Total International in my wife's new 401(k). Why? Because they are the only reasonable choices.

I also hope Vanguard moves into the international (multi)factor space with their Quantitative Equity Group. I really like the design of their new factor funds.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by Saganesque » Sat Dec 01, 2018 7:42 pm

AndroAsc wrote:
Thu Oct 11, 2018 10:25 pm
HippoSir wrote:
Thu Oct 11, 2018 3:35 pm
After similar requirements and a lot of (probably too much) research, I arrived at largely the same list of funds and went with: VFMF+INTF+ISCF+EMGF. I'm using INTF+ISCF+EMGF as a replacement for any other fund, and VFMF as a tilt (combined with VTSAX).

Note the ishares funds seem relatively light on factors compared to vanguard funds so may be more suitable as a replacement rather than tilt. Their performance has generally been only slightly better than the indexes they choose from as far as I can tell.

I'm hoping vanguard moves into the international multifactor space, their ER is attractive and they seem to have deep factor exposure. I personally don't like the "sleeve" approach that the Goldman funds (and others use) so I've avoided them entirely.

Wisdomtree has some interesting international multifactor funds:

https://www.wisdomtree.com/etfs/equity/emmf
https://www.wisdomtree.com/etfs/equity/dwmf

But they're very new and have minimal AUM. Considering I've already had trouble trading ISCF, I have no desire to go any smaller.
How do you figure out whether the funds are light or heavy on factors? Is there any tools that can be used?
Did you ever get a good answer to how heavy on the factors these funds are? I'm looking too.

I also went with BlackRock for a factor-based portfolio. I'm at about 60 bonds/20 SMLF/15 ISCF/5 EMGF. But I'm a bit uneasy about not finding any sufficient information about how much factor exposure you get. Also, I'm unsure what benefit LRGF provides if you you already have SMLF. That is, I genuinely don't know. Why did you choose to include it? I'll probably move to 50/50 with some good alternative funds in reinsurance, risk-variance, p2p loans, etc, if I can find decent ones outside those offered by Stoneridge. I don't think I have access to them through Fidelity.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by gtwhitegold » Sun Dec 02, 2018 11:51 am

I'm personally using QEELX and SFENX/FNDE for EM large caps; FEMS and DGS for EM small caps. My wife is using DFSTX in her 401k for US small caps. We currently don't have any quantitative funds in developed international since we are prioritizing tax advantaged space, so I'm just using the TSP I Fund for that, but will likely change it a bit once the I Fund changes to the ACWI ex US IMI index.

The Hartford multi-factor ETFs, iShares multi-factor ETFs, USAA Value Momentum Blend ETFs, and Franklin Templeton multi-factor ETFs all look compelling.

Wisdomtree's and First Trust's multi-factor international funds can use hedging, so I'm not compelled to use them. PIMCO's use a blend, so the factor loads will be smaller.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by stan1 » Sun Dec 02, 2018 12:10 pm

gtwhitegold wrote:
Sun Dec 02, 2018 11:51 am

The Hartford multi-factor ETFs, iShares multi-factor ETFs, USAA Value Momentum Blend ETFs, and Franklin Templeton multi-factor ETFs all look compelling.
Don't forget the John Hancock multi-factor ETFs. They are managed by some yahoos going by the name Dimensional Fund Advisors. Are they worth 30-50 basis points over Vanguard and iShares? Don't know yet.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by gtwhitegold » Sun Dec 02, 2018 12:36 pm

True, my only complaint is that they don't target momentum. If I remember correctly, they have a screen for negative momentum like the DFA mutual funds, but I could be mistaken.
stan1 wrote:
Sun Dec 02, 2018 12:10 pm
gtwhitegold wrote:
Sun Dec 02, 2018 11:51 am

The Hartford multi-factor ETFs, iShares multi-factor ETFs, USAA Value Momentum Blend ETFs, and Franklin Templeton multi-factor ETFs all look compelling.
Don't forget the John Hancock multi-factor ETFs. They are managed by some yahoos going by the name Dimensional Fund Advisors. Are they worth 30-50 basis points over Vanguard and iShares? Don't know yet.

Theoretical
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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by Theoretical » Sun Dec 02, 2018 1:49 pm

stan1 wrote:
Sun Dec 02, 2018 12:10 pm
gtwhitegold wrote:
Sun Dec 02, 2018 11:51 am

The Hartford multi-factor ETFs, iShares multi-factor ETFs, USAA Value Momentum Blend ETFs, and Franklin Templeton multi-factor ETFs all look compelling.
Don't forget the John Hancock multi-factor ETFs. They are managed by some yahoos going by the name Dimensional Fund Advisors. Are they worth 30-50 basis points over Vanguard and iShares? Don't know yet.
Look at the factor results. They're expensive and terrible for the factor loads and the negative alphas:https://bit.ly/2AIoINH.

The USAA and iShares ones are interesting, Hartford has some unique exposure (especially the EM fund - which has a lot more country diversification than normal).

The Vanguard funds look to be settling down into an extremely factor pure exposure. (It's still early data, but the daily regressions also look pretty sound: https://bit.ly/2RuvI8e)

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by gtwhitegold » Sun Dec 02, 2018 2:09 pm

I agree. Switching to the AQR factors make the large cap and mid cap funds look worse, but the small cap fund looks better.
Theoretical wrote:
Sun Dec 02, 2018 1:49 pm
stan1 wrote:
Sun Dec 02, 2018 12:10 pm
gtwhitegold wrote:
Sun Dec 02, 2018 11:51 am

The Hartford multi-factor ETFs, iShares multi-factor ETFs, USAA Value Momentum Blend ETFs, and Franklin Templeton multi-factor ETFs all look compelling.
Don't forget the John Hancock multi-factor ETFs. They are managed by some yahoos going by the name Dimensional Fund Advisors. Are they worth 30-50 basis points over Vanguard and iShares? Don't know yet.
Look at the factor results. They're expensive and terrible for the factor loads and the negative alphas:https://bit.ly/2AIoINH.

The USAA and iShares ones are interesting, Hartford has some unique exposure (especially the EM fund - which has a lot more country diversification than normal).

The Vanguard funds look to be settling down into an extremely factor pure exposure. (It's still early data, but the daily regressions also look pretty sound: https://bit.ly/2RuvI8e)

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by comeinvest » Thu Feb 28, 2019 12:03 am

gtwhitegold wrote:
Sun Dec 02, 2018 11:51 am
I'm personally using QEELX and SFENX/FNDE for EM large caps; FEMS and DGS for EM small caps.
FEMS still has a turnover rate of > 100%. Surprising how it trailed EMGF only slightly over the past 5 years, but I personally still find it nonsensical to invest in this. Please someone educate me if there is verifiable or reasonably expected value with the turnover rate.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by comeinvest » Thu Feb 28, 2019 12:09 am

EMGF and the like look like relatively good choices to me, but where did the expected outperformance vs. VWO go? Not to the investors, at least not during the last few years. Unfortunately, a few years are not enough to evaluate a factor strategy. I'm not happy about the turnover rate of almost all EM factor funds especially the small and mid cap ones. I'd like to see VBR's turnover for international/EM. Can it be so difficult?

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by HippoSir » Thu Feb 28, 2019 7:23 pm

comeinvest wrote:
Thu Feb 28, 2019 12:09 am
EMGF and the like look like relatively good choices to me, but where did the expected outperformance vs. VWO go? Not to the investors, at least not during the last few years. Unfortunately, a few years are not enough to evaluate a factor strategy. I'm not happy about the turnover rate of almost all EM factor funds especially the small and mid cap ones. I'd like to see VBR's turnover for international/EM. Can it be so difficult?
VWO and EMGF aren't directly comparable because they are based on different indexes that disagree on which countries are "emerging" (namely, FTSE/MSCI and the exclusion/inclusion of South Korea respectively).

A better comparison would be EMGF against IEMG:

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

Interestingly of the 3, plain jane IEMG did the best. EMGF backtests very well, and I hold my emerging markets in it, but it's hard to say if this is one of the periodic cases of factor underperformance or the new normal.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by comeinvest » Thu Feb 28, 2019 8:58 pm

HippoSir wrote:
Thu Feb 28, 2019 7:23 pm
Interestingly of the 3, plain jane IEMG did the best. EMGF backtests very well, and I hold my emerging markets in it, but it's hard to say if this is one of the periodic cases of factor underperformance or the new normal.
Thanks for the graphs. Noticeable is the higher beta of the factor fund EMGF, both up and down. That would put the risk-adjusted outperformance in question, even if it outperforms over time. I forgot what the "theory" forecasts for risk-adjusted returns of multi-factor strategies. As the readers of my comments know, my preferred risk measure is not volatility, but the maximum expected drawdown vs. the market in down markets.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by gtwhitegold » Thu Feb 28, 2019 9:54 pm

comeinvest wrote:
Thu Feb 28, 2019 8:58 pm
HippoSir wrote:
Thu Feb 28, 2019 7:23 pm
Interestingly of the 3, plain jane IEMG did the best. EMGF backtests very well, and I hold my emerging markets in it, but it's hard to say if this is one of the periodic cases of factor underperformance or the new normal.
Thanks for the graphs. Noticeable is the higher beta of the factor fund EMGF, both up and down. That would put the risk-adjusted outperformance in question, even if it outperforms over time. I forgot what the "theory" forecasts for risk-adjusted returns of multi-factor strategies. As the readers of my comments know, my preferred risk measure is not volatility, but the maximum expected drawdown vs. the market in down markets.
Sure, but there are other things to consider including correlations between your Emerging Markets selection, Developed International, and United States fund selections. Another is maximum drawdown. Also, Sharpe ratios or other risk metrics.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by jmk » Wed Mar 06, 2019 9:02 pm

One thing I can't figure out: why the Vanguard factor funds are so correlated with each other and with VTI. If they represent different risks why do they move in tandem? What is the point of them then?

Image

This is from portfolio visualizer, monthly correlation matrix.

The "bottom right" quadrant represents the Vanguard factor funds correlation with each other; the top "bottom left" quadrant shows the vanguard factors funds correlation with TSM, small cap value index and Emerging market index.

Emerging market gives you the least correlation with everything else. And if you were to come up with a "mix", it looks like TSM, Emerging, and any of the factor funds (with Momentum and Quality being first choices) are the least collectively correlated.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by sunnywindy » Thu Mar 07, 2019 8:32 am

AndroAsc wrote:
Thu Oct 11, 2018 10:25 pm
HippoSir wrote:
Thu Oct 11, 2018 3:35 pm
After similar requirements and a lot of (probably too much) research, I arrived at largely the same list of funds and went with: VFMF+INTF+ISCF+EMGF. I'm using INTF+ISCF+EMGF as a replacement for any other fund, and VFMF as a tilt (combined with VTSAX).

Note the ishares funds seem relatively light on factors compared to vanguard funds so may be more suitable as a replacement rather than tilt. Their performance has generally been only slightly better than the indexes they choose from as far as I can tell.

I'm hoping vanguard moves into the international multifactor space, their ER is attractive and they seem to have deep factor exposure. I personally don't like the "sleeve" approach that the Goldman funds (and others use) so I've avoided them entirely.

Wisdomtree has some interesting international multifactor funds:

https://www.wisdomtree.com/etfs/equity/emmf
https://www.wisdomtree.com/etfs/equity/dwmf

But they're very new and have minimal AUM. Considering I've already had trouble trading ISCF, I have no desire to go any smaller.
How do you figure out whether the funds are light or heavy on factors? Is there any tools that can be used?
I am guessing you have found the Portfolio Visualizer Factor Regression tool from other posters.

For a very clear if imprecise US ONLY look at factor regression data, iShares now has this useful factor tool. https://www.blackrock.com/tools/factor-box. It uses a different model to calculate its factor loadings, so you can add this info as another view of a funds factor loadings along with the French Fama and AQR numbers in Portfolio Visualiser.

One issue you have to watch is iShares seems to only adjust the "As of Date" every six months, so while a newish ETF might show up on the tool, in actuality, it may only have a very small dataset to crunch and thus, give potentially inaccurate data.
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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by sunnywindy » Thu Mar 07, 2019 9:42 am

jmk wrote:
Wed Mar 06, 2019 9:02 pm
One thing I can't figure out: why the Vanguard factor funds are so correlated with each other and with VTI. If they represent different risks why do they move in tandem? What is the point of them then?

Image

This is from portfolio visualizer, monthly correlation matrix.

The "bottom right" quadrant represents the Vanguard factor funds correlation with each other; the top "bottom left" quadrant shows the vanguard factors funds correlation with TSM, small-cap value index and Emerging market index.

Emerging market gives you the least correlation with everything else. And if you were to come up with a "mix", it looks like TSM, Emerging, and any of the factor funds (with Momentum and Quality being first choices) are the least collectively correlated.
What time period are you using? I would suggest that you try the shortest time period available (Daily, 20 Trading Day) and then you will see higher non-correlations.

That said, your chart just speaks to the fact that all US equities are generally correlated together no matter what the index (or quant fund). You should look at the Alpha Architect Value and Momentum ETFs as they may present less correlation because they only have around 50 holdings (if that is what you are after). https://etfsite.alphaarchitect.com/
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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by jmk » Thu Mar 07, 2019 10:21 am

sunnywindy wrote:
Thu Mar 07, 2019 9:42 am
What time period are you using? I would suggest that you try the shortest time period available (Daily, 20 Trading Day) and then you will see higher non-correlations.
The vanguard funds have only been around a year, so only that, and monthly returns.

Yes, things are less correlated if I go to 20 trading days-- but that's not realistic for how frequently I rebalance and would create the illusion of less correlation than is there. In fact, annual cross correlation (once Vanguard factor funds get more data) is what really matters to me.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by Winthorpe » Fri Jun 07, 2019 2:46 pm

I just wanted to hopefully give this thread a second life for more input. Thank you to those of you who have already provided excellent input!

I have the same general questions as the original OP. Just to reiterate, no AQR and no DFA.

Anybody out there considering the Alpha Architect ETFs?

Perhaps Larry or vineviz could weigh in?

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by vineviz » Fri Jun 07, 2019 4:36 pm

Winthorpe wrote:
Fri Jun 07, 2019 2:46 pm
I just wanted to hopefully give this thread a second life for more input. Thank you to those of you who have already provided excellent input!

I have the same general questions as the original OP. Just to reiterate, no AQR and no DFA.

Anybody out there considering the Alpha Architect ETFs?

Perhaps Larry or vineviz could weigh in?
I think VFMF is the obvious choice for US multifactor fund.

For international, if someone was set on using multifactor funds then EMGF and ISCF would be the best selections I think. With those two plus VFMF, INTF would be almost entirely redundant.

To be honest, though, given the expense of those my preference is the stick with cheap beta outside the US: IEMG and SPEM would be much less expensive and offer most of the diversification benefits.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by Winthorpe » Fri Jun 07, 2019 4:54 pm

vineviz wrote:
Fri Jun 07, 2019 4:36 pm
I think VFMF is the obvious choice for US multifactor fund.

For international, if someone was set on using multifactor funds then EMGF and ISCF would be the best selections I think. With those two plus VFMF, INTF would be almost entirely redundant.

To be honest, though, given the expense of those my preference is the stick with cheap beta outside the US: IEMG and SPEM would be much less expensive and offer most of the diversification benefits.
So for simplicity, it sounds like it makes most sense to use multifactor funds. Does it make sense to use single factor US funds in combination to get better factor exposure? For example value + momentum + whatever factor, equal weights? My fear with that is I may end up getting negative exposure with to some factors with single factor funds, eg. +value and -momentum with a single value factor fund. If I'm correct, I feel like it's best to keep it simple with cheap, well-constructed MULTIfactor funds across the various asset classes.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by vineviz » Fri Jun 07, 2019 5:02 pm

Winthorpe wrote:
Fri Jun 07, 2019 4:54 pm
Does it make sense to use single factor US funds in combination to get better factor exposure? For example value + momentum + whatever factor, equal weights? My fear with that is I may end up getting negative exposure with to some factors with single factor funds, eg. +value and -momentum with a single value factor fund.
I wouldn't do that, no.

I own both VFMF and SLYV (SPDR® S&P® 600 Small Cap Value ETF) in my US allocation, but I consider those both to be multifactor funds: SLYV pushes a little harder on size, value, and quality than VFMF does, but probably offsets some of the momentum exposure that VFMF provides. That's really the risk of trying to mix and match, and I suspect it's unavoidable if you try to build your own.

Honestly, I'd probably be smarter to just use VFMF.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by Winthorpe » Fri Jun 07, 2019 5:14 pm

^^
Thanks for the info. That helps confirm how my brain is slogging through this stuff.

:sharebeer

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by whodidntante » Fri Jun 07, 2019 5:17 pm

vineviz wrote:
Fri Jun 07, 2019 5:02 pm
I own both VFMF and SLYV (SPDR® S&P® 600 Small Cap Value ETF) in my US allocation, but I consider those both to be multifactor funds: SLYV pushes a little harder on size, value, and quality than VFMF does, but probably offsets some of the momentum exposure that VFMF provides. That's really the risk of trying to mix and match, and I suspect it's unavoidable if you try to build your own.

Honestly, I'd probably be smarter to just use VFMF.
For a new investor with no taxable capital gains to think about, I think it would be reasonable to hold only VFMF for US equities. As a long-only fund, it still has plenty of market exposure, so you wouldn't have to own anything else for US equities unless the factor loadings are too extreme for you. I've been piling needles on the haystack for a bit though, so this is not an option for me barring a gut-wrenching drawdown. But you really have to trust Vanguard not to hose you down the line by changing the construction of VFMF so it's a bad core holding, or by liquidating the fund, etc. I think the risk of that is low, but it's not zero.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by Winthorpe » Fri Jun 07, 2019 5:26 pm

whodidntante wrote:
Fri Jun 07, 2019 5:17 pm
For a new investor with no taxable capital gains to think about, I think it would be reasonable to hold only VFMF for US equities.
I was thinking this, as well. My reality is that if I go this route, VFMF + international multifactor would just be a drop in the bucket, a small tilt. Most of my holdings are in the big, broad cap-weighted indexes of our 401k offerings.

Hopefully Vanguard will offer international multifactor in the near future.

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by klaus14 » Fri Jun 07, 2019 7:49 pm

vineviz wrote:
Fri Jun 07, 2019 4:36 pm
Winthorpe wrote:
Fri Jun 07, 2019 2:46 pm
I just wanted to hopefully give this thread a second life for more input. Thank you to those of you who have already provided excellent input!

I have the same general questions as the original OP. Just to reiterate, no AQR and no DFA.

Anybody out there considering the Alpha Architect ETFs?

Perhaps Larry or vineviz could weigh in?
I think VFMF is the obvious choice for US multifactor fund.

For international, if someone was set on using multifactor funds then EMGF and ISCF would be the best selections I think. With those two plus VFMF, INTF would be almost entirely redundant.

To be honest, though, given the expense of those my preference is the stick with cheap beta outside the US: IEMG and SPEM would be much less expensive and offer most of the diversification benefits.
What do you think about FNDE? I hate the bid-ask spread on EMGF (and ISCF).

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vineviz
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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by vineviz » Fri Jun 07, 2019 8:27 pm

klaus14 wrote:
Fri Jun 07, 2019 7:49 pm
What do you think about FNDE? I hate the bid-ask spread on EMGF (and ISCF).
I honestly don't have a strong opinion about the fundamental emerging markets funds. FNDE and PXH seem like good funds, but I just don't feel confident they are adding much to the portfolio that you can't largely replicate with a much cheaper fund like IEMG, VWO, SCHE.

I use IEMG and SPEM in my accounts, mostly because I feel like I'm getting 90% of the diversification benefit at 20% of the cost.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Best Multifactor Funds to use for Tilting/Replacement?

Post by vineviz » Fri Jun 07, 2019 8:30 pm

Winthorpe wrote:
Fri Jun 07, 2019 5:26 pm
whodidntante wrote:
Fri Jun 07, 2019 5:17 pm
For a new investor with no taxable capital gains to think about, I think it would be reasonable to hold only VFMF for US equities.
I was thinking this, as well. My reality is that if I go this route, VFMF + international multifactor would just be a drop in the bucket, a small tilt. Most of my holdings are in the big, broad cap-weighted indexes of our 401k offerings.
You might consider sticking with either just VFMF or just EMGF/ISCF in your taxable accounts and adjusting your 401k allocation accordingly. Probably more satisfying to have enough of one multifactor asset class to make a difference rather than diluting it across three.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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