VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

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ThrustVectoring
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by ThrustVectoring » Tue Dec 18, 2018 3:13 am

andrew99999 wrote:
Mon Dec 17, 2018 11:22 pm
vwgrrc wrote:
Tue Dec 11, 2018 11:21 pm
I have been watching this fund for a while and started adding it to my portfolio since last year. It has been doing very well since inception. Now I'm seriously considering using this fund as my core equity holding instead of US/foreign (currently 64/36). I have read many discussions about this fund on the forum. Hope I'm not too crazy...
Doesn't this come back to the same fundamental concept underlying every investing decision deviating from cap weights?

Risk and return are inextricably linked. By choosing to lower your risk by doing this over just lowering your AA, you are saying that there is indeed a free lunch and that somehow the entire rest of the market who have priced equities has made a mistake. Doesn't it concern you how arrogant this statement is?
By the way I'm not saying you are arrogant, but the statement.

Of course, The arrogance is sometimes justified such as if you were warren buffet, or in a less efficient market such as property investing or in smaller markets, but I think we can rule this case out here.
There is a free lunch - large institutional investors are leverage constrained, so assets with a more limited risk/return profile do not get bid up as much as riskier assets that help bypass the leverage limit on risk. That's the short explanation of why Bet Against Beta is a thing.

And funny that you should mention Warren Buffet - backtesting of his stock picking has shown that roughly two thirds of his alpha is explained simply by buying boring low-beta companies and levering them up by 15 to 20%.
Current portfolio: 60% VTI / 40% VXUS

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Portfolio7
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by Portfolio7 » Tue Dec 18, 2018 3:48 am

andrew99999 wrote:
Tue Dec 18, 2018 2:03 am
HEDGEFUNDIE wrote:
Tue Dec 18, 2018 1:06 am
Where did I say that I am expecting to receive a better risk-adjusted return? I said that I am expecting lower risk and lower return. I expect the ratio of risk to return to stay the same.

The reason I don’t just increase my bond allocation is because I’m not a Bonds-are-for-safety bond investor (see other thread on the types of bond investors).
I'm trying to understand this but I am not getting it.

So you expect the same risk-adjusted returns, so in effect lowering your bonds would produce the same result in terms of your risk adjusted return, right? And you could crank it up or down to find your required level of risk and required level of return in the same way for both methods and both risk and return would end up the same since the ratio will remain constant.

So if that is the case, what is the benefit of this fund over changing your AA?
Sorry I am not getting it. It's not a shot at you, I don't grasp how this is better than just changing your AA since you can adjust the risk and volatility in both and they would end up the same? Where is the benefit?
The benefit is efficiency. Higher sharpe and sortino ratios.

A 60% SPY 40% Int Trsy fund has returned more than 60% USMV (to keep it in the US) 40% Int Trsy at somewhat higher risk... but it's risk also exceeded a portfolio that's 80% USMV and 20% VFIUX (IT), while returns trailed by a couple percent annually for the past 6 years. The same general relationships are (more) true using VMVFX and a global equity fund. More return, less risk, for any given Equity/Fixed Income allocation. I think what we're discussing here is whether this is a free lunch. 6 years or less of history makes it tough to conclude much of anything. I'm willing to dip a toe in the water, but I have a hard time with the idea of dropping half, let alone all, my equities in this one fund.
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andrew99999
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by andrew99999 » Tue Dec 18, 2018 4:37 am

ThrustVectoring wrote:
Tue Dec 18, 2018 3:13 am
andrew99999 wrote:
Mon Dec 17, 2018 11:22 pm
vwgrrc wrote:
Tue Dec 11, 2018 11:21 pm
I have been watching this fund for a while and started adding it to my portfolio since last year. It has been doing very well since inception. Now I'm seriously considering using this fund as my core equity holding instead of US/foreign (currently 64/36). I have read many discussions about this fund on the forum. Hope I'm not too crazy...
Doesn't this come back to the same fundamental concept underlying every investing decision deviating from cap weights?

Risk and return are inextricably linked. By choosing to lower your risk by doing this over just lowering your AA, you are saying that there is indeed a free lunch and that somehow the entire rest of the market who have priced equities has made a mistake. Doesn't it concern you how arrogant this statement is?
By the way I'm not saying you are arrogant, but the statement.

Of course, The arrogance is sometimes justified such as if you were warren buffet, or in a less efficient market such as property investing or in smaller markets, but I think we can rule this case out here.
There is a free lunch - large institutional investors are leverage constrained, so assets with a more limited risk/return profile do not get bid up as much as riskier assets that help bypass the leverage limit on risk. That's the short explanation of why Bet Against Beta is a thing.

And funny that you should mention Warren Buffet - backtesting of his stock picking has shown that roughly two thirds of his alpha is explained simply by buying boring low-beta companies and levering them up by 15 to 20%.
Thank you for the reply.

Interesting that Ray Dalio did or does something similar by using leverage on lower risk/return stocks and a higher allocation to risk-free assets, and I assume he did not do this for nothing.
Do you by chance know if this is a theory or if it has been shown in back testing?

It sounds like the Warren Buffet backtesting may be based on his earlier ability to find undervalued stock, and if that is right (it might not, you probably know more than me), then you are comparing his ability to find undervalued stock with stocks that fit into the low volatility algorithm of this fund. Do you think that is an accurate comparison? And does that make the low volatility algorithm synonymous with Value stocks?
Legitimate questions, not rhetorical ones, I have no idea how to find this out.

columbia
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by columbia » Tue Dec 18, 2018 6:31 am

Is this considered to be a factor fund....because it appears to actually work as advertised.

dkturner
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by dkturner » Tue Dec 18, 2018 6:50 am

HEDGEFUNDIE wrote:
Tue Dec 18, 2018 12:43 am
andrew99999 wrote:
Mon Dec 17, 2018 11:22 pm
vwgrrc wrote:
Tue Dec 11, 2018 11:21 pm
I have been watching this fund for a while and started adding it to my portfolio since last year. It has been doing very well since inception. Now I'm seriously considering using this fund as my core equity holding instead of US/foreign (currently 64/36). I have read many discussions about this fund on the forum. Hope I'm not too crazy...
Doesn't this come back to the same fundamental concept underlying every investing decision deviating from cap weights?

Risk and return are inextricably linked. By choosing to lower your risk by doing this over just lowering your AA, you are saying that there is indeed a free lunch and that somehow the entire rest of the market who have priced equities has made a mistake. Doesn't it concern you how arrogant this statement is?
By the way I'm not saying you are arrogant, but the statement.

Of course, The arrogance is sometimes justified such as if you were warren buffet, or in a less efficient market such as property investing or in smaller markets, but I think we can rule this case out here.
Where is the free lunch? By picking this fund we are lowering our volatility and also lowering our returns...
There never is a free lunch. VMNVX isn’t a particularly good choice in the early and mid stages of a bull market. It’s a good fund to own AFTER equity markets have performed very well for a relatively long time. The fund is only 6 years old and was initially offered in late 2012, following a strong recovery from the 2007-2009 bear market. If you look at its performance it has done exactly what it should have done, namely perform very well in slow years and not so well in years of high equity returns. It’s an interesting offering for those of us who like to partake of a little valuation driven capital redeployment from time to time. Switching from stock to bonds is a little too market timey for me. I prefer something a little less drastic.

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vineviz
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by vineviz » Tue Dec 18, 2018 8:09 am

dkturner wrote:
Tue Dec 18, 2018 6:50 am
HEDGEFUNDIE wrote:
Tue Dec 18, 2018 12:43 am
andrew99999 wrote:
Mon Dec 17, 2018 11:22 pm
vwgrrc wrote:
Tue Dec 11, 2018 11:21 pm
I have been watching this fund for a while and started adding it to my portfolio since last year. It has been doing very well since inception. Now I'm seriously considering using this fund as my core equity holding instead of US/foreign (currently 64/36). I have read many discussions about this fund on the forum. Hope I'm not too crazy...
Doesn't this come back to the same fundamental concept underlying every investing decision deviating from cap weights?

Risk and return are inextricably linked. By choosing to lower your risk by doing this over just lowering your AA, you are saying that there is indeed a free lunch and that somehow the entire rest of the market who have priced equities has made a mistake. Doesn't it concern you how arrogant this statement is?
By the way I'm not saying you are arrogant, but the statement.

Of course, The arrogance is sometimes justified such as if you were warren buffet, or in a less efficient market such as property investing or in smaller markets, but I think we can rule this case out here.
Where is the free lunch? By picking this fund we are lowering our volatility and also lowering our returns...
There never is a free lunch. VMNVX isn’t a particularly good choice in the early and mid stages of a bull market.
The "free lunch" comes in the form of risk-adjusted return, an advantage that can show up in all types of markets. That's one of the things that makes this fund such a compelling choice as a core portfolio holding. Sure you might underperform in exceptionally sharp up markets and outperform in exceptionally sharp down markets, but that's also going to be true of a portfolio that holds both stocks and bonds instead of exclusively stocks.

For investors who can either provide their own low-cost leverage (e.g. Buffet) or don't need/want to in order to achiever their return targets (e.g. risk-averse individual investors), the risks of high beta stocks and/or high variance portfolios is essentially unrewarded. So avoiding those risks is, indeed, a free lunch because the cost is something of no value to those investors.

Furthermore, there are mathematical advantages to a low volatility portfolio filled with assets having the same expected return as those in a high volatility portfolio.

The MSCI minimum variance indices aren't exactly comparable to the approach used by Vanguard, but the following portfolio illustrates the advantage of a minimum variance equity portfolio over a standard stock/bond portfolio of similar variance. Adding 20% bonds to a US market cap index produced similar variance to the MSCI USA minimum variance portfolio over the whole life of that index but with better risk-adjusted returns.

Image
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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SquawkIdent
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by SquawkIdent » Tue Dec 18, 2018 8:30 am

retire2022 wrote:
Mon Dec 17, 2018 6:18 pm
OP

Russel Kinnel of Morningstar recommends this fund Sept. 18 2018 article

A Gem for Retired Investors
Vanguard Global Minimum Volatility (VMVFX) is one of the most surprising entrants. It seems like a fund that should have obvious appeal, but it has just $3 billion in AUM. The idea of this strategy is to provide very broad exposure to global stocks while keeping a lid on volatility. The fund tilts toward stocks with modest volatility and hedges most currency exposure, which is a significant source of volatility in most international funds. Thus, this is a nice fund for retired investors and others who are particularly averse to volatility. It is a passive fund that charges just 0.25% for investor shares.


https://www.morningstar.com/articles/88 ... sight.html
+1

And thanks for posting that article link as I hadn't read that one. Although it's past is limited, this 100% stock fund has demonstrated the volatility of a 60/40 portfolio during its short lifetime.

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vineviz
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by vineviz » Tue Dec 18, 2018 9:09 am

Although this article doesn't mention VMVFX directly, today's column at Morningstar by John Rekenthaler is called "What’s the Right Asset Allocation for Retirement?" and discusses a new paper which highlights that particular danger that portfolio volatility presents during withdrawal periods (aka retirement).

https://www.morningstar.com/articles/90 ... ement.html
What you may not have realized is that volatility damages stocks' attractiveness as much as does reduced total returns. Doubling volatility while keeping returns fixed has a similar effect to halving returns while keeping volatility fixed. The return and risk levers have equal strength.

This can come as a surprise, as returns are generally regarded as tangible, while risk is psychological. But that dichotomy does not hold for withdrawal strategies, wherein removing monies from a depleting portfolio can lead to a vicious circle, whereby the withdrawals become such a large percentage of portfolio assets that the investment enters a death spiral. It cannot replace with market appreciation what it loses while funding retirement 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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hdas
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by hdas » Tue Dec 18, 2018 9:18 am

It's unfortunate that discussion about the virtues of min vol strategies it's mainly a reflection of recency bias. A bunch of these funds have the best performance right now on a 1 year basis. Nobody knows the future, but the spread between these and their market cap siblings is getting stretched out. The proper tactical switch has to account for this ever changing relationship.

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

alex_686
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by alex_686 » Tue Dec 18, 2018 10:40 am

andrew99999 wrote:
Tue Dec 18, 2018 2:03 am
So you expect the same risk-adjusted returns, so in effect lowering your bonds would produce the same result in terms of your risk adjusted return, right? And you could crank it up or down to find your required level of risk and required level of return in the same way for both methods and both risk and return would end up the same since the ratio will remain constant.

So if that is the case, what is the benefit of this fund over changing your AA?
Sorry I am not getting it. It's not a shot at you, I don't grasp how this is better than just changing your AA since you can adjust the risk and volatility in both and they would end up the same? Where is the benefit?
Let me back up this conversation a bit, and I am going to tie this into another conversation that andrew99999 is having on the "quality" factor.
viewtopic.php?p=4265907#p4265907

I might have the same total risk - the same level or risk - between the 2 portfolios but that does not mean the have the same exposures to the same types of risk.

A portfolio with a high bond allocation picks up a lot of interest rate risk and thus inflation risk.

A portfolio with a high min volatility (Low Beta) allocation would have more market risk, but equities are a good hedge against inflation. So less risk from that angle.

HEDGEFUNDIE
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by HEDGEFUNDIE » Tue Dec 18, 2018 10:50 am

alex_686 wrote:
Tue Dec 18, 2018 10:40 am
andrew99999 wrote:
Tue Dec 18, 2018 2:03 am
So you expect the same risk-adjusted returns, so in effect lowering your bonds would produce the same result in terms of your risk adjusted return, right? And you could crank it up or down to find your required level of risk and required level of return in the same way for both methods and both risk and return would end up the same since the ratio will remain constant.

So if that is the case, what is the benefit of this fund over changing your AA?
Sorry I am not getting it. It's not a shot at you, I don't grasp how this is better than just changing your AA since you can adjust the risk and volatility in both and they would end up the same? Where is the benefit?
Let me back up this conversation a bit, and I am going to tie this into another conversation that andrew99999 is having on the "quality" factor.
viewtopic.php?p=4265907#p4265907

I might have the same total risk - the same level or risk - between the 2 portfolios but that does not mean the have the same exposures to the same types of risk.

A portfolio with a high bond allocation picks up a lot of interest rate risk and thus inflation risk.

A portfolio with a high min volatility (Low Beta) allocation would have more market risk, but equities are a good hedge against inflation. So less risk from that angle.
Bingo. My bond allocation is 100% EDV so I need all the inflation protection I can get.

andrew99999
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by andrew99999 » Tue Dec 18, 2018 11:47 am

alex_686 wrote:
Tue Dec 18, 2018 10:40 am
andrew99999 wrote:
Tue Dec 18, 2018 2:03 am
So you expect the same risk-adjusted returns, so in effect lowering your bonds would produce the same result in terms of your risk adjusted return, right? And you could crank it up or down to find your required level of risk and required level of return in the same way for both methods and both risk and return would end up the same since the ratio will remain constant.

So if that is the case, what is the benefit of this fund over changing your AA?
Sorry I am not getting it. It's not a shot at you, I don't grasp how this is better than just changing your AA since you can adjust the risk and volatility in both and they would end up the same? Where is the benefit?
Let me back up this conversation a bit, and I am going to tie this into another conversation that andrew99999 is having on the "quality" factor.
viewtopic.php?p=4265907#p4265907

I might have the same total risk - the same level or risk - between the 2 portfolios but that does not mean the have the same exposures to the same types of risk.

A portfolio with a high bond allocation picks up a lot of interest rate risk and thus inflation risk.

A portfolio with a high min volatility (Low Beta) allocation would have more market risk, but equities are a good hedge against inflation. So less risk from that angle.
I think I get what you are saying, let me just check with you for a moment.

So say as an example these had the same total expected average return over the long run
60/40 VTSAX/BND
70/30 VMVFX/BND

So you are saying that the first has more inflation risk (due to more bonds), and the second has more market risk?

Is that short or medium or long term market risk? I would have expected the short term market risk to not be higher since it is minimum volatility, and the long term market risk to ... yea ok I am confused with the market risk part of VMVFX.

alex_686
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by alex_686 » Tue Dec 18, 2018 12:22 pm

andrew99999 wrote:
Tue Dec 18, 2018 11:47 am
Is that short or medium or long term market risk? I would have expected the short term market risk to not be higher since it is minimum volatility, and the long term market risk to ... yea ok I am confused with the market risk part of VMVFX.
If we define risk in terms of standard deviation it does not matter. Risk as modeled by standard deviation scales across time very nicely. There is lots of nuance here but I am going to gloss over that.

However, that ignores tail risk, that is big market crashes. That is harder to tell because every market crash is different. I would still say the same level of risk. However the modeling, math, and narrative becomes more complex so I do think there are legitimate topics here to debate.

What you want to do is step back and figure out what your goals are and what types of risk you face. For example, I carry a fair amount of interest rate / inflation risk due to my adjustable mortgage on my home and a weird asset in my company's 401k plan. So I lean into a low beta ETF to balance out that risk.

ThrustVectoring
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by ThrustVectoring » Tue Dec 18, 2018 1:23 pm

andrew99999 wrote:
Tue Dec 18, 2018 4:37 am
ThrustVectoring wrote:
Tue Dec 18, 2018 3:13 am
andrew99999 wrote:
Mon Dec 17, 2018 11:22 pm
vwgrrc wrote:
Tue Dec 11, 2018 11:21 pm
I have been watching this fund for a while and started adding it to my portfolio since last year. It has been doing very well since inception. Now I'm seriously considering using this fund as my core equity holding instead of US/foreign (currently 64/36). I have read many discussions about this fund on the forum. Hope I'm not too crazy...
Doesn't this come back to the same fundamental concept underlying every investing decision deviating from cap weights?

Risk and return are inextricably linked. By choosing to lower your risk by doing this over just lowering your AA, you are saying that there is indeed a free lunch and that somehow the entire rest of the market who have priced equities has made a mistake. Doesn't it concern you how arrogant this statement is?
By the way I'm not saying you are arrogant, but the statement.

Of course, The arrogance is sometimes justified such as if you were warren buffet, or in a less efficient market such as property investing or in smaller markets, but I think we can rule this case out here.
There is a free lunch - large institutional investors are leverage constrained, so assets with a more limited risk/return profile do not get bid up as much as riskier assets that help bypass the leverage limit on risk. That's the short explanation of why Bet Against Beta is a thing.

And funny that you should mention Warren Buffet - backtesting of his stock picking has shown that roughly two thirds of his alpha is explained simply by buying boring low-beta companies and levering them up by 15 to 20%.
Thank you for the reply.

Interesting that Ray Dalio did or does something similar by using leverage on lower risk/return stocks and a higher allocation to risk-free assets, and I assume he did not do this for nothing.
Do you by chance know if this is a theory or if it has been shown in back testing?

It sounds like the Warren Buffet backtesting may be based on his earlier ability to find undervalued stock, and if that is right (it might not, you probably know more than me), then you are comparing his ability to find undervalued stock with stocks that fit into the low volatility algorithm of this fund. Do you think that is an accurate comparison? And does that make the low volatility algorithm synonymous with Value stocks?
Legitimate questions, not rhetorical ones, I have no idea how to find this out.
There's a few papers on this:

Bet Against Beta: https://www.nber.org/papers/w16601
Buffet's Alpha: https://www.nber.org/papers/w19681

Note that some of the researchers involved are employed by AQR Capital Management.
Current portfolio: 60% VTI / 40% VXUS

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vwgrrc
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by vwgrrc » Tue Dec 18, 2018 5:13 pm

OP here. When I started this tread, I was not expecting this amount of in-depth discussions. Very impressive and thanks a lot BHs :sharebeer

As I have some extra cash sitting on the sideline at this point, my tentative plan is to put some into VMVFX (without bending my AA of course). If the market continues to tank, I'll gradually exchange some VMVFX into Total Stock Market. This way, I feel I'm taking the opportunity of the dip without taking as much risk as if I had all in TSM. Whenever the market recovers, TSM should be better than VMVFX. I have no which way this thing is going and I don't want to guess neither. I just think this is a way I can capture a little bit of both sides. How does this sound ?

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by Valuethinker » Wed Dec 19, 2018 9:00 am

alex_686 wrote:
Tue Dec 18, 2018 12:22 pm
andrew99999 wrote:
Tue Dec 18, 2018 11:47 am
Is that short or medium or long term market risk? I would have expected the short term market risk to not be higher since it is minimum volatility, and the long term market risk to ... yea ok I am confused with the market risk part of VMVFX.
If we define risk in terms of standard deviation it does not matter. Risk as modeled by standard deviation scales across time very nicely. There is lots of nuance here but I am going to gloss over that.

However, that ignores tail risk, that is big market crashes. That is harder to tell because every market crash is different. I would still say the same level of risk. However the modeling, math, and narrative becomes more complex so I do think there are legitimate topics here to debate.

What you want to do is step back and figure out what your goals are and what types of risk you face. For example, I carry a fair amount of interest rate / inflation risk due to my adjustable mortgage on my home and a weird asset in my company's 401k plan. So I lean into a low beta ETF to balance out that risk.
Hi

Could you say something more about that "weird asset".

I am always interested in what things pop into pension plans outside the plain vanilla of stocks & bonds.

alex_686
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by alex_686 » Wed Dec 19, 2018 10:56 am

Valuethinker wrote:
Wed Dec 19, 2018 9:00 am
Could you say something more about that "weird asset".

I am always interested in what things pop into pension plans outside the plain vanilla of stocks & bonds.
Technically it part of my pension plan, not 401k. It resembles a stable value fund based on the latest 10 year treasury coupon.

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hdas
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by hdas » Thu Dec 20, 2018 8:50 am

Interesting article Why the Low Volatility Anomaly will persist:
Abstract
Common explanations of the low volatility anomaly involve biases or frictions that cause investors to overpay for high volatility assets, giving them a negative alpha within the CAPM model, yet currently all such mechanisms are either heuristic or partial equilibrium. This paper shows that leverage constraints of Frazzini and Pedersen (2014) alone cannot explain this result if there also exist rational investors. If 3 non-standard assumptions are added — hybrid relative utility, delusional subset of investors, residual systematic risk across beta — then we can capture several facts existing models cannot simultaneously capture: a positive return to the market, positive holdings by rational investors to negative CAPM-alpha stocks, and a negative Security Market Line. New data relevant to these assumptions are presented.
Conclusions
It is now accepted widely that low volatility equities offer a superior Sharpe ratio to the market, high volatility equities an inferior one. For this to exist in equilibrium, one needs more than just a subset of over optimistic, constrained, or perversely incented investors, as commonly asserted.
Extant explanations rely on ad hoc constraints or are partial equilibrium analysis. If a reasonably large set of rational investors exist, as they certainly do, it is useful to know that you need more than one assumption to still generate an effect from deluded, constrained, or poorly incented investors. Relative preferences are the unconventional additional explanation that does work, and there are precedents and several reasons to believe such preferences are relevant to human behavior.
In sum, you need three assumption to generate the low volatility anomaly: systematic risk along beta groupings so that the high beta assets are not perfect substitutes to the market portfolio, some relative preferences that prevent rational agents from avoiding high beta stocks systematically when they offer below-CAPM returns, and lastly you need some sort delusion focused on low volatility stocks causes some investors to reach for the high beta assets outside of the standard model.
Good source of references as well.
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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hdas
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by hdas » Sat Dec 22, 2018 12:20 am

HEDGEFUNDIE wrote:
Thu Dec 13, 2018 2:23 pm
hdas wrote:
Thu Dec 13, 2018 2:20 pm
HEDGEFUNDIE wrote:
Wed Dec 12, 2018 11:19 am
I recently asked the board if I should go from 80/20 to 60/40 due to my decreased need to take risk.

What I will do instead is go 60/20/20 (Total Market/Min Vol/Bonds) to achieve a similar result.
In another thread you mentioned you tilted or had IJR. Is still the case?, doesn't this negate the low vol tilt you are going to implement now?
I will be switching out my IJR for SMMV, which has delivered the same performance for almost half the volatility.
SMMV down 2.88% today. I know it has done better in a longer timeframe, but still, worse than any other SC fund. :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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vineviz
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by vineviz » Sat Dec 22, 2018 5:29 am

hdas wrote:
Sat Dec 22, 2018 12:20 am
HEDGEFUNDIE wrote:
Thu Dec 13, 2018 2:23 pm
hdas wrote:
Thu Dec 13, 2018 2:20 pm
HEDGEFUNDIE wrote:
Wed Dec 12, 2018 11:19 am
I recently asked the board if I should go from 80/20 to 60/40 due to my decreased need to take risk.

What I will do instead is go 60/20/20 (Total Market/Min Vol/Bonds) to achieve a similar result.
In another thread you mentioned you tilted or had IJR. Is still the case?, doesn't this negate the low vol tilt you are going to implement now?
I will be switching out my IJR for SMMV, which has delivered the same performance for almost half the volatility.
SMMV down 2.88% today. I know it has done better in a longer timeframe, but still, worse than any other SC fund. :greedy
It paid a dividend today. NAV was down less than 2%.
"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: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by hdas » Tue Dec 25, 2018 1:09 pm

Profesor Zhang has some criticism of factors relevant to this thread. :greedy
Notably, Zhang found little support for low volatility, a popular factor with investors because it promises higher returns in exchange for, well, less volatility. “The empirical evidence for low volatility is very fragile,” he says. “Fifteen of the 16 volatility measures we looked at don’t work using the broadest sample of stocks.”
Here's a link to his paper: Replicating Anomalies.
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by vineviz » Tue Dec 25, 2018 1:53 pm

hdas wrote:
Tue Dec 25, 2018 1:09 pm
Profesor Zhang has some criticism of factors relevant to this thread. :greedy

Only tangentially: minimum variance does not specifically target the low volatility factor.
"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: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by hdas » Sat Dec 29, 2018 4:36 pm

This information from Mr. Hedgefundie from a diff thread seems relevant here:
HEDGEFUNDIE wrote: ↑Fri Dec 28, 2018 2:40 pm
I was about to buy some Vanguard Global Minimum Volatility in taxable today, but then I ran the numbers through triceratops’s tax cost calculator.

Turns out the tax cost for me would have exceeded 2%. I love me some min vol, but not that much.
Can you share the inputs to the formula. thx. H
Expense Ratio 0.17
Dividend Distribution / share 0.62
STCG Distribution / share 0.38
LTCG Distribution / share 0.83
Foreign Tax Paid $ / share 0.00
QDI Ratio 0.63
# shares / $10,000 405.52
Distributions 740.79
Yield (%) 7.41
US taxes (Federal + State) 221.87
Foreign Tax Paid 0.00
Tax Efficiency (%) 2.22
Total Cost (expense + Tax) 2.39
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by retire2022 » Sat Dec 29, 2018 5:22 pm

SquawkIdent wrote:
Tue Dec 18, 2018 8:30 am
retire2022 wrote:
Mon Dec 17, 2018 6:18 pm
OP

Russel Kinnel of Morningstar recommends this fund Sept. 18 2018 article

A Gem for Retired Investors
Vanguard Global Minimum Volatility (VMVFX) is one of the most surprising entrants. It seems like a fund that should have obvious appeal, but it has just $3 billion in AUM. The idea of this strategy is to provide very broad exposure to global stocks while keeping a lid on volatility. The fund tilts toward stocks with modest volatility and hedges most currency exposure, which is a significant source of volatility in most international funds. Thus, this is a nice fund for retired investors and others who are particularly averse to volatility. It is a passive fund that charges just 0.25% for investor shares.


https://www.morningstar.com/articles/88 ... sight.html
+1

And thanks for posting that article link as I hadn't read that one. Although it's past is limited, this 100% stock fund has demonstrated the volatility of a 60/40 portfolio during its short lifetime.
another quote with interview between Christine Benz and Russel Kinnel

https://www.morningstar.com/videos/8664 ... -gems.html

Benz: The next fund that is not yet large is Vanguard Global Minimum Volatility. This is Silver-rated. It's not an index fund either, but it is pretty hands-off in terms of its management style. Let's talk about this one.

Kinnel: That's right. It's technically not an index because it doesn't exactly seek to match its benchmark, which is FTSE Global Index. Essentially, you're looking at big companies, but because they are looking to reduce volatility, they go from within that index to slant to the companies that they think will be less volatile. Not just looking at beta but other factors as well that seem to line up with less volatility. Then on top of that, they hedge back the currency risk because of course currency has a fair amount of short-term volatility. Though from a long-term perspective, it doesn't really add a lot of risk. What you get is this nice global, very low-cost, nearly passive fund that I think is a really great idea especially if you have someone in a retirement account because I think at that point you want to reduce volatility as much as you can, but I also don't think many investors can afford to avoid foreign equities. I think foreign equities have a lot of return potential, and they really don't have more risks than the U.S. outside of that currency issue. I think this is a really good fund that's been kind of overlooked.

Benz: You stated the case for this low-volatility strategy. There's also some data to point to low-volatility strategies outperforming which seems kind of counterintuitive. You might expect them to hold down risk, but actually, in some market environments they look better on a returns basis.

Kinnel: That's right. These low-volatility strategies have been tested and people found good returns. But I think even if the absolute returns are not superior, on a risk-adjusted basis they should be good. But also, when you think about our investor returns research, we know that less volatile funds work better for investors because it doesn't give them those highs and lows. It doesn't make them panic or get greedy. There are a lot of things to like about a low-volatility strategy.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by HEDGEFUNDIE » Sun Dec 30, 2018 12:27 am

hdas wrote:
Sat Dec 29, 2018 4:36 pm
This information from Mr. Hedgefundie from a diff thread seems relevant here:
HEDGEFUNDIE wrote: ↑Fri Dec 28, 2018 2:40 pm
I was about to buy some Vanguard Global Minimum Volatility in taxable today, but then I ran the numbers through triceratops’s tax cost calculator.

Turns out the tax cost for me would have exceeded 2%. I love me some min vol, but not that much.
Can you share the inputs to the formula. thx. H
Expense Ratio 0.17
Dividend Distribution / share 0.62
STCG Distribution / share 0.38
LTCG Distribution / share 0.83
Foreign Tax Paid $ / share 0.00
QDI Ratio 0.63
# shares / $10,000 405.52
Distributions 740.79
Yield (%) 7.41
US taxes (Federal + State) 221.87
Foreign Tax Paid 0.00
Tax Efficiency (%) 2.22
Total Cost (expense + Tax) 2.39
My new plan is to rotate my Roth into this fund as soon as my existing “regular volatility” funds recover to their September highs. Have been convinced not to sell low!

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by vwgrrc » Sun Dec 30, 2018 12:06 pm

HEDGEFUNDIE wrote:
Sun Dec 30, 2018 12:27 am
hdas wrote:
Sat Dec 29, 2018 4:36 pm
This information from Mr. Hedgefundie from a diff thread seems relevant here:
HEDGEFUNDIE wrote: ↑Fri Dec 28, 2018 2:40 pm
I was about to buy some Vanguard Global Minimum Volatility in taxable today, but then I ran the numbers through triceratops’s tax cost calculator.

Turns out the tax cost for me would have exceeded 2%. I love me some min vol, but not that much.
Can you share the inputs to the formula. thx. H
Expense Ratio 0.17
Dividend Distribution / share 0.62
STCG Distribution / share 0.38
LTCG Distribution / share 0.83
Foreign Tax Paid $ / share 0.00
QDI Ratio 0.63
# shares / $10,000 405.52
Distributions 740.79
Yield (%) 7.41
US taxes (Federal + State) 221.87
Foreign Tax Paid 0.00
Tax Efficiency (%) 2.22
Total Cost (expense + Tax) 2.39
My new plan is to rotate my Roth into this fund as soon as my existing “regular volatility” funds recover to their September highs. Have been convinced not to sell low!
I have a similar plan but different approach. I never know if the market is going back to September 2018 high or how long it's taking to get there. I will just exchange into min vol gradually whenever the market bounces, like last Wednesday's almost +5%. This way I'm getting the bounces of total market, but gradually moving towards my goal. I plan to hold 40-50% of my equity in min vol.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by OkieIndexer » Wed Jan 02, 2019 4:49 pm

alex_686 wrote:
Tue Dec 18, 2018 10:40 am
A portfolio with a high min volatility (Low Beta) allocation would have more market risk, but equities are a good hedge against inflation. So less risk from that angle.
Equities protect reasonably well against hyperinflation (like 1000% a year inflation), but they tend to do poorly during merely "high" inflation. See the 1970s.
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by alex_686 » Thu Jan 03, 2019 11:05 am

OkieIndexer wrote:
Wed Jan 02, 2019 4:49 pm
alex_686 wrote:
Tue Dec 18, 2018 10:40 am
A portfolio with a high min volatility (Low Beta) allocation would have more market risk, but equities are a good hedge against inflation. So less risk from that angle.
Equities protect reasonably well against hyperinflation (like 1000% a year inflation), but they tend to do poorly during merely "high" inflation. See the 1970s.
Why do you say that? IIRC, first came the oil shock which caused both a economic depression and inflation. I will counter that you are confusing correlation with causation.

I will admit that there is a relationship between economic performance and inflation, and that high inflation is a indicator that there are major issues with the real underlying economy, and rarely does a sick economy make for a happy stock market.

There are a fair number of good pair studies out there which do a good job out there. You compare 2 similar companies's stocks operating under different inflation regime. Stocks do a good job in hedging inflation as long as inflation stays below 7% to 10%.

Oddly, counter to your claim, crack into hyperinflation mode and stocks no longer form a good hedge. The underlying economy is suffering such problems that spill over into company's earnings. Of course, if your entire economy is going downhill what is a good investment?

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by HEDGEFUNDIE » Thu Jan 03, 2019 11:18 am

OkieIndexer wrote:
Wed Jan 02, 2019 4:49 pm
alex_686 wrote:
Tue Dec 18, 2018 10:40 am
A portfolio with a high min volatility (Low Beta) allocation would have more market risk, but equities are a good hedge against inflation. So less risk from that angle.
Equities protect reasonably well against hyperinflation (like 1000% a year inflation), but they tend to do poorly during merely "high" inflation. See the 1970s.
During the last inflationary episode 78-81 stocks did just fine.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by hdas » Mon Jan 28, 2019 2:11 pm

The obvious (only) competitor to VMVFX is Ishares ACWV

Let's look at the main differences:

Country Allocation:

Code: Select all

		VMNVX	ACWV
United States	49.80%	56.66%
Japan		7.20%	12.78%
United Kingdom	6.00%	1.31%
Canada		5.90%	2.98%
Australia		4.40%	
Korea		3.10%	
France		2.80%	
Switzerland	2.80%	4.87%
Germany		2.40%	
Hong Kong	2.30%	3.36%
India		1.80%	2.04%
Brazil		1.70%	
China		1.10%	2.20%
Singapore	0.90%	1.22%
Spain		0.90%	
Sweden		0.90%	
Italy		0.80%	
Netherlands	0.80%	
Mexico		0.60%	
Belgium		0.50%	
Denmark		0.50%	
Taiwan		0.50%	3.23%
Norway		0.40%	
Finland		0.30%	
Indonesia	0.20%	
Other			9.06%
Portfolio Characteristics

Code: Select all

			VMVFX	ACWV
Number of Stocks 	623	424
Net Assets		3.1b	3.5b
P/E			19.12	15.7
Expense Ratio		0.17	0.2
Tax Efficiency:

Image

Methodology

VMVFX
The Fund invests primarily in U.S. and foreign stocks that are expected to generate low volatility relative to the global equity market. The portfolio will include a diverse mix of companies located in many different countries and representing many different market sectors and industry groups. The advisor uses quantitative models that evaluate all of the securities in the Fund’s benchmark, the FTSE Global All Cap Index (USD Hedged), to construct a global equity portfolio that seeks to achieve the lowest amount of expected volatility subject to a set of reasonable constraints designed to foster portfolio diversification and liquidity. The Fund generally will seek to hedge most of its currency exposure back to the U.S. dollar to reduce overall portfolio volatility.
ACWV
The MSCI ACWI Minimum Volatility (USD) Index aims to reflect the performance characteristics of a minimum variance strategy applied to large and mid cap equities across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries*. The index is calculated by optimizing the MSCI ACWI Index, its parent index, in USD for the lowest absolute risk (within a given set of constraints)

The MSCI Minimum Volatility Indexes are designed to provide the lowest return variance for a given covariance matrix of stock returns. Each MSCI Minimum Volatility Index is calculated using Barra Optimizer to optimize a given MSCI parent index for the lowest absolute volatility within a certain set of constraints. These constraints help maintain index replicability and investability and include index turnover limits, for example, along with minimum and maximum constituent, sector and/or country weights relative to the parent index. Each Minimum Volatility Index is rebalanced (or is re-optimized) semi-annually in May and November. Indexes may also be optimized for various currencies
Factor Regression

Code: Select all

		ACWV		VMNVX	
Factor		Loading	t-stat	Loading	t-stat
Market (Rm-Rf)	0.84	12.864	0.69	12.639
Size (SMB)	-0.23	-1.972	0.06	0.607
Value (HML)	0.17	1.361	-0.08	-0.707
Momentum (MOM)	0.12	1.329	0.1	1.397
Quality (QMJ)	0.52	3.563	0.45	3.625
Low Beta (BAB)	0.27	1.95	0.03	0.289
Alpha (α)	-37.27	-1.8	0.30	0.0
Annualized (α)	-4.47%		0.04%	
Performance

Code: Select all

Portfolio performance statistics
Portfolio	Initial	Final		CAGR	Stdev	Best	Worst	DD	Sharpe 	
VMNVX		$10,000	$14,934 	8.35% 	7.15%	16.07%	-1.73%	-8.23% 	1.08	
ACWV		$10,000	$14,306 	7.42% 	8.51%	18.58%	-1.42%	-7.13% 	0.82	
Image

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by DB2 » Mon Jan 28, 2019 3:20 pm

This fund has my interest and seems like a less volatile manner to hold international stock.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by DB2 » Tue Jan 29, 2019 7:45 pm

The one thing that concerns me a little is the exposure to Europe in this fund. With the Brexit situation, Italy very fragile, and some other issues over there, I wish there was less exposure. Any thoughts?

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by alex_686 » Tue Jan 29, 2019 8:59 pm

DB2 wrote:
Tue Jan 29, 2019 7:45 pm
The one thing that concerns me a little is the exposure to Europe in this fund. With the Brexit situation, Italy very fragile, and some other issues over there, I wish there was less exposure. Any thoughts?
The index is market cap weighted, so dominated by large international companies. Sure, they may be headquartered in Europe but they don't have much exposure. Over the past 10 years the factors that have been driving the stock prices are 1) world, 2) sector, and in a distant 3rd place, regional factors.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by staythecourse » Tue Jan 29, 2019 9:11 pm

As I have mentioned several times one should only alter they asset allocation if they are adding to a sub asset while it is doing poorly. At least this way any market timing is the opposite way everyone else is going to go. If you tell me you want to add more to a sub asset that is doing well... No that never ends well.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by hirlaw » Tue Jan 29, 2019 9:18 pm

I own it, but not a large portion of my portfolio. Unfortunately, I made the mistake of putting it in a taxable account. I like the fund, but beware of the tax inefficiency.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by DB2 » Tue Jan 29, 2019 9:32 pm

hirlaw wrote:
Tue Jan 29, 2019 9:18 pm
I own it, but not a large portion of my portfolio. Unfortunately, I made the mistake of putting it in a taxable account. I like the fund, but beware of the tax inefficiency.
I just looked at the after-tax on distributions - ouch. I do have some room for it in my Roth IRA if I go with it.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by DB2 » Tue Jan 29, 2019 9:40 pm

staythecourse wrote:
Tue Jan 29, 2019 9:11 pm
As I have mentioned several times one should only alter they asset allocation if they are adding to a sub asset while it is doing poorly. At least this way any market timing is the opposite way everyone else is going to go. If you tell me you want to add more to a sub asset that is doing well... No that never ends well.

Good luck.
Almost every fund is up this month, so if one wants to add shares with additional cash of something to their portfolio, are you saying don't?

staythecourse
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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by staythecourse » Tue Jan 29, 2019 9:54 pm

DB2 wrote:
Tue Jan 29, 2019 9:40 pm
staythecourse wrote:
Tue Jan 29, 2019 9:11 pm
As I have mentioned several times one should only alter they asset allocation if they are adding to a sub asset while it is doing poorly. At least this way any market timing is the opposite way everyone else is going to go. If you tell me you want to add more to a sub asset that is doing well... No that never ends well.

Good luck.
Almost every fund is up this month, so if one wants to add shares with additional cash of something to their portfolio, are you saying don't?
One should have an static allocation, i.e. 40% in TSM, 20% in Total Int., 40%TBM. Then each month throw money in to keep the static allocation... well static.

What I was referring is do NOT increase the % allocated to a sub asset the same time it is doing well. For example... If TSM has been on a tear last 1-2 years so you decide, "Well there is some great arguments for higher TSM so I'll do it". This is where the behavioral mistake of recency bias comes in. The best way to avoid it is do increase the % same time something is doing well. For example, if you go well I really think there is a role for gold or oil then at LEAST it is less likely due to the recent returns. Most folks don't want to add to a position even if it is doing poor last couple of months (look at the posts at end of last year) let alone something that has been in the dumps for YEARS.

Hope this makes sense.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by DB2 » Tue Jan 29, 2019 10:09 pm

staythecourse wrote:
Tue Jan 29, 2019 9:54 pm
DB2 wrote:
Tue Jan 29, 2019 9:40 pm
staythecourse wrote:
Tue Jan 29, 2019 9:11 pm
As I have mentioned several times one should only alter they asset allocation if they are adding to a sub asset while it is doing poorly. At least this way any market timing is the opposite way everyone else is going to go. If you tell me you want to add more to a sub asset that is doing well... No that never ends well.

Good luck.
Almost every fund is up this month, so if one wants to add shares with additional cash of something to their portfolio, are you saying don't?
One should have an static allocation, i.e. 40% in TSM, 20% in Total Int., 40%TBM. Then each month throw money in to keep the static allocation... well static.

What I was referring is do NOT increase the % allocated to a sub asset the same time it is doing well. For example... If TSM has been on a tear last 1-2 years so you decide, "Well there is some great arguments for higher TSM so I'll do it". This is where the behavioral mistake of recency bias comes in. The best way to avoid it is do increase the % same time something is doing well. For example, if you go well I really think there is a role for gold or oil then at LEAST it is less likely due to the recent returns. Most folks don't want to add to a position even if it is doing poor last couple of months (look at the posts at end of last year) let alone something that has been in the dumps for YEARS.

Hope this makes sense.

Good luck.

Gotcha.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by GaryA505 » Mon Feb 11, 2019 4:24 pm

Maybe I'm nuts but I have about 1/2 of of my equity holdings in VMVFX/VMNVX, so yeah I guess I'm using it as a core holding.

I am pairing this with PRWCX (T Rowe Price Cap Apprec) in my Vanguard IRA and pairing it with AUENX (AQR Large Cap Defensive) in my Fidelity IRA.

My overall AA is about 50/50.

Should be a nice smooth ride. I'm about 3 years from starting RMDs.

When PRWCX and AUENX run out of their secret sauce or I get too feeble-minded to monitor this I'll probably just use VTSAX & VBTLX at about 50/50.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by fennewaldaj » Mon Feb 11, 2019 11:36 pm

I don't own any of this fund now but I have thought of moving to a 10-15% allocation (so like 20-30% of equity) as I glide to a lower equity allocation near retirement.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by GaryA505 » Tue Feb 12, 2019 12:58 am

fennewaldaj wrote:
Mon Feb 11, 2019 11:36 pm
I don't own any of this fund now but I have thought of moving to a 10-15% allocation (so like 20-30% of equity) as I glide to a lower equity allocation near retirement.
It's possible that more Bogleheads own this than will admit it. Just sayin.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by dkturner » Tue Feb 12, 2019 6:37 am

GaryA505 wrote:
Tue Feb 12, 2019 12:58 am
fennewaldaj wrote:
Mon Feb 11, 2019 11:36 pm
I don't own any of this fund now but I have thought of moving to a 10-15% allocation (so like 20-30% of equity) as I glide to a lower equity allocation near retirement.
It's possible that more Bogleheads own this than will admit it. Just sayin.
Vanguard Global Minimum Volatility Fund makes up about 93% of the equity in our tax-deferred accounts. Only 1/3 of our tax-deferred accounts is invested in equities.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by Portfolio7 » Tue Feb 12, 2019 8:10 am

hdas wrote:
Tue Dec 18, 2018 9:18 am
It's unfortunate that discussion about the virtues of min vol strategies it's mainly a reflection of recency bias. A bunch of these funds have the best performance right now on a 1 year basis. Nobody knows the future, but the spread between these and their market cap siblings is getting stretched out. The proper tactical switch has to account for this ever changing relationship.

Cheers :greedy
If one is reaching for performance, perhaps, though that has been mentioned on several threads. I don't think it's just the past year; the outperformance in returns relative to expectations is an inception to date phenomenon.

If one is trying to manage risk, is there any evidence that this will increase vs the past several years, relative to the rest of the market? I think it's the consistent risk characteristics that make this fund so interesting.
An investment in knowledge pays the best interest.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by GaryA505 » Tue Feb 12, 2019 11:51 am

dkturner wrote:
Tue Feb 12, 2019 6:37 am
GaryA505 wrote:
Tue Feb 12, 2019 12:58 am
fennewaldaj wrote:
Mon Feb 11, 2019 11:36 pm
I don't own any of this fund now but I have thought of moving to a 10-15% allocation (so like 20-30% of equity) as I glide to a lower equity allocation near retirement.
It's possible that more Bogleheads own this than will admit it. Just sayin.
Vanguard Global Minimum Volatility Fund makes up about 93% of the equity in our tax-deferred accounts. Only 1/3 of our tax-deferred accounts is invested in equities.
Well there you go. I've considered doing something very similar.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by GaryA505 » Tue Feb 12, 2019 11:57 am

Portfolio7 wrote:
Tue Feb 12, 2019 8:10 am
hdas wrote:
Tue Dec 18, 2018 9:18 am
It's unfortunate that discussion about the virtues of min vol strategies it's mainly a reflection of recency bias. A bunch of these funds have the best performance right now on a 1 year basis. Nobody knows the future, but the spread between these and their market cap siblings is getting stretched out. The proper tactical switch has to account for this ever changing relationship.

Cheers :greedy
If one is reaching for performance, perhaps, though that has been mentioned on several threads. I don't think it's just the past year; the outperformance in returns relative to expectations is an inception to date phenomenon.

If one is trying to manage risk, is there any evidence that this will increase vs the past several years, relative to the rest of the market? I think it's the consistent risk characteristics that make this fund so interesting.
It's my understanding that they use some sort of computer algorithm, then apply some human-based filtering (maximum country/region allocations, maybe?). This might explain the consistency. Anyway, it doesn't track very well with USMV, which as I understand it is 100% indexed.

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Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by dkturner » Tue Feb 12, 2019 12:19 pm

GaryA505 wrote:
Tue Feb 12, 2019 11:57 am
Portfolio7 wrote:
Tue Feb 12, 2019 8:10 am
hdas wrote:
Tue Dec 18, 2018 9:18 am
It's unfortunate that discussion about the virtues of min vol strategies it's mainly a reflection of recency bias. A bunch of these funds have the best performance right now on a 1 year basis. Nobody knows the future, but the spread between these and their market cap siblings is getting stretched out. The proper tactical switch has to account for this ever changing relationship.

Cheers :greedy
If one is reaching for performance, perhaps, though that has been mentioned on several threads. I don't think it's just the past year; the outperformance in returns relative to expectations is an inception to date phenomenon.

If one is trying to manage risk, is there any evidence that this will increase vs the past several years, relative to the rest of the market? I think it's the consistent risk characteristics that make this fund so interesting.
It's my understanding that they use some sort of computer algorithm, then apply some human-based filtering (maximum country/region allocations, maybe?). This might explain the consistency. Anyway, it doesn't track very well with USMV, which as I understand it is 100% indexed.
USMV is 100% invested in U.S. equities VMNVX has about 50% of its exposure allocated to overseas markets.

GaryA505
Posts: 186
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Location: New Mexico

Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by GaryA505 » Tue Feb 12, 2019 12:34 pm

dkturner wrote:
Tue Feb 12, 2019 12:19 pm
GaryA505 wrote:
Tue Feb 12, 2019 11:57 am
Portfolio7 wrote:
Tue Feb 12, 2019 8:10 am
hdas wrote:
Tue Dec 18, 2018 9:18 am
It's unfortunate that discussion about the virtues of min vol strategies it's mainly a reflection of recency bias. A bunch of these funds have the best performance right now on a 1 year basis. Nobody knows the future, but the spread between these and their market cap siblings is getting stretched out. The proper tactical switch has to account for this ever changing relationship.

Cheers :greedy
If one is reaching for performance, perhaps, though that has been mentioned on several threads. I don't think it's just the past year; the outperformance in returns relative to expectations is an inception to date phenomenon.

If one is trying to manage risk, is there any evidence that this will increase vs the past several years, relative to the rest of the market? I think it's the consistent risk characteristics that make this fund so interesting.
It's my understanding that they use some sort of computer algorithm, then apply some human-based filtering (maximum country/region allocations, maybe?). This might explain the consistency. Anyway, it doesn't track very well with USMV, which as I understand it is 100% indexed.
USMV is 100% invested in U.S. equities VMNVX has about 50% of its exposure allocated to overseas markets.
Ah, thanks for pointing that out. It's been a while since I looked at that and I forgot. It actually tracks closer to a mix of USMV/EFAV of around 55/45 or so.

The international allocation is one reason I like it, because it gives me the ex-US exposure without having to buy the whole basket of stocks in the ex-US index.

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Portfolio7
Posts: 490
Joined: Tue Aug 02, 2016 3:53 am

Re: VMVFX (Global Minimum Volatility) as core equity holding. Your opinion?

Post by Portfolio7 » Tue Feb 12, 2019 1:21 pm

GaryA505 wrote:
Tue Feb 12, 2019 11:57 am
Portfolio7 wrote:
Tue Feb 12, 2019 8:10 am
hdas wrote:
Tue Dec 18, 2018 9:18 am
It's unfortunate that discussion about the virtues of min vol strategies it's mainly a reflection of recency bias. A bunch of these funds have the best performance right now on a 1 year basis. Nobody knows the future, but the spread between these and their market cap siblings is getting stretched out. The proper tactical switch has to account for this ever changing relationship.

Cheers :greedy
If one is reaching for performance, perhaps, though that has been mentioned on several threads. I don't think it's just the past year; the outperformance in returns relative to expectations is an inception to date phenomenon.

If one is trying to manage risk, is there any evidence that this will increase vs the past several years, relative to the rest of the market? I think it's the consistent risk characteristics that make this fund so interesting.
It's my understanding that they use some sort of computer algorithm, then apply some human-based filtering (maximum country/region allocations, maybe?). This might explain the consistency. Anyway, it doesn't track very well with USMV, which as I understand it is 100% indexed.
As noted the VMVFX benchmark is different, besides being global (not just US) it also skews towards midcap... but also I think you are focused on returns when you mention tracking. I'm more focused on volatility... and regarding volatility, I think VMVFX is a pretty stellar outperformer relative to it's benchmark. ACWV is very good too. I'm not as impressed with USMV and the others from that perspective. However, I haven't looked at the data since September, so I should acknowledge that I may be a little dated with that opinion.
An investment in knowledge pays the best interest.

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