Value based investing:VFVA VS VTV

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Topic Author
annu
Posts: 405
Joined: Mon Nov 04, 2019 7:55 pm

Value based investing:VFVA VS VTV

Post by annu » Mon Jan 27, 2020 1:00 pm

All my allocation is using 4 fund portfolio so far. But I will like to follow the value based investing, as based on vanguard 2020 outlook , it makes more sense in going that route.

So vfva, https://investor.vanguard.com/etf/profile/VFVA

Summary:
Product summary
Advisor uses a rules-based quantitative model to evaluate U.S. common stocks.
Fund invests in stocks with relatively lower market valuations relative to fundamentals.
The portfolio includes a diverse mix of stocks representing many different market capitalizations (large, mid, and small), market sectors, and industry groups.
Seeks long-term capital appreciation.
Typically, at least 80% of the fund’s assets will be invested in securities issued by U.S. companies.
Note: The Value factor is measured by book value/price, forward earnings/price, operating cash flows/price (for non-financials only).

https://investor.vanguard.com/etf/profile/VTV
Summary:Seeks to track the performance of the CRSP US Large Cap Value Index, which measures the investment return of large-capitalization value stocks.
Provides a convenient way to match the performance of many of the nation’s largest value stocks.
Follows a passively managed, full-replication approach

I like vfva more, as seems like cover all(large, small and mid) vs vtv, which seems large only.

Now the 2 questions, for a 35% tax bracket, with high state tax:

1) does vfva make sense in taxable, or only pretax and/or tax deferred. Trying to use pretax/ tax deferred for bonds as well, doing a 60/40 split, so will replace vti with vfva, but will like to do more in taxable if it makes sense. On 60% stock in pretax/ tax defrred, doing 50% vfva and 50% vxus starting 2020.
2) even though vfva has higher expense ratio, and is actively managed and bot following an index, it has more stock 700+, almost double of vtv, and is also newer and actively managed by vanguard, considering they also do more research like the fact, a fund managed by them will be more driven by boglehead fundamentals.

I am almost sure on vfva, but not so much on taxable or not. As will like to stick to my 60/40 split there as much as possible, and maybe do more in taxable, to get more exposure to stocks. Open to vtv as well, so will like some inputs from the fellow bogleheads.

Topic Author
annu
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Re: Value based investing:VFVA VS VTV

Post by annu » Mon Jan 27, 2020 8:02 pm

Any thoughts? Inputs?

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jhfenton
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Re: Value based investing:VFVA VS VTV

Post by jhfenton » Mon Jan 27, 2020 8:39 pm

Since no one else has chimed in...So far, VFVA has a lower yield and is a bit more tax-efficient than VTV. It still has a slightly higher yield than Total Stock, but it hasn't been terrible in taxable so far.

That said, our taxable account is small, so I only hold VFVA in tax-advantaged. It is our second largest holding and our largest US holding. It has a much deeper value tilt than VTV--or the CRSP-based Vanguard Mid-Cap Value or Vanguard Small-Cap Value--and allowed me to simplify our portfolio a bit with its 1/3 large, 1/3 mid, 1/3 small portfolio construction method. It's now the only US equity fund we hold outside of our 401(k)s.

I wouldn't get too hung up on whether or not it's active or passive. What matters is that it is low cost. Vanguard calls it active because they aren't married to fixed rebalancing dates. They have the flexibility to time rebalancing based on the factor load of the portfolio and on market conditions. But it's 100% a quantitative approach, much like DFA funds, which many call passive, but not indexed. Vanguard could nail down the rebalancing dates and call it an index fund, but you'd probably give up a bit in terms of a consistent factor exposure.

One bonus if you hold it in taxable...because of its volatility, you are likely to get some good tax-loss harvesting opportunities. :beer But in the long run, I expect the fund will do well.

snailderby
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Re: Value based investing:VFVA VS VTV

Post by snailderby » Mon Jan 27, 2020 10:54 pm

VFVA has a stronger value tilt and more mid-cap and small-cap exposure.

But before we get into the details of fund construction, do you have the conviction to stick with a value tilt even if it underperforms for several years? To quote Eugene Fama and Kenneth French: “Negative equity premiums and negative premiums of value and small stock returns relative to market are commonplace for three- to five-year periods, and they are far from rare for ten-year periods. Given this uncertainty, investors who will abandon equities or tilts toward value or small stocks in the face of three, five, or even ten years of disappointing returns may be wise to avoid these strategies in the first place.” https://www.cfainstitute.org/en/researc ... j-v74-n3-6.

Topic Author
annu
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Re: Value based investing:VFVA VS VTV

Post by annu » Mon Jan 27, 2020 11:12 pm

Yeah, I do not plan on making any changes in next 5 to 7 years for sure. Also based on research from vanguard, immy plan for next 10 years or closer.
Below is their outlook.

Equities
U.S. equities 3.5%–5.5%
U.S. growth 2.5%–4.5%
U.S. value 6.0%–8.0%
U.S. large-cap 3.5%–5.5%
U.S. small-cap 4.5%–6.5%
U.S. real estate investment trusts 2.5%–4.5%
Global equities ex-U.S. (unhedged) 6.5%–8.5%

But I am working on updating 4 fund portfolio to this new composition

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Wiggums
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Re: Value based investing:VFVA VS VTV

Post by Wiggums » Tue Jan 28, 2020 2:34 am

annu wrote:
Mon Jan 27, 2020 11:12 pm
Yeah, I do not plan on making any changes in next 5 to 7 years for sure. Also based on research from vanguard, immy plan for next 10 years or closer.
Below is their outlook.

Equities
U.S. equities 3.5%–5.5%
U.S. growth 2.5%–4.5%
U.S. value 6.0%–8.0%
U.S. large-cap 3.5%–5.5%
U.S. small-cap 4.5%–6.5%
U.S. real estate investment trusts 2.5%–4.5%
Global equities ex-U.S. (unhedged) 6.5%–8.5%

But I am working on updating 4 fund portfolio to this new composition
Are you just adding Vanguard Value ETF (VTV) to the four fund portfolio or are you doing something different?

snailderby
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Re: Value based investing:VFVA VS VTV

Post by snailderby » Tue Jan 28, 2020 8:18 am

1. Do you just want to add large cap value? Or also mid and small cap value?

2. Is Vanguard's forecast the main impetus for your desire to add a value tilt?

Topic Author
annu
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Re: Value based investing:VFVA VS VTV

Post by annu » Tue Jan 28, 2020 10:06 am

Yes, adding vfva as main fund starting 2020, instead of vti. Still doing 4 funds but with vfva instead of vti.

And for adding mid, small, large, will like something similar to vti(total stock market)

Topic Author
annu
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Re: Value based investing:VFVA VS VTV

Post by annu » Tue Jan 28, 2020 11:50 pm

Portfolio visualizer shows vtv did better then vfva, especially in worst drawdowns. Kind of confused on what to do.

HippoSir
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Re: Value based investing:VFVA VS VTV

Post by HippoSir » Wed Jan 29, 2020 12:40 am

annu wrote:
Tue Jan 28, 2020 11:50 pm
Portfolio visualizer shows vtv did better then vfva, especially in worst drawdowns. Kind of confused on what to do.
VFVA hasn't existed long enough to see a bad drawdown, what data are you looking at?

Note value has performed very badly recently, and VFVA is far more valuey than VTV.

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andromeda2k12
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Re: Value based investing:VFVA VS VTV

Post by andromeda2k12 » Wed Jan 29, 2020 12:50 am

Have you given thoughts to the multi factor etf VFMF? It has a smaller value exposure but isn’t negative on momentum like VFVA is and is high on quality. Many people suggest it as a core holding for factor investors due to its well roundedness as a value etf.

There’s a good amount of evidence suggesting that value combined with momentum is superior to value alone and so that’s why I prefer the multi factor etf myself.

As long as you are ok with the sizeable smaller tilt of the vanguard factor funds then I would say to go with one of those since they more aggressively target the factors.

snailderby
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Re: Value based investing:VFVA VS VTV

Post by snailderby » Wed Jan 29, 2020 6:51 am

annu wrote:
Tue Jan 28, 2020 11:50 pm
Portfolio visualizer shows vtv did better then vfva, especially in worst drawdowns. Kind of confused on what to do.
Like HippoSir said, value has lagged growth for a while, and VFVA is more valuey than VTV. Value could rebound in the coming years or continue to underperform. That's the risk you run if you overweight value stocks.
annu wrote:
Tue Jan 28, 2020 10:06 am
And for adding mid, small, large, will like something similar to vti(total stock market)
I'm not sure I completely understand this. VTI already includes large, mid, and small cap stocks (both value and growth) at market weight. Do you want to overweight mid and small cap stocks or just hold them at market weight? What about mid and small cap value stocks?

MotoTrojan
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Re: Value based investing:VFVA VS VTV

Post by MotoTrojan » Wed Jan 29, 2020 7:21 am

I would strongly urge you not to do this unless it’s a lifelong change. Your rationale and 5-7 year comment are alarming.

typical.investor
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Re: Value based investing:VFVA VS VTV

Post by typical.investor » Wed Jan 29, 2020 7:44 am

MotoTrojan wrote:
Wed Jan 29, 2020 7:21 am
I would strongly urge you not to do this unless it’s a lifelong change. Your rationale and 5-7 year comment are alarming.
I agree. It’s always very possible that value will continue to lag for another decade.

anil686
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Re: Value based investing:VFVA VS VTV

Post by anil686 » Wed Jan 29, 2020 10:22 am

typical.investor wrote:
Wed Jan 29, 2020 7:44 am
MotoTrojan wrote:
Wed Jan 29, 2020 7:21 am
I would strongly urge you not to do this unless it’s a lifelong change. Your rationale and 5-7 year comment are alarming.
I agree. It’s always very possible that value will continue to lag for another decade.
+3 - I generally resist the urge to analyze valuations to add or remove funds. Sure, with certain valuations, I may choose to be lighter or more into equities, but not style changing. I think that is a recipe for many funds in 20 years which can be tedious and unnecessary to manage effectively. JMO though....

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Re: Value based investing:VFVA VS VTV

Post by abuss368 » Wed Jan 29, 2020 11:24 am

Honestly I would focus on owning the entire market at the lowest cost.

Jack Bogle has often said why search for the needle in the haystack when you can buy the haystack.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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jhfenton
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Re: Value based investing:VFVA VS VTV

Post by jhfenton » Wed Jan 29, 2020 1:25 pm

If you're not absolutely sure you want to buy VFVA and why, I would buy Total Stock Market.

And I say that as someone who has VFVA as his second-largest position and only non-401(k) US equity holding. But I've been a heavy value (and small) investor since the 90's. I know why I like VFVA and why I want to own it.

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annu
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Re: Value based investing:VFVA VS VTV

Post by annu » Wed Jan 29, 2020 9:49 pm

Thanks all. Will stick to tsm with some investment in vfva and VFMF Going to do 60/20/20 split.
Will check next january to see if need to make any drastic changes.

Thanks everyone.

MotoTrojan
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Re: Value based investing:VFVA VS VTV

Post by MotoTrojan » Wed Jan 29, 2020 10:27 pm

annu wrote:
Wed Jan 29, 2020 9:49 pm
Thanks all. Will stick to tsm with some investment in vfva and VFMF Going to do 60/20/20 split.
Will check next january to see if need to make any drastic changes.

Thanks everyone.
Why are you fixating on valuations in US but not considering international?

Check back in January 2050. Seriously. Otherwise don’t tilt.

Topic Author
annu
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Re: Value based investing:VFVA VS VTV

Post by annu » Thu Jan 30, 2020 9:14 pm

Because in 2050, I would have been living on Mars for 10 years or more.
I need to start somewhere, since I am in US, makes sense to start with US.

And sorry did not imply that I will be change plans in a year, just won't check nothing for a year, and take a look again next year.

Topic Author
annu
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Re: Value based investing:VFVA VS VTV

Post by annu » Fri Jan 31, 2020 10:29 pm

Earlier today got drunk over lunch, went on vanguard site later, got confused with my allocations and just did vtsax., as for some reason wanted to do it before I went to sleep in afternoon.

Just woke up, with confirmation, it went through....so next year maybe :sharebeer

lexor
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Re: Value based investing:VFVA VS VTV

Post by lexor » Sat Feb 01, 2020 3:13 am

annu wrote:
Mon Jan 27, 2020 1:00 pm
All my allocation is using 4 fund portfolio so far. But I will like to follow the value based investing, as based on vanguard 2020 outlook , it makes more sense in going that route.

So vfva, https://investor.vanguard.com/etf/profile/VFVA

Summary:
Product summary
Advisor uses a rules-based quantitative model to evaluate U.S. common stocks.
Fund invests in stocks with relatively lower market valuations relative to fundamentals.
The portfolio includes a diverse mix of stocks representing many different market capitalizations (large, mid, and small), market sectors, and industry groups.
Seeks long-term capital appreciation.
Typically, at least 80% of the fund’s assets will be invested in securities issued by U.S. companies.
Note: The Value factor is measured by book value/price, forward earnings/price, operating cash flows/price (for non-financials only).

https://investor.vanguard.com/etf/profile/VTV
Summary:Seeks to track the performance of the CRSP US Large Cap Value Index, which measures the investment return of large-capitalization value stocks.
Provides a convenient way to match the performance of many of the nation’s largest value stocks.
Follows a passively managed, full-replication approach

I like vfva more, as seems like cover all(large, small and mid) vs vtv, which seems large only.

Now the 2 questions, for a 35% tax bracket, with high state tax:

1) does vfva make sense in taxable, or only pretax and/or tax deferred. Trying to use pretax/ tax deferred for bonds as well, doing a 60/40 split, so will replace vti with vfva, but will like to do more in taxable if it makes sense. On 60% stock in pretax/ tax defrred, doing 50% vfva and 50% vxus starting 2020.
2) even though vfva has higher expense ratio, and is actively managed and bot following an index, it has more stock 700+, almost double of vtv, and is also newer and actively managed by vanguard, considering they also do more research like the fact, a fund managed by them will be more driven by boglehead fundamentals.

I am almost sure on vfva, but not so much on taxable or not. As will like to stick to my 60/40 split there as much as possible, and maybe do more in taxable, to get more exposure to stocks. Open to vtv as well, so will like some inputs from the fellow bogleheads.
abuss368 wrote:
Wed Jan 29, 2020 11:24 am
Honestly I would focus on owning the entire market at the lowest cost.

Jack Bogle has often said why search for the needle in the haystack when you can buy the haystack.
+1 listen to Bogle

Nobody can predict the market - not even Vanguard.
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” -Mr. John C. Bogle

Topic Author
annu
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Joined: Mon Nov 04, 2019 7:55 pm

Re: Value based investing:VFVA VS VTV

Post by annu » Sat Feb 01, 2020 8:56 pm

Thanks. I think drunk me agreed and so did just that

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