[Not a bad choice for your EM equity exposure (EYLD)]

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jhfenton
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Re: [Not a bad choice for your EM equity exposure (EYLD)]

Post by jhfenton » Sat Feb 08, 2020 6:13 pm

watchnerd wrote:
Sat Feb 08, 2020 5:32 pm
jhfenton wrote:
Sat Feb 08, 2020 5:26 pm


I wish the ER were lower, but for better or worse it is in line with other small-cap EM funds (with less desirable portfolio characteristics). Having an EM fund with rampant shareholder dilution, a large proportion of state-owned enterprises, and a huge allocation to China might cost big in the long run too.
If you want ex-China, there is EMXC, iShares ex-China ETF

ER = .49
AUM = $34M

I don't understand your rampant shareholder dilution comment --- these are index ETFs, not CEFs.
Shareholder dilution in public companies in the emerging markets is widespread and significant, particularly in China. The holdings in EYLD won't have that issue, because eligibility is based on [dividend yield + net buybacks (buybacks - issuance)]. That's one reason why it ends up with a lower allocation to China and to SOE in general, even though those are not explicit index criteria.

I'm aware of EMXC. Unfortunately, beyond its exclusion of China, it's a completely vanilla fund holding only large and mid caps; and it also has low assets. For that exposure, 49 bp is absurd. (XCEM offers comparable exposure at 16 bp, but it has only $20.1 MM in assets, and often trades at ridiculous spreads.) I have both EMXC and XCEM on my watch list to see if either ever becomes viable. (The flip side is FLCH/Franklin FTSE China ETF at 0.19%. It's at $38.86 MM in assets after losing some during the current crisis.)

With every fund, I look at whether or not the cost is worth the exposure. That's why I don't have a value tilt for ex-US small cap. Instead vanilla small-cap VSS is our largest holding at 10 bp. I haven't seen a small-cap ex-US value fund with a portfolio that justifies the incremental ER. Funds like the iShares multifactor funds have so many country and sector constraints that you end up with fairly vanilla portfolios. So far, the same appears to be true for AVEM/Avantis EM Equity--though I'm watching to see how it develops.

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watchnerd
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Re: [Not a bad choice for your EM equity exposure (EYLD)]

Post by watchnerd » Sat Feb 08, 2020 6:19 pm

jhfenton wrote:
Sat Feb 08, 2020 6:13 pm
watchnerd wrote:
Sat Feb 08, 2020 5:32 pm
jhfenton wrote:
Sat Feb 08, 2020 5:26 pm


I wish the ER were lower, but for better or worse it is in line with other small-cap EM funds (with less desirable portfolio characteristics). Having an EM fund with rampant shareholder dilution, a large proportion of state-owned enterprises, and a huge allocation to China might cost big in the long run too.
If you want ex-China, there is EMXC, iShares ex-China ETF

ER = .49
AUM = $34M

I don't understand your rampant shareholder dilution comment --- these are index ETFs, not CEFs.
Shareholder dilution in public companies in the emerging markets is widespread and significant, particularly in China. The holdings in EYLD won't have that issue, because eligibility is based on [dividend yield + net buybacks (buybacks - issuance)]. That's one reason why it ends up with a lower allocation to China and to SOE in general, even though those are not explicit index criteria.

I'm aware of EMXC. Unfortunately, beyond its exclusion of China, it's a completely vanilla fund holding only large and mid caps; and it also has low assets. For that exposure, 49 bp is absurd. (XCEM offers comparable exposure at 16 bp, but it has only $20.1 MM in assets, and often trades at ridiculous spreads.) I have both EMXC and XCEM on my watch list to see if either ever becomes viable. (The flip side is FLCH/Franklin FTSE China ETF at 0.19%. It's at $38.86 MM in assets after losing some during the current crisis.)

With every fund, I look at whether or not the cost is worth the exposure. That's why I don't have a value tilt for ex-US small cap. Instead vanilla small-cap VSS is our largest holding at 10 bp. I haven't seen a small-cap ex-US value fund with a portfolio that justifies the incremental ER. Funds like the iShares multifactor funds have so many country and sector constraints that you end up with fairly vanilla portfolios. So far, the same appears to be true for AVEM/Avantis EM Equity--though I'm watching to see how it develops.
So the entire case for EYLD hinges on believing their selection criteria will lead to market outperformance.

That sounds a lot like picking an active fund manager.

Personally, I don't see any evidence that their selection criteria are a sure thing to beat the market over the long haul.

In the absence of that, I'll just take the EM market beta as cheaply as I can get it.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

fennewaldaj
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Re: [Not a bad choice for your EM equity exposure (EYLD)]

Post by fennewaldaj » Sun Feb 09, 2020 12:45 am

watchnerd wrote:
Sat Feb 08, 2020 6:19 pm


So the entire case for EYLD hinges on believing their selection criteria will lead to market outperformance.

That sounds a lot like picking an active fund manager.

Personally, I don't see any evidence that their selection criteria are a sure thing to beat the market over the long haul.

In the absence of that, I'll just take the EM market beta as cheaply as I can get it.
EYLD is an active quant fund basically. Meb Faber actually wrote a book detailing the evidence for the approach. The kindle edition is $2.99 if you are interested.

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watchnerd
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Re: [Not a bad choice for your EM equity exposure (EYLD)]

Post by watchnerd » Sun Feb 09, 2020 2:35 am

fennewaldaj wrote:
Sun Feb 09, 2020 12:45 am

EYLD is an active quant fund basically. Meb Faber actually wrote a book detailing the evidence for the approach. The kindle edition is $2.99 if you are interested.
Now it's making sense.

So one must buy into those, conceptually.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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jhfenton
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Re: [Not a bad choice for your EM equity exposure (EYLD)]

Post by jhfenton » Sun Feb 09, 2020 2:18 pm

watchnerd wrote:
Sat Feb 08, 2020 6:19 pm
So the entire case for EYLD hinges on believing their selection criteria will lead to market outperformance.

That sounds a lot like picking an active fund manager.
You're not wrong. Making factor bets is making active bets, and I've done it for more than 20 years, albeit primarily with "index" funds.

Now, though, Vanguard actually calls its quant factor funds active, and I own VFVA/Vanguard US Value Factor. (Although it is only 13 bp, so the fee is not a big hurdle to overcome.) I own VEGBX/Vanguard's truly active EM bond fund. (I also own VOHIX/Vanguard Ohio Long-term Tax Exempt at 13 bp. It is also nominally "active," but there is no comparable index fund in existence.)
watchnerd wrote:
Sat Feb 08, 2020 6:19 pm
Personally, I don't see any evidence that their selection criteria are a sure thing to beat the market over the long haul.

In the absence of that, I'll just take the EM market beta as cheaply as I can get it.
There's never anything wrong with that. I still own some VWO.

I guess I just don't see EM as a single market in the way that US equities are, or even developed market equities. And I have concerns with market conditions in some of the countries that EYLD addresses (in addition to having strong value and quality tilts). :beer

Startled Cat
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Re: [Not a bad choice for your EM equity exposure (EYLD)]

Post by Startled Cat » Sun Feb 09, 2020 3:13 pm

jhfenton wrote:
Sun Feb 09, 2020 2:18 pm
There's never anything wrong with that. I still own some VWO.

I guess I just don't see EM as a single market in the way that US equities are, or even developed market equities. And I have concerns with market conditions in some of the countries that EYLD addresses (in addition to having strong value and quality tilts). :beer
I think I approach emerging markets from a similar perspective to you. I'm not particularly comfortable with China+Taiwan making up 50% of the index, especially since I have a very large EM allocation as a share of my portfolio.

I've taken these approaches to reducing concentartion in China:

- I get much of my EM exposure through non-market-cap-weighted funds like FNDE and EWX which are a bit less China-heavy. (This has some downsides - the ERs are significantly higher than a "vanilla" EM index, and I avoid them in taxable, so they eat up valuable tax-deferred space.) EYLD seems like a reasonable option for this purpose, but I'm not yet convinced that it's worth adding a third EM fund, or swapping out one of the others.

- Some exposure comes from single-country and single-region ETFs: FLLA, FLRU, EWM, EPOL, and TUR (Latin America, Russia, Malaysia, Poland, and Turkey respectively). This is more work but lets me place some minor active bets, informed by Research Affiliates projections (which so far, haven't worked out very well). It has the same disadvantages in terms of fund expenses and consuming tax-advantaged space.

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Huygens
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Re: [Not a bad choice for your EM equity exposure (EYLD)]

Post by Huygens » Fri Feb 14, 2020 12:24 am

Startled Cat wrote:
Sun Feb 09, 2020 3:13 pm
I think I approach emerging markets from a similar perspective to you. I'm not particularly comfortable with China+Taiwan making up 50% of the index, especially since I have a very large EM allocation as a share of my portfolio.
I overweight EM as well, but I’ve always been uneasy with the China exposure. I’ve recently reduced my EM equity (VEMAX) allocation by 33% and redirected it to an EM bond fund (VEGBX), whose largest country exposures include Brazil, South America, and Panama. ER is high at 45 bps, but I sleep better at night…

I’ve also considered the Freedom 100 Emerging Markets ETF (FRDM), but its total net assets are < $15M. I’m waiting to see if assets grow.

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