Replace VXUS With VPU (Vanguard US Utilities Index)

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BigDGB
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Replace VXUS With VPU (Vanguard US Utilities Index)

Post by BigDGB »

Happy Thanksgiving

The foundation of my current investing philosophy began with this forum and I'm forever grateful. The principles of low cost indexing are hard to ignore.

As I progress in my financial discovery, I have also discovered factors through this forum and the Rational Reminder Community and have implemented a modest 20 % tilt to small cap value.

I very much enjoy learning about other aspects of investing to account for risk adjusted performance and methods to potentially mitigate drawdowns while maintaining solid portfolio returns.

Recently I came across a podcast called Risk Parity Radio, hosted by a gentleman by the name of Frank Vasquez, a former attorney that practiced for 30 years and additionally went to school for engineering. He is not a CFP or Investment Advisor, however he is a very bright guy that has a passion for what he does and seems to truly love educating the DIY investor. You will find him to be very knowledgeable and has Boglehead core beliefs, however he brings to light other tweaks in portfolio construction around Risk Parity without getting into deep, dark complicated holes.

I don't agree with everything he does, but most of it makes a lot of sense, especially in the retired deaccumulation phase where people are trying to reduce drawdowns without sacrificing a lot of upside performance. For instance, he believes in utilizing non-correlated assets in portfolio construction similar to Larry Swedroe or Vineviz, such as long term treasuries or at least intermediate term treasuries and other alternative assets that have low correlations to the Total US Market such as small cap value, reits, gold etc.

I haven't bought into gold and reits are still fairly highly correlated to the overall market.

I had a 20% allocation to VXUS, Vanguard Total International Index that is dwindling down in % due to it's poor performance. I took sort of a half way position on international exposure that lies between Vanguard's 45 % recommendation and many other people on this forum that believe a 0% allocation is in order.

Frank from Risk Parity also believes that Total International etf VXUS is not needed, due to it's high .88 correlation with Vanguard US Total Stock Market Index VTI. Frank doesn't live in a world of recency bias.. he just looks at the correlation of the two funds and feels that the diversification isn't there.

Where is this going?

One of the ideas brought up on one of the podcasts was to allocate maybe 10% of your portfolio to a utilities etf. Vanguard Utilities etf VPU has been in existence since February 2004, so almost 22 years and correlates well when comparing with VXUS , since international stocks had their outperformance beginning around that time.

VPU has a .49 market correlation vs. .88 for VXUS, an annual CAGR of 9.84 % vs 6.49% for VXUS and a worst year of -27.94% vs 44.10% for VXUS since inception.

I'm considering peeling off 50% of my current VXUS holdings to VPU and hunting for an alternative for one additional asset class to replace the other 50%.

I would very much welcome thoughts on my rationale.
Last edited by BigDGB on Thu Nov 25, 2021 10:43 am, edited 1 time in total.
Jehousto
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Re: Replace VXUS With VPU ?

Post by Jehousto »

I agree with your rational. I’ve built my portfolio in a similar manner with 10% in VPU. I’ve been using Portfolio Visualizer to analyze my risk and return. I have not been able to find an international fund that when backtested had a satisfactory impact on my portfolio, so like you I added VPU. I’ll continue to look for better fund combinations and will be interested in other responses to your post.
BackToSchoolDad
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Re: Replace VXUS With VPU ?

Post by BackToSchoolDad »

If the goal is to diversify, why not reduce your total US stock market 10% and substitute VPU there? That would keep your US to international ratio (which is low in my humble opinion) the same.

Guys like Swedroe and Vineviz usually advocate a pretty heavy sleeve of international.
Northern Flicker
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Re: Replace VXUS With VPU ?

Post by Northern Flicker »

Bonds are the primary diversifier to meet a goal of reduced short-term volatility.

Utilities underperformed the market significantly in the 1970's, a period of accelerating inflation and rising interest rates.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
Robot Monster
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Re: Replace VXUS With VPU ?

Post by Robot Monster »

Not addressing your actual question, but would like to share this with you:
The inflationary backdrop, according to Siegel, may set-up underperformers utilities and consumer staples, known for their dividends, for a strong run.

“They may have their day in the sun finally,” said Siegel. “If you have a dividend, firms can raise their prices and historically dividends are inflation-protected. They’re not as stable, of course, as a government bond. But they have that inflation protection and a positive yield.”
link

(I took the bait and bought Vanguard Consumer Staples Fund, and the Utilities Fund.)
"The downs are part of the long term upward trend." -- our favorite golfer
sycamore
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Re: Replace VXUS With VPU ?

Post by sycamore »

BackToSchoolDad wrote: Wed Nov 24, 2021 7:56 pm If the goal is to diversify, why not reduce your total US stock market 10% and substitute VPU there? That would keep your US to international ratio (which is low in my humble opinion) the same.

Guys like Swedroe and Vineviz usually advocate a pretty heavy sleeve of international.
+1 to that replacing some Total US with VPU. A decent-size chunk of international to go with the small-cap value is still very helpful diversification-wise.

Speaking of vineviz, here's a thread of interest to the OP: Vanguard ETFs, ranked by diversification benefit.
Nathan Drake
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Re: Replace VXUS With VPU ?

Post by Nathan Drake »

I do not agree with his idea that International large cap isn’t needed due to short term correlations.

Short term correlations can lead to wide dispersions over 5-10 year periods (such as the last decade, or decade before that).

Investors should be concerned with matching assets with similar long term expected returns that manifest differently through various periods.

VXUS represents different regions and types of stocks and is worth exposure to. VPU is a utilities index. I am not sure why having a sector concentrated bet is an improvement over broader diversification

Your comparisons of Utilities to ExUS stocks is recency bias. You see higher returns and lower correlations, therefore it must be better. But utilities could get majorly disrupted, how is that concentrated bet looking like now? VXUS had had a fairly weak period. Valuations are quite low. Past is not prologue. Giving up on a broad diversifier as part of an overall strategy to go into a heavily concentrated area doesn’t make much sense to me

I would be quicker to add Intl SCV exposure (AVDV or AVES) for lower correlations and higher expected returns
Last edited by Nathan Drake on Thu Nov 25, 2021 1:12 am, edited 1 time in total.
20% VOO | 30% VXUS | 20% AVUV | 15% AVDV | 15% AVES
Northern Flicker
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Re: Replace VXUS With VPU ?

Post by Northern Flicker »

Robot Monster wrote: Wed Nov 24, 2021 8:06 pm Not addressing your actual question, but would like to share this with you:
The inflationary backdrop, according to Siegel, may set-up underperformers utilities and consumer staples, known for their dividends, for a strong run.

“They may have their day in the sun finally,” said Siegel. “If you have a dividend, firms can raise their prices and historically dividends are inflation-protected. They’re not as stable, of course, as a government bond. But they have that inflation protection and a positive yield.”
link

(I took the bait and bought Vanguard Consumer Staples Fund, and the Utilities Fund.)
I tend to believe that utilities are more likely to underperform when inflation accelerates-- the shorter duration of their cash flows relative to growth stocks is a benefit when interest rates rise. But utilities are sensitive to oil, natural gas, and coal prices. Inflation will drive up their fuel cost but their rates are regulated.

Here you can see the performance relative to the S&P500 as inflation accelerated since 10/2020:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

If you read Siegel's interview carefully, he seems to be predicting not that we will have inflation that leads to overperformance of utilities, but that the Fed may have to taper reinvestment of bond cash flows at a faster rate to combat inflation. That would be expected to lead to rising interest rates that will disfavor (longer duration) growth and tech stocks, enabling value and dividend stocks to overperform.

I neither agree or disagree with the claim on the trajectory of Fed tapering.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
rossington
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Re: Replace VXUS With VPU ?

Post by rossington »

BigDGB wrote: Wed Nov 24, 2021 7:10 pm Happy Thanksgiving

The foundation of my current investing philosophy began with this forum and I'm forever grateful. The principles of low cost indexing are hard to ignore.

As I progress in my financial discovery, I have also discovered factors through this forum and the Rational Reminder Community and have implemented a modest 20 % tilt to small cap value.

I very much enjoy learning about other aspects of investing to account for risk adjusted performance and methods to potentially mitigate drawdowns while maintaining solid portfolio returns.

Recently I came across a podcast called Risk Parity Radio, hosted by a gentleman by the name of Frank Vasquez, a former attorney that practiced for 30 years and additionally went to school for engineering. He is not a CFP or Investment Advisor, however he is a very bright guy that has a passion for what he does and seems to truly love educating the DIY investor. You will find him to be very knowledgeable and has Boglehead core beliefs, however he brings to light other tweaks in portfolio construction around Risk Parity without getting into deep, dark complicated holes.

I don't agree with everything he does, but most of it makes a lot of sense, especially in the retired deaccumulation phase where people are trying to reduce drawdowns without sacrificing a lot of upside performance. For instance, he believes in utilizing non-correlated assets in portfolio construction similar to Larry Swedroe or Vineviz, such as long term treasuries or at least intermediate term treasuries and other alternative assets that have low correlations to the Total US Market such as small cap value, reits, gold etc.

I haven't bought into gold and reits are still fairly highly correlated to the overall market.

I had a 20% allocation to VXUS, Vanguard Total International Index that is dwindling down in % due to it's poor performance. I took sort of a half way position on international exposure that lies between Vanguard's 45 % recommendation and many other people on this forum that believe a 0% allocation is in order.

Frank from Risk Parity also believes that Total International etf VXUS is not needed, due to it's high .88 correlation with Vanguard US Total Stock Market Index VTI. Frank doesn't live in a world of recency bias.. he just looks at the correlation of the two funds and feels that the diversification isn't there.

Where is this going?

One of the ideas brought up on one of the podcasts was to allocate maybe 10% of your portfolio to a utilities etf. Vanguard Utilities etf VPU has been in existence since February 2004, so almost 22 years and correlates well when comparing with VXUS , since international stocks had their outperformance beginning around that time.

VPU has a .49 market correlation vs. .88 for VXUS, an annual CAGR of 9.84 % vs 6.49% for VXUS and a worst year of -27.94% vs 44.10% for VXUS since inception.

I'm considering peeling off 50% of my current VXUS holdings to VPU and hunting for an alternative for one additional asset class to replace the other 50%.

I would very much welcome thoughts on my rationale.
Happy Thanksgiving to you!
*Sell VXUS
*Skip VPU
*Put it all in VTSAX/VTI
...Just look at the numbers and risk potential.
FWIW.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Robot Monster
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Re: Replace VXUS With VPU ?

Post by Robot Monster »

Northern Flicker wrote: Thu Nov 25, 2021 1:08 am
Robot Monster wrote: Wed Nov 24, 2021 8:06 pm Not addressing your actual question, but would like to share this with you:
The inflationary backdrop, according to Siegel, may set-up underperformers utilities and consumer staples, known for their dividends, for a strong run.

“They may have their day in the sun finally,” said Siegel. “If you have a dividend, firms can raise their prices and historically dividends are inflation-protected. They’re not as stable, of course, as a government bond. But they have that inflation protection and a positive yield.”
link

(I took the bait and bought Vanguard Consumer Staples Fund, and the Utilities Fund.)
I tend to believe that utilities are more likely to underperform when inflation accelerates-- the shorter duration of their cash flows relative to growth stocks is a benefit when interest rates rise. But utilities are sensitive to oil, natural gas, and coal prices. Inflation will drive up their fuel cost but their rates are regulated.

Here you can see the performance relative to the S&P500 as inflation accelerated since 10/2020:

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

If you read Siegel's interview carefully, he seems to be predicting not that we will have inflation that leads to overperformance of utilities, but that the Fed may have to taper reinvestment of bond cash flows at a faster rate to combat inflation. That would be expected to lead to rising interest rates that will disfavor (longer duration) growth and tech stocks, enabling value and dividend stocks to overperform.

I neither agree or disagree with the claim on the trajectory of Fed tapering.
Nice analysis. Thank you.

I happen to own the Vanguard Commodity fund (VCMDX), so if rising fuel costs are a bummer for my Utilities fund, it's a consolation they could be a delight for my VCMDX fund (which is currently 39.10% energy).

CAGR's from Oct 2020 - Oct 2021:
My 55.55% Utilities/44.45% Commodities combo -- 29.98%
Utilities only -- 15.59%
S&P -- 35.45%
link

If the Fed tapers reinvestment of bond cash flows at a faster rate to combat inflation, that might not only hurt (longer duration) growth and tech stocks, but also my long-duration TIPS bonds. There's only some consolation there, because my long-term TIPS far outweigh my utilities.
"The downs are part of the long term upward trend." -- our favorite golfer
Topic Author
BigDGB
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Re: Replace VXUS With VPU ?

Post by BigDGB »

Northern Flicker wrote: Wed Nov 24, 2021 8:03 pm Bonds are the primary diversifier to meet a goal of reduced short-term volatility.

Utilities underperformed the market significantly in the 1970's, a period of accelerating inflation and rising interest rates.
That is a good observation Northern Flicker. I had tried to look back all the way to the 70's and was having a hard time finding data.
UpperNwGuy
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Re: Replace VXUS With VPU ?

Post by UpperNwGuy »

Why are bogleheads doing so many tactical portfolio changes these days? Are they losing their faith in broad market, low cost index funds.
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Re: Replace VXUS With VPU ?

Post by nisiprius »

I know that VXUS is the Vanguard Total International Stock Index Fund. I had no idea what VPU was until I looked it up.

BigDGB, you can edit the thread title. The thread title is just the subject of the first post, so you can just edit the original post and whatever you change the subject to will become the thread title. I suggest something like

Replace VXUS with VPU (Vanguard Utilities Index, US-only)?

Thanks!
BigDGB wrote:As I progress in my financial discovery, I have also discovered factors through this forum and the Rational Reminder Community and have implemented a modest 20 % tilt to small cap value.
Fine, many well-informed posters in this forum advocate factor strategies in general and small-cap value in particular.

But please be aware that John C. Bogle opposed factor tilts and said why, with data and charts, in The Telltale Chart. And it is not a part of the Bogleheads investment philosophy. It is not universally accepted, it's not slam-dunk cut-and-dried.

And I think it speaks volumes that Dimensional Fund Advisors (DFA), with Fama and French on its board of directors and the closest and longest association with passive factor investing, does not use a small-cap value tilt in its own target-date funds. They are firmly within the "large blend" style box. One can guess at many reasons for this, but it suggest to me that this firm does not think an SCV tilt is suitable for most investors. It requires a degree of conviction and willingness to take risk that they do not think typical retirement savers have.
Last edited by nisiprius on Thu Nov 25, 2021 11:22 am, edited 2 times in total.
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sycamore
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Re: Replace VXUS With VPU ?

Post by sycamore »

Northern Flicker wrote: Thu Nov 25, 2021 1:08 am ...
If you read Siegel's interview carefully, he seems to be predicting not that we will have inflation that leads to overperformance of utilities, but that the Fed may have to taper reinvestment of bond cash flows at a faster rate to combat inflation. That would be expected to lead to rising interest rates that will disfavor (longer duration) growth and tech stocks, enabling value and dividend stocks to overperform.
Not to agree or disagree with the potential effects of rising rates, just to point out how "overperform" can be a loaded word. Some investors will take it to mean "make a lot of money" though it could just mean "lose money but lose less than the alternative."

I've held value stocks (SCV) for long time, not specifically for how they behave in times of rising rates. It would be nice to see them overperform for a long stretch again :) We'll see.
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BigDGB
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Re: Replace VXUS With VPU (Vanguard US Utilities Index)

Post by BigDGB »

Thank You to all for your feedback!

After digesting all the thoughtful responses I'm going to stick with 40% VTI and a 20% allocation to VXUS, AVUV small cap value and VGIT intermediate term treasuries. It has been stated many times that long term treasuries are the greatest diversifier to a high equity portfolio so I may split my ITT/LTT in the future.

A little off topic, but I'm a little worried about buying long term treasuries now (I know.. market timing) , however my inclination is to wait until the fed hikes any interest rates and they have stated they are done, or has the pretty sizable drop in the NAV of VGLT been priced in already?

Any thoughts?
Last edited by BigDGB on Thu Nov 25, 2021 4:00 pm, edited 1 time in total.
dukeblue219
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Re: Replace VXUS With VPU (Vanguard US Utilities Index)

Post by dukeblue219 »

BigDGB wrote: Thu Nov 25, 2021 10:53 ammy inclination is to wait until the fed hikes any interest rates and they have stated they are done, or has the pretty sizable drop in the NAV of VGLT been priced in already?

Any thoughts?
That's just such an impossible question to answer, honestly. It's akin to waiting for stocks to "settle" before buying back in. By the time you know it.... It's too late.

In your scenario it's plausible the Fed would only publicly announce they are done raising to calm a nervous market due to a slowing economy. You're now buying bonds a month too late because everyone else has piled into bonds expecting the Fed to do just that.
Nathan Drake
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Re: Replace VXUS With VPU ?

Post by Nathan Drake »

nisiprius wrote: Thu Nov 25, 2021 10:17 am I know that VXUS is the Vanguard Total International Stock Index Fund. I had no idea what VPU was until I looked it up.

BigDGB, you can edit the thread title. The thread title is just the subject of the first post, so you can just edit the original post and whatever you change the subject to will become the thread title. I suggest something like

Replace VXUS with VPU (Vanguard Utilities Index, US-only)?

Thanks!
BigDGB wrote:As I progress in my financial discovery, I have also discovered factors through this forum and the Rational Reminder Community and have implemented a modest 20 % tilt to small cap value.
Fine, many well-informed posters in this forum advocate factor strategies in general and small-cap value in particular.

But please be aware that John C. Bogle opposed factor tilts and said why, with data and charts, in The Telltale Chart. And it is not a part of the Bogleheads investment philosophy. It is not universally accepted, it's not slam-dunk cut-and-dried.

And I think it speaks volumes that Dimensional Fund Advisors (DFA), with Fama and French on its board of directors and the closest and longest association with passive factor investing, does not use a small-cap value tilt in its own target-date funds. They are firmly within the "large blend" style box. One can guess at many reasons for this, but it suggest to me that this firm does not think an SCV tilt is suitable for most investors. It requires a degree of conviction and willingness to take risk that they do not think typical retirement savers have.
The evidence for factor investing is far more significant in terms of long term outperformance than your heavily tilted US portfolio is over international
20% VOO | 30% VXUS | 20% AVUV | 15% AVDV | 15% AVES
Northern Flicker
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Re: Replace VXUS With VPU (Vanguard US Utilities Index)

Post by Northern Flicker »

BigDGB wrote: Thu Nov 25, 2021 10:53 am Thank You to all for your feedback!

After digesting all the thoughtful responses I'm going to stick with 60% VTI and a 20% allocation to VXUS, AVUV small cap value and VGIT intermediate term treasuries. It has been stated many times that long term treasuries are the greatest diversifier to a high equity portfolio so I may split my ITT/LTT in the future.

A little off topic, but I'm a little worried about buying long term treasuries now (I know.. market timing) , however my inclination is to wait until the fed hikes any interest rates and they have stated they are done, or has the pretty sizable drop in the NAV of VGLT been priced in already?

Any thoughts?
"The stock market is a tool for transfering wealth from the active to the patient." --Warren Buffett
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
Northern Flicker
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Re: Replace VXUS With VPU (Vanguard US Utilities Index)

Post by Northern Flicker »

BigGDB wrote: Frank from Risk Parity also believes that Total International etf VXUS is not needed, due to it's high .88 correlation with Vanguard US Total Stock Market Index VTI. Frank doesn't live in a world of recency bias.. he just looks at the correlation of the two funds and feels that the diversification isn't there.
It is true that int'l diversification of equities will not diversify short-term risks due to high correlation of short-term returns of US and non-US equities. The benefit of int'l diversification is to reduce the variance of long-term returns.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
Northern Flicker
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Re: Replace VXUS With VPU ?

Post by Northern Flicker »

BigDGB wrote: Thu Nov 25, 2021 10:08 am
Northern Flicker wrote: Wed Nov 24, 2021 8:03 pm Bonds are the primary diversifier to meet a goal of reduced short-term volatility.

Utilities underperformed the market significantly in the 1970's, a period of accelerating inflation and rising interest rates.
That is a good observation Northern Flicker. I had tried to look back all the way to the 70's and was having a hard time finding data.
Here is a comparison of Consolidated Edison (ticker ED) with the S&P500 (ticker SPYZ) going back to 6/1972. You can see what happened to the utility in the bear market of 1973/74 relative to the S&P500.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Forester
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Re: Replace VXUS With VPU (Vanguard US Utilities Index)

Post by Forester »

If you're set on only owning US stocks, instead of the utility ETF I would own USMV and SPLV, spread that money across two similar yet different low vol strategies. Similar volatility to XLU but without that big sector bet.
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Re: Replace VXUS With VPU (Vanguard US Utilities Index)

Post by burritoLover »

BigDGB wrote: Wed Nov 24, 2021 7:10 pm Happy Thanksgiving

The foundation of my current investing philosophy began with this forum and I'm forever grateful. The principles of low cost indexing are hard to ignore.

As I progress in my financial discovery, I have also discovered factors through this forum and the Rational Reminder Community and have implemented a modest 20 % tilt to small cap value.

I very much enjoy learning about other aspects of investing to account for risk adjusted performance and methods to potentially mitigate drawdowns while maintaining solid portfolio returns.

Recently I came across a podcast called Risk Parity Radio, hosted by a gentleman by the name of Frank Vasquez, a former attorney that practiced for 30 years and additionally went to school for engineering. He is not a CFP or Investment Advisor, however he is a very bright guy that has a passion for what he does and seems to truly love educating the DIY investor. You will find him to be very knowledgeable and has Boglehead core beliefs, however he brings to light other tweaks in portfolio construction around Risk Parity without getting into deep, dark complicated holes.

I don't agree with everything he does, but most of it makes a lot of sense, especially in the retired deaccumulation phase where people are trying to reduce drawdowns without sacrificing a lot of upside performance. For instance, he believes in utilizing non-correlated assets in portfolio construction similar to Larry Swedroe or Vineviz, such as long term treasuries or at least intermediate term treasuries and other alternative assets that have low correlations to the Total US Market such as small cap value, reits, gold etc.

I haven't bought into gold and reits are still fairly highly correlated to the overall market.

I had a 20% allocation to VXUS, Vanguard Total International Index that is dwindling down in % due to it's poor performance. I took sort of a half way position on international exposure that lies between Vanguard's 45 % recommendation and many other people on this forum that believe a 0% allocation is in order.

Frank from Risk Parity also believes that Total International etf VXUS is not needed, due to it's high .88 correlation with Vanguard US Total Stock Market Index VTI. Frank doesn't live in a world of recency bias.. he just looks at the correlation of the two funds and feels that the diversification isn't there.

Where is this going?

One of the ideas brought up on one of the podcasts was to allocate maybe 10% of your portfolio to a utilities etf. Vanguard Utilities etf VPU has been in existence since February 2004, so almost 22 years and correlates well when comparing with VXUS , since international stocks had their outperformance beginning around that time.

VPU has a .49 market correlation vs. .88 for VXUS, an annual CAGR of 9.84 % vs 6.49% for VXUS and a worst year of -27.94% vs 44.10% for VXUS since inception.

I'm considering peeling off 50% of my current VXUS holdings to VPU and hunting for an alternative for one additional asset class to replace the other 50%.

I would very much welcome thoughts on my rationale.
Small cap value would be “dwindling down in % due to it's poor performance” just like your international and it could be over 15-20 years as it has done in the past compared to the S&P 500. Jack Nicholson says “You can’t handle the SCV!”. US SCV also has a .89 correlation to the total US market since 1972 - correlations among equities is a useless measure to make portfolio decisions on.

You are just buzzword investing at this point - inflation is a big buzzword now - people think future high inflation is some certainty now, even though all past predictions have been about as good as an ape throwing darts. So you are getting drawn in to that narrative, thinking utilities are a great idea - those can also suck it for long periods. Somehow you think you can predict future international performance based on recent performance. A lot of investors do stuff like this and that is why they underperform the funds they invest in by 2-5%. Don’t be just another statistic.
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
Topic Author
BigDGB
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Re: Replace VXUS With VPU ?

Post by BigDGB »

Northern Flicker wrote: Thu Nov 25, 2021 11:44 pm
BigDGB wrote: Thu Nov 25, 2021 10:08 am
Northern Flicker wrote: Wed Nov 24, 2021 8:03 pm Bonds are the primary diversifier to meet a goal of reduced short-term volatility.

Utilities underperformed the market significantly in the 1970's, a period of accelerating inflation and rising interest rates.
That is a good observation Northern Flicker. I had tried to look back all the way to the 70's and was having a hard time finding data.
Here is a comparison of Consolidated Edison (ticker ED) with the S&P500 (ticker SPYZ) going back to 6/1972. You can see what happened to the utility in the bear market of 1973/74 relative to the S&P500.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
Thank you again ! Great information.
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