Vanguard New Factor Funds Portfolio Statistics

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Jiu Jitsu Fighter
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Jiu Jitsu Fighter » Mon Dec 10, 2018 4:48 pm

I'm a little bit baffled, as are others, that the VG MF funds all have paltry AUM. I specifically want to focus on the Value factor fund (VFVA). Still only ~$37 MM in AUM. Going by Morningstar (I know that's not a great way to determine factor loads), it looks very valuey compared to most US value funds at a minuscule 13 bps. So, I can only speculate why it hasn't accumuated assets: (1) lack of history, (2) value has significantly underperformed, (3) there is no distinct market cap that they are targeting, (4) long-term, if the fund has anywhere near the flows of VG's index funds, it would be difficult to scale without outright buying all of the shares of some of the small-cap names, and (5) virtually no advertising of these funds by VG.

I personally have more confidence in the value factor than the small factor. Currently, I am 50% Total Market Fund and 50% S&P 600 Value for my domestic holdings. However, I would be open to swapping the small value fund for VFVA to load more on value. I'm not going to invest in a fund that has < $100 million in AUM.

I would just like to get people's take on what is.going om here!

Thanks!

JJF

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Mon Dec 10, 2018 7:10 pm

Jiu Jitsu Fighter wrote:
Mon Dec 10, 2018 4:48 pm
I'm a little bit baffled, as are others, that the VG MF funds all have paltry AUM. I specifically want to focus on the Value factor fund (VFVA). Still only ~$37 MM in AUM. Going by Morningstar (I know that's not a great way to determine factor loads), it looks very valuey compared to most US value funds at a minuscule 13 bps. So, I can only speculate why it hasn't accumuated assets: (1) lack of history, (2) value has significantly underperformed, (3) there is no distinct market cap that they are targeting, (4) long-term, if the fund has anywhere near the flows of VG's index funds, it would be difficult to scale without outright buying all of the shares of some of the small-cap names, and (5) virtually no advertising of these funds by VG.

I personally have more confidence in the value factor than the small factor. Currently, I am 50% Total Market Fund and 50% S&P 600 Value for my domestic holdings. However, I would be open to swapping the small value fund for VFVA to load more on value. I'm not going to invest in a fund that has < $100 million in AUM.
Not in any particular order:

1. I'm not worried about the low current AUM in VFVA. It trades just fine. It has traded with a $0.06 spread since Day 1. I consistently get mid-spread execution on odd-lot market orders. And implied liquidity is quite high if you want to make larger trades. (They weren't large, but my early trades of 300-500 shares all saw good execution, even when volume was otherwise paltry.)

I will admit that I usually want to see close to $100 MM in assets and a good trend before I invest in an ETF. (I held off on EMGF (iShares MSCI Multifactor Emerging Markets) until it was over $90 MM in assets and growing steadily. It is now at $273 MM.) But Vanguard has never closed an ETF, and VFVA is not going to be the first.

2. I'm not particularly worried about high AUM limiting the ability of the factor funds to follow their 1/3, 1/3, 1/3 strategy. We did some math early in this thread. Even at $8 Billion in assets, VFVA would have no trouble holding the microcaps in its portfolio at their initial weightings.
jhfenton wrote:
Mon Mar 12, 2018 7:20 am
fennewaldaj wrote:
Sun Mar 11, 2018 6:12 pm
I would think that these funds could get pretty big as is. Current small cap value fund has ~ 30 billion. This value factor fund has a similar amount of names and a larger average market cap.
I also see no reason they couldn't scale the VFVA portfolio up from $8 Million to $8 Billion. Positions 601-785 range from $5,302 to $2,820 currently. Multiply that by 1,000 and you have $2.8MM to $5.3MM positions. The $2.8 MM would be 1.1% of Cloudpeak ($245 MM market cap). The $5.3 MM would be 0.7% of Comtech Telecom ($724 MM market cap). The outlier would be Vitamine Shoppe with a market cap of $95 MM and a current position size of $4,383. That would translate into the $8 Billion fund owning 4.5% of Vitamin Shoppe. Almost everything else would be under 2%.

At $30 Billion, owning the fund's current smallest positions in their current proportions would be problematic. They would own 7.5% of a lot of the smaller companies and 16.9% of Vitamin Shoppe (definitely an outlier).
3. As to why the funds are growing slowly, I think your other 4 reasons are all part of it. Value is in the doldrums, and VFVA is as value-y as it gets. The funds are targeted to advisors, who are probably reluctant to invest client's money in funds that are hard to explain and have no track record. And Vanguard hasn't done any serious advertising. I was prepared to buy in at the beginning based on methodology and the initial portfolio characteristics, but most people aren't.

4. I took advantage of the factor funds to simplify the US holdings in our IRAs and Roths to just 50% VFMFX (Multifactor Admiral) and 50% VFVA. The VFMFX is in two accounts, and the VFVA is in three acounts, but it still reduced complexity.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by mucgoo » Mon Dec 10, 2018 7:13 pm

Vanguard international developed factor funds exist. They're available in Europe for 0.22%, although not multi factor unfortunately.

Country weighing is weird and a black box. No country varies by more than a few percent on an absolute global weight basis so the US is always dominating at the 60% mark. For smaller countries this absolute banding means Switzerland and Australia practically vanish from the value fund, while Korea and Italy get double normal market cap weighing.

IMO country weighing are insignificant compared to the factor and sector loading.

https://www.vanguardinvestor.co.uk/inve ... _fund_link

Even odder is they market a Global Minimum Volatility ETF in Europe, but it's hedged to the USD not local currency. It makes zero sense for a GBP or EUR denominated investor.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by sunnywindy » Mon Dec 10, 2018 8:27 pm

mucgoo wrote:
Mon Dec 10, 2018 7:13 pm
Vanguard international developed factor funds exist. They're available in Europe for 0.22%, although not multi factor unfortunately.

Country weighing is weird and a black box. No country varies by more than a few percent on an absolute global weight basis so the US is always dominating at the 60% mark. For smaller countries this absolute banding means Switzerland and Australia practically vanish from the value fund, while Korea and Italy get double normal market cap weighting.

IMO country weighing are insignificant compared to the factor and sector loading.

https://www.vanguardinvestor.co.uk/inve ... _fund_link

Even odder is they market a Global Minimum Volatility ETF in Europe, but it's hedged to the USD not local currency. It makes zero sense for a GBP or EUR denominated investor.
I was disappointed that Vanguard came out with their active quant funds (in the US) as US only. I would much rather spread the tracking risk to a global fund and then it doesn't seem as noticeable.

I, too, have also noticed the differences between the US and EU/CAN Global Min Vol Fund/ETF. The US version has 621 holdings while the EU version has only 297 holdings - a massive difference! (I wonder why.) It is also too bad the US version is not an ETF as most likely it wouldn't have short and long-term capital gains like the mutual fund version has. Why Vanguard? Why?

Lastly, I agree the US dollar hedging in the EU is strange. It reminds me of how US car companies used to try selling left-side driver cars in England and wondering why nobody would buy them.
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by asset_chaos » Tue Dec 11, 2018 3:39 pm

sunnywindy wrote:
Mon Dec 10, 2018 8:27 pm
I was disappointed that Vanguard came out with their active quant funds (in the US) as US only. I would much rather spread the tracking risk to a global fund and then it doesn't seem as noticeable.
Yes, global multi-factor would be nice.
Regards, | | Guy

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Taylor Larimore
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Taylor Larimore » Tue Dec 11, 2018 5:20 pm

asset_chaos wrote:
Tue Dec 11, 2018 3:39 pm
sunnywindy wrote:
Mon Dec 10, 2018 8:27 pm
I was disappointed that Vanguard came out with their active quant funds (in the US) as US only. I would much rather spread the tracking risk to a global fund and then it doesn't seem as noticeable.
Yes, global multi-factor would be nice.
asset_chaos:

Jack Bogle, our mentor, does not agree with you.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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vineviz
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by vineviz » Tue Dec 11, 2018 5:22 pm

Taylor Larimore wrote:
Tue Dec 11, 2018 5:20 pm
asset_chaos wrote:
Tue Dec 11, 2018 3:39 pm
sunnywindy wrote:
Mon Dec 10, 2018 8:27 pm
I was disappointed that Vanguard came out with their active quant funds (in the US) as US only. I would much rather spread the tracking risk to a global fund and then it doesn't seem as noticeable.
Yes, global multi-factor would be nice.
asset_chaos:

Jack Bogle, our mentor, does not agree with you.
If Jack Bogle knew the first thing about global multi-factor funds this MIGHT be a useful observation. As it is I don’t see the relevance.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Jiu Jitsu Fighter
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Jiu Jitsu Fighter » Tue Dec 11, 2018 8:15 pm

Taylor Larimore wrote:
Tue Dec 11, 2018 5:20 pm
asset_chaos wrote:
Tue Dec 11, 2018 3:39 pm
sunnywindy wrote:
Mon Dec 10, 2018 8:27 pm
I was disappointed that Vanguard came out with their active quant funds (in the US) as US only. I would much rather spread the tracking risk to a global fund and then it doesn't seem as noticeable.
Yes, global multi-factor would be nice.
asset_chaos:

Jack Bogle, our mentor, does not agree with you.

Best wishes.
Taylor
That doesn't sound like a cult at all.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Bulgogi Head » Tue Dec 11, 2018 9:25 pm

I posted this in another thread but no response. Thinking it’s more appropriate in this one. Do you consider it safe now to invest in VFMF in taxable now?

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Tue Dec 11, 2018 9:42 pm

Bulgogi Head wrote:
Tue Dec 11, 2018 9:25 pm
I posted this in another thread but no response. Thinking it’s more appropriate in this one. Do you consider it safe now to invest in VFMF in taxable now?
Yes. VFMF is fairly tax efficient so far, and I see no reason to expect that will change. It has had a modest yield with an estimated 100% QDI for 2018. And as an ETF, there is no reason to think it will ever distribute any capital gains.

And it is clearly past any even theoretical risk of closure. Vanguard has never closed an ETF, and VFMF is not going to be the first. It has accumulated $80 MM in assets in less than 10 months (and another chunk in the mutual fund version of the strategy).

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by asset_chaos » Wed Dec 12, 2018 4:50 am

Taylor Larimore wrote:
Tue Dec 11, 2018 5:20 pm
asset_chaos wrote:
Tue Dec 11, 2018 3:39 pm
sunnywindy wrote:
Mon Dec 10, 2018 8:27 pm
I was disappointed that Vanguard came out with their active quant funds (in the US) as US only. I would much rather spread the tracking risk to a global fund and then it doesn't seem as noticeable.
Yes, global multi-factor would be nice.
asset_chaos:

Jack Bogle, our mentor, does not agree with you.

Best wishes.
Taylor
Taylor,

Mr Bogle is a great man and has done great things for investors, but I don't agree with him on everything. And yes, I know what quote from Bill Bernstein you're thinking of now. And I wouldn't deny for a moment that it could well turn out to be true, but I'm going to stick to my own path. In fact, the three fund portfolio I fancy is total world, global factor, and limited term tax exempt; and I don't find it bad at all that I can have two out of three investing things I want.

Merry Christmas
Regards, | | Guy

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Valuethinker » Wed Dec 12, 2018 5:09 am

mucgoo wrote:
Mon Dec 10, 2018 7:13 pm
Vanguard international developed factor funds exist. They're available in Europe for 0.22%, although not multi factor unfortunately.

Country weighing is weird and a black box. No country varies by more than a few percent on an absolute global weight basis so the US is always dominating at the 60% mark. For smaller countries this absolute banding means Switzerland and Australia practically vanish from the value fund, while Korea and Italy get double normal market cap weighing.

IMO country weighing are insignificant compared to the factor and sector loading.

https://www.vanguardinvestor.co.uk/inve ... _fund_link

Even odder is they market a Global Minimum Volatility ETF in Europe, but it's hedged to the USD not local currency. It makes zero sense for a GBP or EUR denominated investor.
And the ishares equivalent ETF (in Europe) has a completely different set of country weightings - over 20% Japan and something like 35% US (can't reach the site right now).

The hedge to USD is quite common for international investors. A lot of high net worth individuals, private wealth managers etc work in USD terms.

Does it hedge? Or is just reporting currency?

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by gtwhitegold » Wed Dec 12, 2018 6:36 am

It doesn't look like it's currency hedged. I couldn't find the prospectus, but nothing on the fund's main page mentions anything about currency hedging.
Valuethinker wrote:
Wed Dec 12, 2018 5:09 am
mucgoo wrote:
Mon Dec 10, 2018 7:13 pm
Vanguard international developed factor funds exist. They're available in Europe for 0.22%, although not multi factor unfortunately.

Country weighing is weird and a black box. No country varies by more than a few percent on an absolute global weight basis so the US is always dominating at the 60% mark. For smaller countries this absolute banding means Switzerland and Australia practically vanish from the value fund, while Korea and Italy get double normal market cap weighing.

IMO country weighing are insignificant compared to the factor and sector loading.

https://www.vanguardinvestor.co.uk/inve ... _fund_link

Even odder is they market a Global Minimum Volatility ETF in Europe, but it's hedged to the USD not local currency. It makes zero sense for a GBP or EUR denominated investor.
And the ishares equivalent ETF (in Europe) has a completely different set of country weightings - over 20% Japan and something like 35% US (can't reach the site right now).

The hedge to USD is quite common for international investors. A lot of high net worth individuals, private wealth managers etc work in USD terms.

Does it hedge? Or is just reporting currency?

mucgoo
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by mucgoo » Thu Dec 13, 2018 3:26 pm

gtwhitegold wrote:
Wed Dec 12, 2018 6:36 am
It doesn't look like it's currency hedged. I couldn't find the prospectus, but nothing on the fund's main page mentions anything about currency hedging.
Valuethinker wrote:
Wed Dec 12, 2018 5:09 am
mucgoo wrote:
Mon Dec 10, 2018 7:13 pm
Vanguard international developed factor funds exist. They're available in Europe for 0.22%, although not multi factor unfortunately.

Country weighing is weird and a black box. No country varies by more than a few percent on an absolute global weight basis so the US is always dominating at the 60% mark. For smaller countries this absolute banding means Switzerland and Australia practically vanish from the value fund, while Korea and Italy get double normal market cap weighing.

IMO country weighing are insignificant compared to the factor and sector loading.

https://www.vanguardinvestor.co.uk/inve ... _fund_link

Even odder is they market a Global Minimum Volatility ETF in Europe, but it's hedged to the USD not local currency. It makes zero sense for a GBP or EUR denominated investor.
And the ishares equivalent ETF (in Europe) has a completely different set of country weightings - over 20% Japan and something like 35% US (can't reach the site right now).

The hedge to USD is quite common for international investors. A lot of high net worth individuals, private wealth managers etc work in USD terms.

Does it hedge? Or is just reporting currency?
The other factor funds aren't hedged. Just the minimum volatility.

https://www.vanguardinvestor.co.uk/inve ... _fund_link

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by lisaneedsbraces » Mon Dec 31, 2018 6:29 pm

I am the proud new owner of exactly 3% of VFVA. I used a limit order set at the ask price, and it took a bit under 2 minutes to fill. The bid and ask both difted down during that 2 minutes and my price ended up below the bid at the time the order was placed, but it looked like it was right around the midpoint at fill time.

Just prior to this, I placed a much smaller (though not tiny) order in another account, and it filled almost instantly at the bid/ask spread midpoint.

While volume on this fund is typically very low, there doesn’t seem to be any issue with placing a larger order.

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tarnation
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by tarnation » Mon Dec 31, 2018 8:24 pm

That's a large order! :moneybag What brokerage were they, if you don't mind me asking?
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by lisaneedsbraces » Mon Dec 31, 2018 8:40 pm

tarnation wrote:
Mon Dec 31, 2018 8:24 pm
That's a large order! :moneybag What brokerage were they, if you don't mind me asking?
Both were done at Fidelity. The smaller order was routed through FDLM and the larger was Capital Select Investment.

I watched the price for a bit before and after and it would go 20 minutes or longer between trades. The bid would stay pretty close to the intraday NAV but the last trade price was usually stale.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by grabiner » Mon Dec 31, 2018 8:54 pm

lisaneedsbraces wrote:
Mon Dec 31, 2018 6:29 pm
I am the proud new owner of exactly 3% of VFVA.

While volume on this fund is typically very low, there doesn’t seem to be any issue with placing a larger order.
25,000 shares is one Creation Unit, so you bought about 2/3 of a unit. Since VFVA holds stocks which are easy to arbitrage, an institutional investor is changing its position by a manageable amount, so it would be reasonable to sell that amount at or near the ask. It's good to see that this actually works, although I'm not planning to make a trade that large any time soon.
Wiki David Grabiner

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by whodidntante » Mon Dec 31, 2018 8:58 pm

lisaneedsbraces wrote:
Mon Dec 31, 2018 6:29 pm
I am the proud new owner of exactly 3% of VFVA. I used a limit order set at the ask price, and it took a bit under 2 minutes to fill. The bid and ask both difted down during that 2 minutes and my price ended up below the bid at the time the order was placed, but it looked like it was right around the midpoint at fill time.

Just prior to this, I placed a much smaller (though not tiny) order in another account, and it filled almost instantly at the bid/ask spread midpoint.

While volume on this fund is typically very low, there doesn’t seem to be any issue with placing a larger order.
So around a million bucks then? That's quite the order. 8-)

fennewaldaj
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by fennewaldaj » Tue Jan 01, 2019 1:32 am

whodidntante wrote:
Mon Dec 31, 2018 8:58 pm
lisaneedsbraces wrote:
Mon Dec 31, 2018 6:29 pm
I am the proud new owner of exactly 3% of VFVA. I used a limit order set at the ask price, and it took a bit under 2 minutes to fill. The bid and ask both difted down during that 2 minutes and my price ended up below the bid at the time the order was placed, but it looked like it was right around the midpoint at fill time.

Just prior to this, I placed a much smaller (though not tiny) order in another account, and it filled almost instantly at the bid/ask spread midpoint.

While volume on this fund is typically very low, there doesn’t seem to be any issue with placing a larger order.
So around a million bucks then? That's quite the order. 8-)
Heh yeah when i bought $10k of vfva and $15k of vfmf a few months ago all at once it felt like a lot to me :)

gtwhitegold
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Re: Vanguard New Factor Funds Portfolio Statistics

Post by gtwhitegold » Mon Jan 14, 2019 7:38 pm

For the individual factor funds, the only one that I would consider is VFLQ since it is the only fund that targets a factor that is not widely targeted by any multi-factor fund. At first glance, I would suggest probably target 10% of my US equities, but I would still like to look at the academic research first.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by spdoublebass » Tue Jan 15, 2019 4:10 am

Question on QDI percentages.

Vanguards VBR (Small cap value) ETF usually is around 72-78% qualified dividends.

I just looked at the 2018 numbers, which are up through November, for VFVA and saw that it’s at 100%.

Since it holds small caps as well, why is it at 100%?
I'm trying to think, but nothing happens

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Tue Jan 15, 2019 8:32 am

spdoublebass wrote:
Tue Jan 15, 2019 4:10 am
Question on QDI percentages.

Vanguards VBR (Small cap value) ETF usually is around 72-78% qualified dividends.

I just looked at the 2018 numbers, which are up through November, for VFVA and saw that it’s at 100%.

Since it holds small caps as well, why is it at 100%?
A major factor appears to be the amount of real estate in the portfolio. According to M*, only 1.13% of VFVA is in real estate, compared to 12.49% for VBR.

REITs pay outsized dividends that are non-QDI, so they are probably a majority of the non-QDI.

And 100% for VFVA just means that it's above 95%. That closes the apparent gap a bit too.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by gtwhitegold » Tue Jan 15, 2019 8:28 pm

In response to my own question about VFLQ.

Below is an article from Larry Swedroe from 2015 that discounts the likelihood of a liquidity premium in US stocks. US micro caps traded on the NASDAQ were the only stocks that showed a liquidity premium in recent history. The reduction of the liquidity premium is likely due to changes in the market including decimalization and high frequency trading.

https://www.etf.com/sections/index-inve ... nopaging=1

Edited for context.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Tue Jan 15, 2019 8:57 pm

gtwhitegold wrote:
Tue Jan 15, 2019 8:28 pm
In response to my own question about VFLQ.

Below is an article from Larry Swedroe from 2015 that discounts the likelihood of a liquidity premium in US stocks. US micro caps traded on the NASDAQ were the only stocks that showed a liquidity premium in recent history. The reduction of the liquidity premium is likely due to changes in the market including decimalization and high frequency trading.

https://www.etf.com/sections/index-inve ... nopaging=1

Edited for context.
I'm also skeptical of the existence of a current liquidity premium in non-microcap stocks. In order to make the ETF work, the QEG are even excluding the most illiquid securities from their investment universe before choosing the least liquid among those left for VFLQ.

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