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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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.
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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-)

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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 :)

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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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Re: Vanguard New Factor Funds Portfolio Statistics

Post by lisaneedsbraces » Mon Feb 25, 2019 1:17 pm

I tried to place a small market order for VFVA today at Fidelity and received the following message: "Fidelity does not accept market orders for illiquid securities. Please change your market order to a limit order or contact a Fidelity representative at 1-800-544-6666 if you want the trade reviewed for eligibility as a market order.

I think this is new. I did a market order a month or two ago without problems.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jmk » Sun Mar 03, 2019 3:04 pm

Are the bid-ask spreads for Vanguard's multifactor ETFs reasonable? I can't find the info anywhere.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by drk » Sun Mar 03, 2019 3:06 pm

lisaneedsbraces wrote:
Mon Feb 25, 2019 1:17 pm
I tried to place a small market order for VFVA today at Fidelity and received the following message: "Fidelity does not accept market orders for illiquid securities. Please change your market order to a limit order or contact a Fidelity representative at 1-800-544-6666 if you want the trade reviewed for eligibility as a market order.

I think this is new. I did a market order a month or two ago without problems.
That's still better than Merrill Edge, which blocks trading in all of these funds.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by drk » Sun Mar 03, 2019 3:08 pm

jmk wrote:
Sun Mar 03, 2019 3:04 pm
Are the bid-ask spreads for Vanguard's multifactor ETFs reasonable? I can't find the info anywhere.
ETF.com has the average spread for VFMF at 0.1%.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Sun Mar 03, 2019 3:42 pm

drk wrote:
Sun Mar 03, 2019 3:08 pm
jmk wrote:
Sun Mar 03, 2019 3:04 pm
Are the bid-ask spreads for Vanguard's multifactor ETFs reasonable? I can't find the info anywhere.
ETF.com has the average spread for VFMF at 0.1%.
That seems right. The spreads are generally $0.06-0.08 on all of the factor funds from VFMF down to VFLQ, and they have been since the first day of trading. They seem well-supported by the market makers, with a lot more liquidity than you can see on the order book.

And as with most Vanguard ETFs, I consistently get mid-spread execution on small odd-lot market orders for VFVA. (I haven't bought any of the other factor ETFs, and I own VFMFX instead of VFMF.)

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Theoretical » Sun Mar 03, 2019 4:03 pm

The good news: these factor funds are dead-on with their factor loadings, with super-high R^2s for their attributions. The bad news: awful negative alphas, though admittedly not statistically significant.

https://bit.ly/2VAblIh

Includes ishares comparisons for the time period.

Daily does look better, but my understanding is that the daily data is a lot noisier. On the other hand, since the vanguard holdings are subject to daily adjustments based on factor loads, it might tell a more accurate story:

https://bit.ly/2GYpmwe
Last edited by Theoretical on Sun Mar 03, 2019 4:06 pm, edited 2 times in total.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by drk » Sun Mar 03, 2019 4:04 pm

^ Agreed. Anecdotally, I've gotten good execution on VFMF for market orders to the tune of $10k.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by drk » Sun Mar 03, 2019 4:04 pm

Theoretical wrote:
Sun Mar 03, 2019 4:03 pm
The good news: these factor funds are dead-on with their factor loadings, with super-high R^2s. The bad news: awful negative alphas.

https://bit.ly/2EuSTtE
Do you mind swapping that link for the actual Portfolio Visualizer one? I have a policy against clicking any masked links.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Theoretical » Sun Mar 03, 2019 4:15 pm


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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Vashezzo » Sun Mar 03, 2019 7:24 pm

Theoretical wrote:
Sun Mar 03, 2019 4:15 pm
Sure:

Here's the monthly loads (AQR 6 factor):

https://www.portfoliovisualizer.com/fac ... sion=false

Daily loads (AQR 6 factor);

https://www.portfoliovisualizer.com/fac ... sion=false

Fama French 4 factor (monthly):

https://www.portfoliovisualizer.com/fac ... sion=false

Fama French 4 factor (daily):

https://www.portfoliovisualizer.com/fac ... sion=false
I really wish PV gave you more options on the F&F side when doing a regression. I've noticed that a lot of funds tend to have a substantial negative alpha when using AQR's data (their quality factor in particular).

Just to show an example, here's a DFA fund and a small-value index fund using:

AQR 5-Factor (Alphas of -2.51, -1.68)
https://www.portfoliovisualizer.com/fac ... sion=false

F&F 5-Factor (Alphas of -1.15 and -1.32)
https://www.portfoliovisualizer.com/fac ... sion=false

AQR 4-Factor (Alphas of 1.31 and 0.82)
https://www.portfoliovisualizer.com/fac ... sion=false

F&F 4-Factor (Alphas of 0.69 and 0.20)
https://www.portfoliovisualizer.com/fac ... sion=false

As you can see the alphas jumped considerably when going from 5-factor to 4-factor and when going from AQR to F&F data (and only the first link has statistical significance, even with the 18-26 year timeframes).

There's also some weirdness with AQR's version of the value factor (HML-DEV - see https://www.aqr.com/Insights/Research/J ... Ls-Details). In both the 4-factor and 5-factor regressions, you get a statistically significant momentum loading (and significant negative alphas) just by switching to HML-DEV.

AQR 5-Factor DEV
https://www.portfoliovisualizer.com/fac ... sion=false

AQR 4-Factor DEV
https://www.portfoliovisualizer.com/fac ... sion=false

Now, I don't think either of these funds are "supposed" to have any exposure to momentum, and I doubt it's just a weird computational coincidence given that it happened with different funds and over a long period of time. Either way, I've found myself skeptical of, or at least confused by, the numbers that AQR publishes.

I ended up building my own spreadsheet that lets me quickly compute different regressions, specifically ones that have F&F momentum with their profitability/investment factors - I figured that would be the best model to evaluate a multifactor fund that's specifically targeting both momentum and quality, since the AQR data is suspect (to me). Overall the F&F RMW has an R^2 of .55 against the AQR QMJ factor, so even though it's not a perfect stand-in it's pretty good.

Here's the results of a 5-factor regression on VFMF and DFSVX using F&F 4-factor+RMW and AQR 5-factor

Image

Looks much more like what I'd "expect" to see - DFA's negative alpha is nearly identical to their expense ratio and has higher size/value loadings, but VFMF has positive momentum and deeper profitability(quality) exposure (and relieving-ly the alpha is no longer a terrifying -4%).

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by gtwhitegold » Sun Mar 03, 2019 7:50 pm

Vashezzo wrote:
Sun Mar 03, 2019 7:24 pm
Theoretical wrote:
Sun Mar 03, 2019 4:15 pm
Sure:

Here's the monthly loads (AQR 6 factor):

https://www.portfoliovisualizer.com/fac ... sion=false

Daily loads (AQR 6 factor);

https://www.portfoliovisualizer.com/fac ... sion=false

Fama French 4 factor (monthly):

https://www.portfoliovisualizer.com/fac ... sion=false

Fama French 4 factor (daily):

https://www.portfoliovisualizer.com/fac ... sion=false
I really wish PV gave you more options on the F&F side when doing a regression. I've noticed that a lot of funds tend to have a substantial negative alpha when using AQR's data (their quality factor in particular).

Just to show an example, here's a DFA fund and a small-value index fund using:

AQR 5-Factor (Alphas of -2.51, -1.68)
https://www.portfoliovisualizer.com/fac ... sion=false

F&F 5-Factor (Alphas of -1.15 and -1.32)
https://www.portfoliovisualizer.com/fac ... sion=false

AQR 4-Factor (Alphas of 1.31 and 0.82)
https://www.portfoliovisualizer.com/fac ... sion=false

F&F 4-Factor (Alphas of 0.69 and 0.20)
https://www.portfoliovisualizer.com/fac ... sion=false

As you can see the alphas jumped considerably when going from 5-factor to 4-factor and when going from AQR to F&F data (and only the first link has statistical significance, even with the 18-26 year timeframes).

There's also some weirdness with AQR's version of the value factor (HML-DEV - see https://www.aqr.com/Insights/Research/J ... Ls-Details). In both the 4-factor and 5-factor regressions, you get a statistically significant momentum loading (and significant negative alphas) just by switching to HML-DEV.

AQR 5-Factor DEV
https://www.portfoliovisualizer.com/fac ... sion=false

AQR 4-Factor DEV
https://www.portfoliovisualizer.com/fac ... sion=false

Now, I don't think either of these funds are "supposed" to have any exposure to momentum, and I doubt it's just a weird computational coincidence given that it happened with different funds and over a long period of time. Either way, I've found myself skeptical of, or at least confused by, the numbers that AQR publishes.

I ended up building my own spreadsheet that lets me quickly compute different regressions, specifically ones that have F&F momentum with their profitability/investment factors - I figured that would be the best model to evaluate a multifactor fund that's specifically targeting both momentum and quality, since the AQR data is suspect (to me). Overall the F&F RMW has an R^2 of .55 against the AQR QMJ factor, so even though it's not a perfect stand-in it's pretty good.

Here's the results of a 5-factor regression on VFMF and DFSVX using F&F 4-factor+RMW and AQR 5-factor

Image

Looks much more like what I'd "expect" to see - DFA's negative alpha is nearly identical to their expense ratio and has higher size/value loadings, but VFMF has positive momentum and deeper profitability(quality) exposure (and relieving-ly the alpha is no longer a terrifying -4%).
Part of the problem is that AQR's HML-DEV factor is actually made to compliment the Fama French 4 Factor methodology, since the HML factor was absorbed by the profitability and investment factors, so it's likely a better match to FF4F than the rest of the AQR data.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by pauliec84 » Mon Mar 04, 2019 9:04 am

Vashezzo wrote:
Sun Mar 03, 2019 7:24 pm
Here's the results of a 5-factor regression on VFMF and DFSVX using F&F 4-factor+RMW and AQR 5-factor

Image

Looks much more like what I'd "expect" to see - DFA's negative alpha is nearly identical to their expense ratio and has higher size/value loadings, but VFMF has positive momentum and deeper profitability(quality) exposure (and relieving-ly the alpha is no longer a terrifying -4%).
Thank you for running these regressions. It is encouraging to see that the negative alpha goes away using the FF 4-Factor + RMW model. Nevertheless it is certainly a buyer beware situation with these ETFs as we have such a short time-series of data to gauge the long term alpha going forward.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by Forester » Thu May 23, 2019 10:48 am

Why does the Vanguard UK value factor fund have much higher turnover?

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

https://investor.vanguard.com/etf/profi ... folio/vfva

What’s the Boglehead consensus on these factor funds, vs a global index? In the UK the factor funds have slightly lower expenses, 0.22% vs 0.25%.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by acegolfer » Thu May 23, 2019 11:13 am

For these funds to be factors, the R^2 in factor regression must be 100%. Even a 99% R^2 implies the fund has some idiosyncratic risk (sigma_e ^2) hence not efficient (right of efficient frontier).

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Thu May 23, 2019 11:20 am

Forester wrote:
Thu May 23, 2019 10:48 am
Why does the Vanguard UK value factor fund have much higher turnover?
I have no idea why the Global Value Factor fund would have such high turnover. I don't see where the fund is doing anything that would artificially inflate that number, but I also don't see why the strategy would result in turning the portfolio over so quickly.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by mucgoo » Thu May 23, 2019 3:25 pm

Forester wrote:
Thu May 23, 2019 10:48 am
Why does the Vanguard UK value factor fund have much higher turnover?

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

https://investor.vanguard.com/etf/profi ... folio/vfva

What’s the Boglehead consensus on these factor funds, vs a global index? In the UK the factor funds have slightly lower expenses, 0.22% vs 0.25%.
Do new assets get counted into turnover? It's been growing AUM fast.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Fri May 24, 2019 7:19 am

mucgoo wrote:
Thu May 23, 2019 3:25 pm
Forester wrote:
Thu May 23, 2019 10:48 am
Why does the Vanguard UK value factor fund have much higher turnover?

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

https://investor.vanguard.com/etf/profi ... folio/vfva

What’s the Boglehead consensus on these factor funds, vs a global index? In the UK the factor funds have slightly lower expenses, 0.22% vs 0.25%.
Do new assets get counted into turnover? It's been growing AUM fast.
They should count only the lesser of securities bought or securities sold in a year and divide that by the total assets to calculate turnover. But I suppose it's possible that they're "doing it wrong" (or more likely that there's a different method mandated in Europe).

I can see where the global fund could have slightly higher turnover than the U.S. equivalent due to valuation shifts between markets requiring a bit more reshuffling, but I would expect the turnover of the fund to be a lot closer to the 15% of VFVA than the 78% they're reporting now.

Regardless, I wouldn't let the reported turnover dissuade me from buying the fund if it otherwise fit into my plan. Vanguard is good at minimizing turnover and trading costs. It's one reason they made these "active" funds, so they could taking trading costs into account when rebalancing the portfolio.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by mucgoo » Fri May 24, 2019 11:43 am

jhfenton wrote:
Fri May 24, 2019 7:19 am
mucgoo wrote:
Thu May 23, 2019 3:25 pm
Forester wrote:
Thu May 23, 2019 10:48 am
Why does the Vanguard UK value factor fund have much higher turnover?

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

https://investor.vanguard.com/etf/profi ... folio/vfva

What’s the Boglehead consensus on these factor funds, vs a global index? In the UK the factor funds have slightly lower expenses, 0.22% vs 0.25%.
Do new assets get counted into turnover? It's been growing AUM fast.
They should count only the lesser of securities bought or securities sold in a year and divide that by the total assets to calculate turnover. But I suppose it's possible that they're "doing it wrong" (or more likely that there's a different method mandated in Europe).

I can see where the global fund could have slightly higher turnover than the U.S. equivalent due to valuation shifts between markets requiring a bit more reshuffling, but I would expect the turnover of the fund to be a lot closer to the 15% of VFVA than the 78% they're reporting now.

Regardless, I wouldn't let the reported turnover dissuade me from buying the fund if it otherwise fit into my plan. Vanguard is good at minimizing turnover and trading costs. It's one reason they made these "active" funds, so they could taking trading costs into account when rebalancing the portfolio.
Just had a dig and its a different method.

"The PTR (Portfolio Turnover Rate) approach considers the total security purchases and sales, the total subscriptions and redemptions and the average net assets of the fund to calculate the turnover figure"

Some Vanguard UK/EU funds have negative turnover as a result of redemptions.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by asset_chaos » Sat May 25, 2019 6:32 pm

Just noticed that Vanguard Australia has a new global multifactor active fund/etf, ticker vgmf, launched this past April. Links to product description and some marketing material https://www.vanguardinvestments.com.au/ ... /?overview, https://vanguardinvestments.com.au/advi ... factor.jsp, and https://static.vgcontent.info/crp/intl/ ... 524|160304. Methodology seems similar to that of the US multifactor fund but with the initial universe of stocks drawn from the FTSE Developed All Cap and Russell 3000. (So not quite global, excluding emerging markets.)

I wonder if it's a test drive before opening a similar fund in the US or the rest of Vanguard global.
Regards, | | Guy

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by caklim00 » Sat May 25, 2019 9:51 pm

asset_chaos wrote:
Sat May 25, 2019 6:32 pm
Just noticed that Vanguard Australia has a new global multifactor active fund/etf, ticker vgmf, launched this past April. Links to product description and some marketing material https://www.vanguardinvestments.com.au/ ... /?overview, https://vanguardinvestments.com.au/advi ... factor.jsp, and https://static.vgcontent.info/crp/intl/ ... 524|160304. Methodology seems similar to that of the US multifactor fund but with the initial universe of stocks drawn from the FTSE Developed All Cap and Russell 3000. (So not quite global, excluding emerging markets.)

I wonder if it's a test drive before opening a similar fund in the US or the rest of Vanguard global.
Definitely some odd things with all these funds that are targeting areas many of us have interest in. I'll hold hold a small amount of VFMF(tax loss harvesting with VFVA) and larger amount of ISCF. I'll wait until after Vanguard has a year or so under there belt with whatever ExUS fund they eventually come out with and then consider if I want to jump from iscf.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by comeinvest » Sun May 26, 2019 6:42 pm

asset_chaos wrote:
Sat May 25, 2019 6:32 pm
Just noticed that Vanguard Australia has a new global multifactor active fund/etf, ticker vgmf, launched this past April. Links to product description and some marketing material https://www.vanguardinvestments.com.au/ ... /?overview, https://vanguardinvestments.com.au/advi ... factor.jsp, and https://static.vgcontent.info/crp/intl/ ... 524|160304. Methodology seems similar to that of the US multifactor fund but with the initial universe of stocks drawn from the FTSE Developed All Cap and Russell 3000. (So not quite global, excluding emerging markets.)

I wonder if it's a test drive before opening a similar fund in the US or the rest of Vanguard global.
Sounds intriguing at first glance. U.S. investors can currently buy this at Interactive Brokers in retirement accounts. The expense ratio of the ETF is 0.33%. U.S. allocation is 61%. Based on VFMF at 0.18% ER for comparison, this would effectively translate to paying 0.56% ER for the international portion of the portfolio. Obviously, this is not attractive compared to alternatives (INTF iShares multifactor international 0.3%, ISCF iShares multifactor international small 0.4%, DWMF WisdomTree International Multifactor 0.38%, EMGF iShares EM multifactor 0.45%), unless one believes in Vanguard's algo being superior. Also, the exclusion of Emerging Markets makes this less appealing and less special to me.

There is also a ca. 0.25-0.3% annual foreign tax drag for U.S. investors in retirement accounts on all international funds, that could be avoided using country ETFs or individual securities. (Unfortunately there are no reasonable country factor ETFs that I know of.)

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Wed Jul 10, 2019 12:12 pm

Asset growth has been inconsistent since I last looked at the AUM in December. VFMF and VFQY have had no net creations since January. VFVA took in a bunch of assets in January and has seen steady creations since. VFMV has seen slow, but steady growth. VFMO has seen one net creation unit redeemed this year.

VFLQ is the interesting one this week. It had no net creations for the year until yesterday, when it took in $22.9 MM (+275,000 shares) (according to etf.com). That more than doubled its existing AUM. I assume it was an institutional buyer.

VFMF - $84.01 MM
VFVA - $67.11 MM
VFMV - $41.65 MM
VFLQ - $39.58 MM
VFMO - $33.58 MM
VFQY - $21.95 MM
jhfenton wrote:
Sat Dec 08, 2018 4:28 pm
VFMF - $80.68 MM (+225,000 shares) (plus $34.9 MM in VFMFX as of 10/31/18)
VFVA - $37.51 MM (+25,000 shares)
VFMO - $33.12 MM (+50,000 shares)
VFMV - $22.62 MM (+25,000 shares)
VFQY - $17.87 MM (+50,000 shares)
VFLQ - $15.76 MM (-0-)

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by schismal » Wed Jul 10, 2019 1:48 pm

jhfenton wrote:
Wed Jul 10, 2019 12:12 pm
VFMO has seen one net creation unit redeemed this year.
Sad this isn’t getting better traction, as it seems like a decent momentum fund. I’ve been considering picking it up.

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by jhfenton » Wed Jul 10, 2019 8:34 pm

schismal wrote:
Wed Jul 10, 2019 1:48 pm
jhfenton wrote:
Wed Jul 10, 2019 12:12 pm
VFMO has seen one net creation unit redeemed this year.
Sad this isn’t getting better traction, as it seems like a decent momentum fund. I’ve been considering picking it up.
If you like the construction of VFMO and you're investing in a retirement account, I'd go ahead and buy some. Trading costs are quite reasonable despite the low volume, as the ˜$1MM traded in VFVA by someone above demonstrates. All six funds have had spreads around 0.08% since the day they launched. And I almost always get mid-spread execution on small odd-lot orders of VFVA (e.g. monthly purchases of 7-8 shares).

Vanguard has never closed an ETF, and although assets are still fairly low, I think they have extremely low closure risk. (I'd still hesitate to buy any of them--except maybe VFVA--in a taxable account until they have more of a track record. I have a very high standard for funds in taxable.)

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Re: Vanguard New Factor Funds Portfolio Statistics

Post by stan1 » Wed Jul 10, 2019 10:09 pm

I like Top 10 holdings of VFMO better than MTUM. VFMO is less concentrated than MTUM and has smaller capitalization stocks along with large caps. If VFMO had $10B+ in assets its Top 10 would be different, too. So for now I think its good to have a $33M fund with Vanguard's low cost structure.

I probably will buy next time I do a large equity rebalance after a market drop. Agree I'm not putting VFMO in taxable yet.

I can see that advisors (who Vanguard has targeted this ETF towards) like to do backtests and past performance so they go with the "older, proven" MTUM rather than the new Vanguard upstart. I've never personally seen an advisor pitch on four/five factor investing but I'm assuming it looks a lot like an actively managed mutual fund pitch not a passive three fund approach.

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