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Whats the deal with Vanguard 'Factor' ETFs (VFMV, VFMO, VFMF, etc.)
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on my roth ira, i’m in: VOO, SCHD, VTI, and QQQ on my on my individual: VOO, VFVA, QQQ, VXUS, VTI, SCHD
Vanguard has several "factor" funds that don't have as much tech in them. For example, VOO (S&P 500 ETF) has 30.6% in Information Technology. Other funds have lower concentrations, like VFVA with 5.3% in Tech, VOOV with 8.1% in Information Technology, or VFMF with 10.7% in Tech.
This is why diversifying is smart. Most of these stocks are down 2-5% today, but VOO (S&P500) is only down 0.28% and VTI (total stock market) is only down 0.25%. Some other diversified funds are actually up today, such as VFVA (Vanguard value ETF) which is up 0.48% today.
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2023&lastMonth=12&calendarAligned=true&includeYTD=true&initialAmount=2000&annualOperation=1&annualAdjustment=1000&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VOO&allocation1\_1=100&symbol2=VFVA&allocation2\_2=100&symbol3=SPYG&allocation3\_3=100
VFQY, VFVA, VXUS, BND, BSRTF in my Roth. Total market equivalent in my employers 403b. Individual companies in my individual account.
The main ones I target are their small cap value US (AVUV) and their small cap value developed countries (AVDV). So Vanguard's focus is to educate their clients to stay invested and own the market. This has helped millions and millions of people. However, this messaging would get blurred in more aggressive factor tilts that push you away from the market. Therefore, their factor ETFs are smaller tilts than a full on factor ETF would be. Avantis was started by people who left Dimensional Fund advisors the oldest factor based investing company. And can target these with much larger factor placements to dig in. This means their ETFs are less correlated with the market and will perform differently! As proof look at the factor regressions: [Regression analysis](https://www.portfoliovisualizer.com/factor-analysis?s=y®ressionType=1&symbols=VBR+AVUV+VFVA&sharedTimePeriod=true&factorDataSet=0&marketArea=0&factorModel=5&useHMLDevFactor=false&includeQualityFactor=false&includeLowBetaFactor=false&fixedIncomeFactorModel=0&__checkbox_ffmkt=true&__checkbox_ffsmb=true&__checkbox_ffsmb5=true&__checkbox_ffhml=true&__checkbox_ffmom=true&__checkbox_ffrmw=true&__checkbox_ffcma=true&__checkbox_ffstrev=true&__checkbox_ffltrev=true&__checkbox_aqrmkt=true&__checkbox_aqrsmb=true&__checkbox_aqrhml=true&__checkbox_aqrhmldev=true&__checkbox_aqrmom=true&__checkbox_aqrqmj=true&__checkbox_aqrbab=true&__checkbox_aamkt=true&__checkbox_aasmb=true&__checkbox_aahml=true&__checkbox_aamom=true&__checkbox_aaqmj=true&__checkbox_qmkt=true&__checkbox_qme=true&__checkbox_qia=true&__checkbox_qroe=true&__checkbox_qeg=true&__checkbox_trm=true&__checkbox_cdt=true&timePeriod=2&rollPeriod=36&marketAssetType=1&robustRegression=true) We can see that VBR (The Vanguard small cap value etf) has much smaller factor betas than AVUV and even has a NEGATIVE loading for the investment factor. Whereas AVUV does not. Also the Vanguard VFVA is much more active than AVUV which is shown by its significant alpha (returns unexplained by factors) in a pure factor play you would want alpha to be 0. All in all use Vanguard for what they are good for (market cap weighted index funds that are cheap without ads for active management) and use Avantis for what they are good for (highly concentrated factor bets). But, I would also caution that if you are just learning about factors don't invest in them. With little understanding you have tremendous emotional and psychological risk of seeing them be outperformed by the market selling at the bottom and not getting their returns when they do well. Investing requires commitment and commitment requires belief and understanding. So unless you have both don't invest in them.
If you aren't going to put it all in VOO, you want something that's set to outperform it. If you look at only Vanguard funds YTD, value is the keyword. VIOV--Small cap value VFVA--Value Factor IVOV--Mid-cap value VTWV--Russell 2000 value VBR--Small cap value But, that's not going to be the play forever. At some point those are going to lag VOO, and you'll want to move into something else.
Just put it mostly into SPX QQQ, little bit into VFVA, VWO, EFA, ARKK