Vanguard Factor Funds

msnau

Was wondering if anyone has invested in any of the Vanguard Factor Funds (Momentum, Liquidity, Volatility, Value) - are these recommended or advised against?

I already have the LS100, and I'm basically looking for an active fund which I can buy and forget, and not be constantly worried I've bought the next Woodford.

My intention for the active fund is to try to beat the benchmark/market.

I'm new to investing so dont have the requisite skills to properly assess active funds (so I would not have been able to foresee Woodford if I had invested in it).

Thanks.

Linton

I would not use such funds as a primary holding, but rather as a tweak to modify or control the balance of the overall portfolio.


Depending on the state of the market you may well find that the best Factor changes over time, in which case they should not be bought and forgotten:
In the past 12 months, Volatility Factor outperformed the rest
In the previous 12 months, the prize went to Momentum Factor
In the previous 12 months to that it was Value Factor's turn


Finally as a new investor you may not understand the significance of the factors. In which case the "Do not invest in things you dont understand" rule applies.


So on balance and all things considered I would say these funds are not for you.

bostonerimus

Yep, I agree with Linton. Factor base investing is in the realm of PhDs and witches and wizards and definitely not for the novice. Stick with a multi-asset fund or a few indexes, but if you feel the urge to get fancy you might include a small percentage of sector or actively managed funds that might have a value or momentum philosophy, but such a portfolio is not "set and forget". Here is a nice white paper from Vanguard about the subject.

https://personal.vanguard.com/pdf/ISGFBI_042015_Online.pdf

FYI, don't try to "beat the market", you should be looking to get the return you need to meet your financial goals with the minimum risk.

A_T

Vanguard's factor ETFs each have so many holdings that over time they are unlikely to differ much from an index tracker e.g.momentum has over 1000

bostonerimus

Factor investing is about the whole market, but you emphasise companies according to certain factors so that you can get some "alpha". DFA have made this the core of their approach eg

https://money.usnews.com/funds/mutual-funds/large-blend/dfa-us-core-equity-1-portfolio/dfeox

tin586

In case not already seen, this is worth watching:

https://youtu.be/U0wnrUIgwVM

[Deleted User]

They have cheap fees for "active" funds

Linton

A_T wrote: »

Vanguard's factor ETFs each have so many holdings that over time they are unlikely to differ much from an index tracker e.g.momentum has over 1000

Over individual years the factor funds do vary significantly. For example over the past year Minimum Volatility increased by 16.2% whilst Value Factor dropped by 4.1%. The FTSE Developed World Index tracker increased by 8.2%. The factor funds have only been around for 3 years so the data is limited. Over the whole of those 3 years the funds are much closer to the FTSE Developed World Index and each other.


Perhaps there may be some advantage in taking advantage of this behaviour by holding an equal % in each factor fund and rebalancing every year. I will investigate.

firestone

msnau wrote: »

Was wondering if anyone has invested in any of the Vanguard Factor Funds (Momentum, Liquidity, Volatility, Value) - are these recommended or advised against?

I already have the LS100, and I'm basically looking for an active fund which I can buy and forget, and not be constantly worried I've bought the next Woodford.

My intention for the active fund is to try to beat the benchmark/market.

I'm new to investing so dont have the requisite skills to properly assess active funds (so I would not have been able to foresee Woodford if I had invested in it).

Thanks.

If you really want to follow factor investing but are not sure which due to your investing skills you could take a look at One of the multi factor ETF's that put an equal amount in each?

tin586

Linton wrote: »

The factor funds have only been around for 3 years so the data is limited. Over the whole of those 3 years the funds are much closer to the FTSE Developed World Index and each other.

Indeed, worth noting that the funds are highly correlated with one another and with global equity markets.

This factor investing ain’t easy!:eek:

bowlhead99

A_T wrote: »

Vanguard's factor ETFs each have so many holdings that over time they are unlikely to differ much from an index tracker e.g.momentum has over 1000

The whole point of them is to have a large number of holdings (because the market has a very large number of constituents) but weight them differently - not just dump loads of money into Apple on the basis that Apple is a big company.

The idea that just because two funds have 1000+ holdings they will over time have the same results, seems hokum. One fund might choose to allow the largest holding to be 200x the size of the smallest holding, while another fund might have all its holdings within an order of magnitude of each other, with an entirely different company as the largest holding. That's how (as Linton observes), one 'factor' could give a positive return over a year while another delivered a loss - depending on how certain key constituents perform.