I consider the factor portfolio to be the gamble.FiveFactor wrote: ↑Thu Sep 16, 2021 5:29 amNorthern Flicker wrote: ↑Thu Sep 16, 2021 2:19 amNot arguing against a market cap index fund, but by definition, VTSAX has zero exposure to all factors other than the market factor. Having exposure to the US size and value factor doesn't just mean holding small value stocks-- it means holding more of it than the weighting in the market index, and with no offsetting position (such as a simultaneous tilt to large growth).Booogle wrote: ↑Wed Aug 25, 2021 9:43 amNathan Drake wrote: ↑Wed Aug 25, 2021 8:25 amNegative correlation combined with similar expected long term returns is a great thing.
Yes, which is why people just buy VTSAX.
VTSAX has everything.
Market cap has only beta, which describes 70-% of portfolio returns.
Factor portfolios have 95% + of portfolio returns explained.
Which one is a gamble?
New Avantis ETFs
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Re: New Avantis ETFs
Re: New Avantis ETFs
They are all a gamble. As someone heavily invested in SCV, I don't think the ability to explain returns better to be helpful in an of itself, but I do consider diversifying across different low-correlated return providers to be useful in helping me have better outcomes from my betting.
To me it's like betting on some random draws from one normal distribution (allocate according to the market factor only) vs betting on draws from several normal distributions (allocating non-zero loads on size, value factors as well).
If the size and value factor returns also have positive means, then that's good long-term, and hopefully my chances of very-bad outcomes is somewhat reduced because it's theoretically rare that my many combined draws of the factor-diversified portfolio will lead to worse outcomes than the single-factor approach.
Of course that's been wrong lately, but we'll see in 40 years, I guess
Crom laughs at your Four Winds
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Re: New Avantis ETFs
Then you shouldn't be in stocks.UpperNwGuy wrote: ↑Thu Sep 16, 2021 5:09 pmI have a short investing horizon, so lately matters to me. I won't be here in 40 years.
Livin' the dream
- typical.investor
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Re: New Avantis ETFs
Well I for one don’t believe that it’s theoretically rare at all.
In fact, factor correlations rise at times such that a factor diversified portfolio can have the same characteristic as an individual factor. So just a value can underperform, so too can a portfolio with more factors.
And there is the fact that factors are serially correlated. This means that their returns persist (ie have momentum).
That said, I am a factor investor and believe myself to be sort of an insurance company where I earn a premium for holding risk.
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Re: New Avantis ETFs
Where is AVES??? I have a large 6-figure buy waiting….
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Re: New Avantis ETFs
Let me know when you put that order in.
You already have your sig ready I see.
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Re: New Avantis ETFs
It’s odd that people look at two separate probabilistic outcomes and consistently they choose to define the worse of the two options as “less risky”
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Re: New Avantis ETFs
It’s FNDE currently. I want to get settled into my long term homw
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Re: New Avantis ETFs
Not only is it not rare, but I think it is the more common outcome of the two.typical.investor wrote: ↑Thu Sep 16, 2021 5:46 pmWell I for one don’t believe that it’s theoretically rare at all.
In fact, factor correlations rise at times such that a factor diversified portfolio can have the same characteristic as an individual factor. So just a value can underperform, so too can a portfolio with more factors.
And there is the fact that factors are serially correlated. This means that their returns persist (ie have momentum).
That said, I am a factor investor and believe myself to be sort of an insurance company where I earn a premium for holding risk.
Re: New Avantis ETFs
Do you have data on this? Presumably some exists in a paperNorthern Flicker wrote: ↑Thu Sep 16, 2021 8:03 pmNot only is it not rare, but I think it is the more common outcome of the two.typical.investor wrote: ↑Thu Sep 16, 2021 5:46 pmWell I for one don’t believe that it’s theoretically rare at all.
In fact, factor correlations rise at times such that a factor diversified portfolio can have the same characteristic as an individual factor. So just a value can underperform, so too can a portfolio with more factors.
And there is the fact that factors are serially correlated. This means that their returns persist (ie have momentum).
That said, I am a factor investor and believe myself to be sort of an insurance company where I earn a premium for holding risk.
Crom laughs at your Four Winds
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Re: New Avantis ETFs
That's utter nonsense.Morse Code wrote: ↑Thu Sep 16, 2021 5:17 pmThen you shouldn't be in stocks.UpperNwGuy wrote: ↑Thu Sep 16, 2021 5:09 pmI have a short investing horizon, so lately matters to me. I won't be here in 40 years.
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Re: New Avantis ETFs
It certainly is not rare-- 2008/2009, 3/2020, great depression all saw SCV underperform.muffins14 wrote: ↑Thu Sep 16, 2021 8:04 pmDo you have data on this? Presumably some exists in a paperNorthern Flicker wrote: ↑Thu Sep 16, 2021 8:03 pmNot only is it not rare, but I think it is the more common outcome of the two.typical.investor wrote: ↑Thu Sep 16, 2021 5:46 pmWell I for one don’t believe that it’s theoretically rare at all.
In fact, factor correlations rise at times such that a factor diversified portfolio can have the same characteristic as an individual factor. So just a value can underperform, so too can a portfolio with more factors.
And there is the fact that factors are serially correlated. This means that their returns persist (ie have momentum).
That said, I am a factor investor and believe myself to be sort of an insurance company where I earn a premium for holding risk.
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Re: New Avantis ETFs
Using the media definition of a bear market, i.e. a drawdown of 20% or more from an equity market peak, there have been 4 bear markets for US equities: 10/1987, 2000-2002, 2007-2009, and 3/2020.
Diversification using the most popular factors underperformed in 3 of the 4. I think factor tilted portfolios are appropriate for a fair number of investors, but I also believe that there is a tendency for the benefits to be oversold.
Diversification using the most popular factors underperformed in 3 of the 4. I think factor tilted portfolios are appropriate for a fair number of investors, but I also believe that there is a tendency for the benefits to be oversold.
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Re: New Avantis ETFs
muffins14 wrote: ↑Thu Sep 16, 2021 8:04 pmDo you have data on this? Presumably some exists in a paperNorthern Flicker wrote: ↑Thu Sep 16, 2021 8:03 pmNot only is it not rare, but I think it is the more common outcome of the two.typical.investor wrote: ↑Thu Sep 16, 2021 5:46 pmWell I for one don’t believe that it’s theoretically rare at all.
In fact, factor correlations rise at times such that a factor diversified portfolio can have the same characteristic as an individual factor. So just a value can underperform, so too can a portfolio with more factors.
And there is the fact that factors are serially correlated. This means that their returns persist (ie have momentum).
That said, I am a factor investor and believe myself to be sort of an insurance company where I earn a premium for holding risk.
First see viewtopic.php?p=6185027#p6185027
Here's the graph from that post for convenience.
Vanguard's data shows a multi-factor portfolio performing (1995-2020) very similar to value alone. What slight benefit existed only came from the inclusion of (academic) momentum which as we know is more difficult to actually capture in a real fund due to what trading costs would be to target it the way academic momentum does. See below for more.
Second, read Alice's Adventures in Factorland. https://papers.ssrn.com/sol3/papers.cfm ... id=3331680
Also in the Alice paper is:A portfolio of factors may significantly underperform our expectations for three reasons:
1. Individual factor performance is non-normal, with a high likelihood of big drawdowns.
2. Cross-factor correlations are time-varying, with spikes in correlation around periods of factor underperformance, causing the benefits of diversification to disappear during big drawdowns.
3. Serial correlation of returns exacerbates and prolongs the periods of underperformance.
Note: The Alice paper is basically from Research Affiliates who sell multi factor funds (MFUS, MFEM, MFDX), and they are not trying to discourage you from buying them. What they are saying though is that it's better to understand how multi-factor portfolios really behave.When paper portfolios move to live trading, transactions costs start to play a very important role. Novy-Marx and Velikov (2016) show that almost no factor, constructed as a long–short portfolio, with turnover exceeding 50% has any return left after accounting for transactions costs
... Prior to Novy-Marx and Velikov’s work, Korajczyk and Sadka (2004) raised the trading cost concerns for the momentum factor. Specifically, they showed that it is difficult to benefit from the momentum factor after accounting for transaction costs.
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Re: New Avantis ETFs
Your feelings are wrong. Empirically wrongNorthern Flicker wrote: ↑Thu Sep 16, 2021 8:03 pmNot only is it not rare, but I think it is the more common outcome of the two.typical.investor wrote: ↑Thu Sep 16, 2021 5:46 pmWell I for one don’t believe that it’s theoretically rare at all.
In fact, factor correlations rise at times such that a factor diversified portfolio can have the same characteristic as an individual factor. So just a value can underperform, so too can a portfolio with more factors.
And there is the fact that factors are serially correlated. This means that their returns persist (ie have momentum).
That said, I am a factor investor and believe myself to be sort of an insurance company where I earn a premium for holding risk.
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Re: New Avantis ETFs
Factors outperform in nearly all overlapping 20-year periods in history. But sure, your anecdote is more predictive.Northern Flicker wrote: ↑Fri Sep 17, 2021 3:00 am Using the media definition of a bear market, i.e. a drawdown of 20% or more from an equity market peak, there have been 4 bear markets for US equities: 10/1987, 2000-2002, 2007-2009, and 3/2020.
Diversification using the most popular factors underperformed in 3 of the 4. I think factor tilted portfolios are appropriate for a fair number of investors, but I also believe that there is a tendency for the benefits to be oversold.
If you want to claim factors are more risky 1) define risk (ie risk is not volatility, nor is it max drawdown), 2) show the data against your definition.
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Re: New Avantis ETFs
Apparently available 30 September.
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Re: New Avantis ETFs
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Re: New Avantis ETFs
Inside source from HML_Compounder on the Rational Reminder forum. [OT comment removed by admin LadyGeek]FiveFactor wrote: ↑Fri Sep 17, 2021 7:20 amDo you have a citation?
Re: New Avantis ETFs
I found this interesting.Northern Flicker wrote: ↑Fri Sep 17, 2021 3:00 am Using the media definition of a bear market, i.e. a drawdown of 20% or more from an equity market peak, there have been 4 bear markets for US equities: 10/1987, 2000-2002, 2007-2009, and 3/2020.
Diversification using the most popular factors underperformed in 3 of the 4. I think factor tilted portfolios are appropriate for a fair number of investors, but I also believe that there is a tendency for the benefits to be oversold.
https://www.pwlcapital.com/resources/fi ... with-etfs/There were 111 10-year periods ending between 1973 and 2020 were the US market premium was negative. Over those 111 periods where the market premium was negative, SMB, HML and CMA were all positive, while RMW was negative in 53 of the 111 periods.
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Re: New Avantis ETFs
Yeah, that one thread has good content. The rest of the good content comes from Wes Grey, or Cliff Asness, or Larry Swedroe - then the 20-somethings go peacock chest and peck at each other.YRT70 wrote: ↑Fri Sep 17, 2021 7:49 amI agree there are some insecure 20 year olds there but there's also lots of good content there. The AVES details are just one example.FiveFactor wrote: ↑Fri Sep 17, 2021 7:31 amI was there. Lots of passive aggressive Canadian Peacocks. After you read through that one thread, the rest of the content is just insecure 20-somethings trying to one up people. No better than here.YRT70 wrote: ↑Fri Sep 17, 2021 7:25 amInside source from HML_Compounder on the Rational Reminder forum. Good forum by the way, surprised you're not there yet. Less Bogle dogma.
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Re: New Avantis ETFs
FYI: A spokesman from American Century Investments told me yesterday that the launch date for the new Avantis Emerging Markets Value ETF and the new Avantis International Large Cap Value ETF is Thursday, Sept. 30.
The investor's chief problem-and even his worse enemy-is likely to be himself. Benjamin Graham
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Re: New Avantis ETFs
Thanks for the new information regarding the launch. I was hoping it was yesterday, but that's okay. I can wait a couple more weeks!
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Re: New Avantis ETFs
Thank you very much!
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Re: New Avantis ETFs
Your welcome Massdriver. At least the launch is still in September.
The investor's chief problem-and even his worse enemy-is likely to be himself. Benjamin Graham
Re: New Avantis ETFs
Your welcome as well Five Factor.
The investor's chief problem-and even his worse enemy-is likely to be himself. Benjamin Graham
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Re: New Avantis ETFs
You are the one making an unsubstantiated claim about factor risk. Where is your data?FiveFactor wrote: ↑Fri Sep 17, 2021 5:25 amFactors outperform in nearly all overlapping 20-year periods in history. But sure, your anecdote is more predictive.Northern Flicker wrote: ↑Fri Sep 17, 2021 3:00 am Using the media definition of a bear market, i.e. a drawdown of 20% or more from an equity market peak, there have been 4 bear markets for US equities: 10/1987, 2000-2002, 2007-2009, and 3/2020.
Diversification using the most popular factors underperformed in 3 of the 4. I think factor tilted portfolios are appropriate for a fair number of investors, but I also believe that there is a tendency for the benefits to be oversold.
If you want to claim factors are more risky 1) define risk (ie risk is not volatility, nor is it max drawdown), 2) show the data against your definition.
Saying that volatility and drawdown level don't matter is as big an error as saying they are the only risk that matters. Markets do not always recover quickly with v-shaped recoveries.
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Re: New Avantis ETFs
Northern Flicker wrote: ↑Fri Sep 17, 2021 12:52 pmYou are the one making an unsubstantiated claim about factor risk. Where is your data?FiveFactor wrote: ↑Fri Sep 17, 2021 5:25 amFactors outperform in nearly all overlapping 20-year periods in history. But sure, your anecdote is more predictive.Northern Flicker wrote: ↑Fri Sep 17, 2021 3:00 am Using the media definition of a bear market, i.e. a drawdown of 20% or more from an equity market peak, there have been 4 bear markets for US equities: 10/1987, 2000-2002, 2007-2009, and 3/2020.
Diversification using the most popular factors underperformed in 3 of the 4. I think factor tilted portfolios are appropriate for a fair number of investors, but I also believe that there is a tendency for the benefits to be oversold.
If you want to claim factors are more risky 1) define risk (ie risk is not volatility, nor is it max drawdown), 2) show the data against your definition.
Saying that volatility and drawdown level don't matter is as big an error as saying they are the only risk that matters. Markets do not always recover quickly with v-shaped recoveries.
Come back with data.
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Re: New Avantis ETFs
Meaningless. Show me the track record of actual investments I could have held. There is no rasy way to validate academic factor premium models.FiveFactor wrote: ↑Fri Sep 17, 2021 1:17 pmNorthern Flicker wrote: ↑Fri Sep 17, 2021 12:52 pmYou are the one making an unsubstantiated claim about factor risk. Where is your data?FiveFactor wrote: ↑Fri Sep 17, 2021 5:25 amFactors outperform in nearly all overlapping 20-year periods in history. But sure, your anecdote is more predictive.Northern Flicker wrote: ↑Fri Sep 17, 2021 3:00 am Using the media definition of a bear market, i.e. a drawdown of 20% or more from an equity market peak, there have been 4 bear markets for US equities: 10/1987, 2000-2002, 2007-2009, and 3/2020.
Diversification using the most popular factors underperformed in 3 of the 4. I think factor tilted portfolios are appropriate for a fair number of investors, but I also believe that there is a tendency for the benefits to be oversold.
If you want to claim factors are more risky 1) define risk (ie risk is not volatility, nor is it max drawdown), 2) show the data against your definition.
Saying that volatility and drawdown level don't matter is as big an error as saying they are the only risk that matters. Markets do not always recover quickly with v-shaped recoveries.
Come back with data.
Here is a comparison of DFA small value and S&P500 fund since inception of the DFA fund. (The DFA fund return excludes the advisor AUM you would have paid for it).
https://www.portfoliovisualizer.com/bac ... ion2_2=100
The higher risk should be obvious-- what if tou were laid off ftom your job when it was down 61% from where you thought you were?
And then there is the point that most savers do not invest in a lump sum. What if you contributed monthly? The return advantage of SVC disappeared but you still had higher risk:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
As I've suggested, factor tilts are appropriate for many investors, but it is important to understand the pros and cons when going into it.
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Re: New Avantis ETFs
Define risk. Also, your comments/dismissal of the data is laughable. Peer reviewed data vs your internet opinion…. Let’s think which we should trust… But whatever.Northern Flicker wrote: ↑Fri Sep 17, 2021 4:52 pmMeaningless. Show me the track record of actual investments I could have held. There is no rasy way to validate academic factor premium models.FiveFactor wrote: ↑Fri Sep 17, 2021 1:17 pmNorthern Flicker wrote: ↑Fri Sep 17, 2021 12:52 pmYou are the one making an unsubstantiated claim about factor risk. Where is your data?FiveFactor wrote: ↑Fri Sep 17, 2021 5:25 amFactors outperform in nearly all overlapping 20-year periods in history. But sure, your anecdote is more predictive.Northern Flicker wrote: ↑Fri Sep 17, 2021 3:00 am Using the media definition of a bear market, i.e. a drawdown of 20% or more from an equity market peak, there have been 4 bear markets for US equities: 10/1987, 2000-2002, 2007-2009, and 3/2020.
Diversification using the most popular factors underperformed in 3 of the 4. I think factor tilted portfolios are appropriate for a fair number of investors, but I also believe that there is a tendency for the benefits to be oversold.
If you want to claim factors are more risky 1) define risk (ie risk is not volatility, nor is it max drawdown), 2) show the data against your definition.
Saying that volatility and drawdown level don't matter is as big an error as saying they are the only risk that matters. Markets do not always recover quickly with v-shaped recoveries.
Come back with data.
Here is a comparison of DFA small value and S&P500 fund since inception of the DFA fund. (The DFA fund return excludes the advisor AUM you would have paid for it).
https://www.portfoliovisualizer.com/bac ... ion2_2=100
The higher risk should be obvious-- what if tou were laid off ftom your job when it was down 61% from where you thought you were?
And then there is the point that most savers do not invest in a lump sum. What if you contributed monthly? The return advantage of SVC disappeared but you still had higher risk:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
As I've suggested, factor tilts are appropriate for many investors, but it is important to understand the pros and cons when going into it.
As I see it, risk is not having enough. If that timeline is 20y, based on the data, you would be a fool to MCW. As it has never won that race. Ever. Not once.
If instead you invent the idea that volatility is risk, you solve for the wrong problem and end up with a sub optimal solution.
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5% QMOM |
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Term: |
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- typical.investor
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Re: New Avantis ETFs
That "peer reviewed data" comment is truly laughable. Sure, it's reviewed and everyone agrees that that data is theoretically correct for theoretical trades that do not take actual real world trading into consideration.FiveFactor wrote: ↑Fri Sep 17, 2021 6:21 pmDefine risk. Also, your comments/dismissal of the data is laughable. Peer reviewed data …Northern Flicker wrote: ↑Fri Sep 17, 2021 4:52 pmMeaningless. Show me the track record of actual investments I could have held. There is no rasy way to validate academic factor premium models.FiveFactor wrote: ↑Fri Sep 17, 2021 1:17 pmNorthern Flicker wrote: ↑Fri Sep 17, 2021 12:52 pmYou are the one making an unsubstantiated claim about factor risk. Where is your data?FiveFactor wrote: ↑Fri Sep 17, 2021 5:25 am
Factors outperform in nearly all overlapping 20-year periods in history. But sure, your anecdote is more predictive.
If you want to claim factors are more risky 1) define risk (ie risk is not volatility, nor is it max drawdown), 2) show the data against your definition.
Saying that volatility and drawdown level don't matter is as big an error as saying they are the only risk that matters. Markets do not always recover quickly with v-shaped recoveries.
Come back with data.
Here is a comparison of DFA small value and S&P500 fund since inception of the DFA fund. (The DFA fund return excludes the advisor AUM you would have paid for it).
https://www.portfoliovisualizer.com/bac ... ion2_2=100
The higher risk should be obvious-- what if tou were laid off ftom your job when it was down 61% from where you thought you were?
And then there is the point that most savers do not invest in a lump sum. What if you contributed monthly? The return advantage of SVC disappeared but you still had higher risk:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
As I've suggested, factor tilts are appropriate for many investors, but it is important to understand the pros and cons when going into it.
Please don't post theoretical returns as if they are real ones and cheekily chide people for pointing out that real returns look to be different. How have actual funds done? Theoretical returns are irrelevant.
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Re: New Avantis ETFs
I did not present my opinion about returns, but actual investment results with the products available to an investor. When a backtest shows a risk materializing, it is not just a theoretical risk.
Factor premia are peer reviewed as academic models. They are not investments you can make.
Risk would be defined as the possibility of your investment having lost value when you need to use the asset. You may not plan to need an invested asset for 35 years, but that is not guaranteed. I think alot of investors have become conditioned to assume that deep drawdowns will always be transitory events, hence are dismissive of volatility and drawdown even being a risk at all. They may not be the only risks, and maybe are not even the most important ones, but they are significant risks, and they matter.
If you lose your job as your investment drops 60% and does not recover for 8 years, and you have a mortgage to pay and family to feed, you will find that you don't get to eat 35 year returns in year 17.
Factor premia are peer reviewed as academic models. They are not investments you can make.
Risk would be defined as the possibility of your investment having lost value when you need to use the asset. You may not plan to need an invested asset for 35 years, but that is not guaranteed. I think alot of investors have become conditioned to assume that deep drawdowns will always be transitory events, hence are dismissive of volatility and drawdown even being a risk at all. They may not be the only risks, and maybe are not even the most important ones, but they are significant risks, and they matter.
If you lose your job as your investment drops 60% and does not recover for 8 years, and you have a mortgage to pay and family to feed, you will find that you don't get to eat 35 year returns in year 17.
Last edited by Northern Flicker on Sat Sep 18, 2021 7:19 pm, edited 1 time in total.
Re: New Avantis ETFs
I removed an off-topic interchange regarding another forum. As a reminder, see: General Etiquette
Please stay on-topic.At all times we must conduct ourselves in a respectful manner to other posters.
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Re: New Avantis ETFs
Does anyone know how the Avantis process for screening for profitability works? Does it make their funds less value loaded?
I'd rather be content than happy -- Lao Tzu.
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Re: New Avantis ETFs
No one knows exactly, but they screen for both P/B and profitability while using momentum to define when to buy/sell. In theory this avoids the value traps.BetaTracker wrote: ↑Sat Sep 18, 2021 10:14 pm Does anyone know how the Avantis process for screening for profitability works? Does it make their funds less value loaded?
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Re: New Avantis ETFs
Is this basically what DFA does, too? So no reason to wait for DFA to bring out a small value ETF …
I'd rather be content than happy -- Lao Tzu.
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Re: New Avantis ETFs
Yup. Made up from a bunch of ex DFA managers.BetaTracker wrote: ↑Sun Sep 19, 2021 1:07 am Is this basically what DFA does, too? So no reason to wait for DFA to bring out a small value ETF …
Probably left to start their own management company because they saw an opportunity in the low cost Value ETF universe that DFA was ignoring.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: New Avantis ETFs
I would guess it does. Rumor is that some of the big tech names like Apple and Microsoft made it into the large value fund (AVLV).BetaTracker wrote: ↑Sat Sep 18, 2021 10:14 pm Does anyone know how the Avantis process for screening for profitability works? Does it make their funds less value loaded?
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Re: New Avantis ETFs
It’s a negative screen for profitability. Not meant to capture a Profitability premium, simply meant to eliminate the falling knife junk out of its Value picks. A true multi factor fund would try to positively load on profit and have to compromise to get there.YRT70 wrote: ↑Sun Sep 19, 2021 1:53 amI would guess it does. Rumor is that some of the big tech names like Apple and Microsoft made it into the large value fund (AVLV).BetaTracker wrote: ↑Sat Sep 18, 2021 10:14 pm Does anyone know how the Avantis process for screening for profitability works? Does it make their funds less value loaded?
Edit: I would encourage you to look at Value loading’s while holding size and profitability constant. Those two are modifiers (or amplifiers) to value. In this sense Avantis is perfection
Small/Value/Profitability: |
30% AVUV |
30% AVDV |
30% AVES |
Momentum: |
5% QMOM |
5% IMOM |
Volatility: |
0.1% PUTW |
Term: |
0.1% BND
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Re: New Avantis ETFs
The case to wait for DFA is that the DFA investor base is supposedly more stable in a market crash because of the Advisor requirement on the fund side.BetaTracker wrote: ↑Sun Sep 19, 2021 1:07 am Is this basically what DFA does, too? So no reason to wait for DFA to bring out a small value ETF …
That’s the case. I think it’s a [expletive removed by admin LadyGeek] case full of holes. But there it is
Small/Value/Profitability: |
30% AVUV |
30% AVDV |
30% AVES |
Momentum: |
5% QMOM |
5% IMOM |
Volatility: |
0.1% PUTW |
Term: |
0.1% BND
Re: New Avantis ETFs
Are the DFA ETFs share classes on the same fund? I thought only Vanguard had that ( unless they licensed it from VG)FiveFactor wrote: ↑Sun Sep 19, 2021 6:57 amThe case to wait for DFA is that the DFA investor base is supposedly more stable in a market crash because of the Advisor requirement on the fund side.BetaTracker wrote: ↑Sun Sep 19, 2021 1:07 am Is this basically what DFA does, too? So no reason to wait for DFA to bring out a small value ETF …
That’s the case. I think it’s a [expletive removed by admin LadyGeek] case full of holes. But there it is
Re: New Avantis ETFs
They converted several existing tax managed mutual funds into ETFs. The previous mutual fund went away so not what Vanguard does with share classes. I'm sure DFA advisors and clients in their tax managed funds had been yelling at them about this for a decade. I'd expect some advisors stopped using DFA funds in taxable accounts in lieu of ETFs from other companies and that likely escalated real quick with Avantis on the scene.tarnation wrote: ↑Sun Sep 19, 2021 8:48 amAre the DFA ETFs share classes on the same fund? I thought only Vanguard had that ( unless they licensed it from VG)FiveFactor wrote: ↑Sun Sep 19, 2021 6:57 amThe case to wait for DFA is that the DFA investor base is supposedly more stable in a market crash because of the Advisor requirement on the fund side.BetaTracker wrote: ↑Sun Sep 19, 2021 1:07 am Is this basically what DFA does, too? So no reason to wait for DFA to bring out a small value ETF …
That’s the case. I think it’s a [expletive removed by admin LadyGeek] case full of holes. But there it is
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Re: New Avantis ETFs
This is incorrect. DFA uses a profitability screen after sorting for value, while Avantis uses a composite that weights both value & profitability at the same screen, so a very high profitability (but lower value) name can make it into the sort, as I suspect you'll get validation from once you see AVLV's top holdings.FiveFactor wrote: ↑Sun Sep 19, 2021 5:40 am
It’s a negative screen for profitability. Not meant to capture a Profitability premium, simply meant to eliminate the falling knife junk out of its Value picks. A true multi factor fund would try to positively load on profit and have to compromise to get there.
Avantis is not copying DFA's strategy, it has a meaningfully higher emphasis on profitability from what I have seen.
- whodidntante
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Re: New Avantis ETFs
I probably would agree with whatever the red word was, LOL.FiveFactor wrote: ↑Sun Sep 19, 2021 6:57 amThe case to wait for DFA is that the DFA investor base is supposedly more stable in a market crash because of the Advisor requirement on the fund side.BetaTracker wrote: ↑Sun Sep 19, 2021 1:07 am Is this basically what DFA does, too? So no reason to wait for DFA to bring out a small value ETF …
That’s the case. I think it’s a [expletive removed by admin LadyGeek] case full of holes. But there it is
Another advantage of ETFs is that the fund doesn't have to trade to meet redemptions. DFA might want to jot that down.
Re: New Avantis ETFs
I'd guess Eduardo Repetto has had very well paid lawyers following him around since he left DFA making sure he wasn't copying anything DFA did. He probably has petabytes of data showing he did no such thing.MotoTrojan wrote: ↑Sun Sep 19, 2021 9:43 am Avantis is not copying DFA's strategy, it has a meaningfully higher emphasis on profitability from what I have seen.
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Re: New Avantis ETFs
MotoTrojan wrote: ↑Sun Sep 19, 2021 9:43 amThis is incorrect. DFA uses a profitability screen after sorting for value, while Avantis uses a composite that weights both value & profitability at the same screen, so a very high profitability (but lower value) name can make it into the sort, as I suspect you'll get validation from once you see AVLV's top holdings.FiveFactor wrote: ↑Sun Sep 19, 2021 5:40 am
It’s a negative screen for profitability. Not meant to capture a Profitability premium, simply meant to eliminate the falling knife junk out of its Value picks. A true multi factor fund would try to positively load on profit and have to compromise to get there.
Avantis is not copying DFA's strategy, it has a meaningfully higher emphasis on profitability from what I have seen.
You are correct. It’s the negative momentum screed. It’s a composite profit/value screen
Small/Value/Profitability: |
30% AVUV |
30% AVDV |
30% AVES |
Momentum: |
5% QMOM |
5% IMOM |
Volatility: |
0.1% PUTW |
Term: |
0.1% BND
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Re: New Avantis ETFs
I would agree the momentum screen is really only intended to avoid a negative loading, but even that I would push back on. Their trading strategy will defer buying names that have negative momentum, and defer selling names that have positive momentum, so the screen isn't only for negative momentum. This is contrary to something like Alpha Architect's momentum screen on QVAL/IVAL which just eliminates the bottom 10% in momentum, but doesn't give any credit to positive momentum.FiveFactor wrote: ↑Sun Sep 19, 2021 10:16 amMotoTrojan wrote: ↑Sun Sep 19, 2021 9:43 amThis is incorrect. DFA uses a profitability screen after sorting for value, while Avantis uses a composite that weights both value & profitability at the same screen, so a very high profitability (but lower value) name can make it into the sort, as I suspect you'll get validation from once you see AVLV's top holdings.FiveFactor wrote: ↑Sun Sep 19, 2021 5:40 am
It’s a negative screen for profitability. Not meant to capture a Profitability premium, simply meant to eliminate the falling knife junk out of its Value picks. A true multi factor fund would try to positively load on profit and have to compromise to get there.
Avantis is not copying DFA's strategy, it has a meaningfully higher emphasis on profitability from what I have seen.
You are correct. It’s the negative momentum screed. It’s a composite profit/value screen
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Re: New Avantis ETFs
I agree that max drawdown is a much more meaningful measure of risk than volatilities. Why? Because volatility doesn't do anything to you, but max drawdown can wipe out a leveraged portfolio. If you "accept" a certain expected max drawdown by way of factor investing, you should accept the same expected max drawdown by way of leveraged investing. Here is your chart amended by a third portfolio: The S&P500 calibrated to the same drawdown risk as the factor fund:Northern Flicker wrote: ↑Fri Sep 17, 2021 4:52 pmMeaningless. Show me the track record of actual investments I could have held. There is no rasy way to validate academic factor premium models.FiveFactor wrote: ↑Fri Sep 17, 2021 1:17 pmNorthern Flicker wrote: ↑Fri Sep 17, 2021 12:52 pmYou are the one making an unsubstantiated claim about factor risk. Where is your data?FiveFactor wrote: ↑Fri Sep 17, 2021 5:25 amFactors outperform in nearly all overlapping 20-year periods in history. But sure, your anecdote is more predictive.Northern Flicker wrote: ↑Fri Sep 17, 2021 3:00 am Using the media definition of a bear market, i.e. a drawdown of 20% or more from an equity market peak, there have been 4 bear markets for US equities: 10/1987, 2000-2002, 2007-2009, and 3/2020.
Diversification using the most popular factors underperformed in 3 of the 4. I think factor tilted portfolios are appropriate for a fair number of investors, but I also believe that there is a tendency for the benefits to be oversold.
If you want to claim factors are more risky 1) define risk (ie risk is not volatility, nor is it max drawdown), 2) show the data against your definition.
Saying that volatility and drawdown level don't matter is as big an error as saying they are the only risk that matters. Markets do not always recover quickly with v-shaped recoveries.
Come back with data.
Here is a comparison of DFA small value and S&P500 fund since inception of the DFA fund. (The DFA fund return excludes the advisor AUM you would have paid for it).
https://www.portfoliovisualizer.com/bac ... ion2_2=100
The higher risk should be obvious-- what if tou were laid off ftom your job when it was down 61% from where you thought you were?
And then there is the point that most savers do not invest in a lump sum. What if you contributed monthly? The return advantage of SVC disappeared but you still had higher risk:
https://www.portfoliovisualizer.com/bac ... ion2_2=100
As I've suggested, factor tilts are appropriate for many investors, but it is important to understand the pros and cons when going into it.
https://www.portfoliovisualizer.com/bac ... ion3_3=-25
A 25% leveraged S&P500 resulted in the same drawdown risk as the factor fund, but with CAGR of 12.1% instead of 11.3%.
Based on this time series, it would be fair to say that a 25% leveraged S&P 500 investment would have achieved better risk-adjusted returns than the (supposedly more "diversified") factor fund. In other words, factor investing didn't work out, largely because the risk was not uncorrelated or "diversified" when it mattered most.
Of course, we have to keep in mind that this 30-year time period might have been exceptionally good for the market risk (compared to, for example, returns of international equities in the same time period), and the value premium might have been exceptionally low in the last 20 years. Also, 4 bear markets might not be a good statistical sample.
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Re: New Avantis ETFs
While Avantis receives praise I notice that their ETFs are actively managed. How does one reconcile this with being a Boglehead?