AVUV - difficult to hold

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Apathizer
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Re: AVUV - difficult to hold

Post by Apathizer »

burritoLover wrote: Wed Apr 26, 2023 11:01 am
Nathan Drake wrote: Wed Apr 26, 2023 10:28 am
burritoLover wrote: Wed Apr 26, 2023 10:12 am If you want to take on more risk on the equity side, without increasing its allocation, tilting towards factors would be the way to do it. It's that simple.

These conversations are always ridiculous because usually those pooh-poohing factors envision it as some free lunch, while the factor-heads think the historical factor premiums are highly likely to persist going forward. Both are wrong.
Why are factor premiums unlikely to persist if that argument is wrong?

Is the market premium gone?
I didn't say they were unlikely to persist but many factor-lovers seem to think it is highly likely that they'll get the full historical premium going forward. And there is still a possibility that there's no statistically significant premium in the future (or even a negative premium) - that is often not even considered a possibility by many who are factor tilting. I tilt to SCV 30% but I understand that even over 30+ years, it is possible I'll be worse off than if I had just gone with a market-only portfolio.
That's my view. While SV seems likely to have higher returns, there's a wider dispersion of positive and negative potential outcomes. It could do better as in 2000-2009, but it could also do worse as in 2010-2020.

As an investor being well diversified reduces the likelihood poor performance over any period. While MCW weights are reasonably well diversified, to me their performance is overly dependent on large caps, esp large growth. A moderately factor-tilted portfolio will still do just fine when the MCW TSM does, but won't suffer as much the when large caps lag.
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Nathan Drake
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Re: AVUV - difficult to hold

Post by Nathan Drake »

burritoLover wrote: Wed Apr 26, 2023 11:01 am
Nathan Drake wrote: Wed Apr 26, 2023 10:28 am
burritoLover wrote: Wed Apr 26, 2023 10:12 am If you want to take on more risk on the equity side, without increasing its allocation, tilting towards factors would be the way to do it. It's that simple.

These conversations are always ridiculous because usually those pooh-poohing factors envision it as some free lunch, while the factor-heads think the historical factor premiums are highly likely to persist going forward. Both are wrong.
Why are factor premiums unlikely to persist if that argument is wrong?

Is the market premium gone?
I didn't say they were unlikely to persist but many factor-lovers seem to think it is highly likely that they'll get the full historical premium going forward. And there is still a possibility that there's no statistically significant premium in the future (or even a negative premium) - that is often not even considered a possibility by many who are factor tilting. I tilt to SCV 30% but I understand that even over 30+ years, it is possible I'll be worse off than if I had just gone with a market-only portfolio.
Sure, it’s possible.

It’s also possible the S&P 500 underperforms bonds for thirty years

But I think both scenarios are unlikely even if possible. So factor heads generally believe in a premium because that is what is likely, but I don’t think many would rule out the possibility of poor performance during a long horizon
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Nathan Drake
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Re: AVUV - difficult to hold

Post by Nathan Drake »

rushrocker wrote: Wed Apr 26, 2023 10:52 am
Nathan Drake wrote: Wed Apr 26, 2023 10:09 am
rushrocker wrote: Wed Apr 26, 2023 9:56 am
Nathan Drake wrote: Wed Apr 26, 2023 9:18 am More flawed arguments that ease of access means diminished or no premiums going forward

Is that the case for basic total market index funds? Those are far more ubiquitous than SCV funds in retirement plans
All participants can, and must in aggregate, own the market portfolio. All participants can not own the SCV portfolio. The more people that own it, the more its returns revert to the return of the market.
None of this is logically consistent

Prices are set at the margin by active trading
It was actually your logic I was refuting lol. That was the illogically inconsistent part, not my reply. Let me try to explain...

Your question/comment was if ease of access to the TSM could reduce its premium, conflating the idea that ease of access to SCV wouldn't reduce its premium.

I pointed out that everyone can own TSM, but the same can not be said for SCV.

Therefore answer is no for TSM, and yes for SCV.
Anyone can own SCV in a brokerage account

If fund availability reduces or eliminates premiums, TSM has a big problem on the horizon
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Nathan Drake
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Re: AVUV - difficult to hold

Post by Nathan Drake »

rkhusky wrote: Wed Apr 26, 2023 11:18 am
Nathan Drake wrote: Wed Apr 26, 2023 10:49 am
rkhusky wrote: Wed Apr 26, 2023 10:40 am
Nathan Drake wrote: Wed Apr 26, 2023 10:30 am
rkhusky wrote: Wed Apr 26, 2023 10:22 am
In the past there were inefficiencies and random fluctuations. Now there is much less inefficiency and the random fluctuations are the main drivers of value under- and over-performing.

Stocks and bonds are different investments. Value and growth stocks are the same investment - in fact a value stock can become a growth stock, and vice-versa.
Market inefficiencies have nothing to do with risk premiums

If you believe in market efficiency, you should believe in risk premiums for stocks with additional fundamental risks that are compensated
Investors should seek a premium for taking a risk. But that’s difficult for stocks because investors have no control over stock returns. While investors might be able to discern that one stock appears to have higher risk compared to another stock, the investor has no control over the returns of either stock.
The market sets prices which feature higher discount rates for companies seen as riskier. This is efficient markets in action

Otherwise, nobody would hold value stocks
The market sets prices based on expectations of total return and the uncertainty of the return. But investors have no control on the actual return. Unlike bonds or CD’s, where investors can choose the nominal return they want for a given level of risk.
Bond investors have no control over the risk of inflation, it’s why duration has a premium

Stock investors have no control over the certainty of future cash flows, that’s why uncertainty with future cash flows is priced for a higher premium
Last edited by Nathan Drake on Wed Apr 26, 2023 4:06 pm, edited 1 time in total.
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burritoLover
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Re: AVUV - difficult to hold

Post by burritoLover »

Nathan Drake wrote: Wed Apr 26, 2023 1:14 pm
burritoLover wrote: Wed Apr 26, 2023 11:01 am
Nathan Drake wrote: Wed Apr 26, 2023 10:28 am
burritoLover wrote: Wed Apr 26, 2023 10:12 am If you want to take on more risk on the equity side, without increasing its allocation, tilting towards factors would be the way to do it. It's that simple.

These conversations are always ridiculous because usually those pooh-poohing factors envision it as some free lunch, while the factor-heads think the historical factor premiums are highly likely to persist going forward. Both are wrong.
Why are factor premiums unlikely to persist if that argument is wrong?

Is the market premium gone?
I didn't say they were unlikely to persist but many factor-lovers seem to think it is highly likely that they'll get the full historical premium going forward. And there is still a possibility that there's no statistically significant premium in the future (or even a negative premium) - that is often not even considered a possibility by many who are factor tilting. I tilt to SCV 30% but I understand that even over 30+ years, it is possible I'll be worse off than if I had just gone with a market-only portfolio.
Sure, it’s possible.

It’s also possible the S&P 500 underperforms bonds for thirty years

But I think both scenarios are unlikely even if possible. So factor heads generally believe in a premium because that is what is likely, but I don’t think many would rule out the possibility of poor performance during a long horizon
So you are putting equal weight on the persistence of the market premium (based on a 60-year old model) vs 3-factor (first introduced 30 years ago)? You do realize there hasn't been enough time to conclusively determine if non-market factor premiums were primarily behavioral-based or not?
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Re: AVUV - difficult to hold

Post by muffins14 »

burritoLover wrote: Wed Apr 26, 2023 2:32 pm
Nathan Drake wrote: Wed Apr 26, 2023 1:14 pm
burritoLover wrote: Wed Apr 26, 2023 11:01 am
Nathan Drake wrote: Wed Apr 26, 2023 10:28 am
burritoLover wrote: Wed Apr 26, 2023 10:12 am If you want to take on more risk on the equity side, without increasing its allocation, tilting towards factors would be the way to do it. It's that simple.

These conversations are always ridiculous because usually those pooh-poohing factors envision it as some free lunch, while the factor-heads think the historical factor premiums are highly likely to persist going forward. Both are wrong.
Why are factor premiums unlikely to persist if that argument is wrong?

Is the market premium gone?
I didn't say they were unlikely to persist but many factor-lovers seem to think it is highly likely that they'll get the full historical premium going forward. And there is still a possibility that there's no statistically significant premium in the future (or even a negative premium) - that is often not even considered a possibility by many who are factor tilting. I tilt to SCV 30% but I understand that even over 30+ years, it is possible I'll be worse off than if I had just gone with a market-only portfolio.
Sure, it’s possible.

It’s also possible the S&P 500 underperforms bonds for thirty years

But I think both scenarios are unlikely even if possible. So factor heads generally believe in a premium because that is what is likely, but I don’t think many would rule out the possibility of poor performance during a long horizon
So you are putting equal weight on the persistence of the market premium (based on a 60-year old model) vs 3-factor (first introduced 30 years ago)? You do realize there hasn't been enough time to conclusively determine if non-market factor premiums were primarily behavioral-based or not?
Why does it matter if they are behavioral based or not?
What would conclusive proof in either direction mean for your portfolio construction?
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burritoLover
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Re: AVUV - difficult to hold

Post by burritoLover »

muffins14 wrote: Wed Apr 26, 2023 2:39 pm
burritoLover wrote: Wed Apr 26, 2023 2:32 pm
Nathan Drake wrote: Wed Apr 26, 2023 1:14 pm
burritoLover wrote: Wed Apr 26, 2023 11:01 am
Nathan Drake wrote: Wed Apr 26, 2023 10:28 am

Why are factor premiums unlikely to persist if that argument is wrong?

Is the market premium gone?
I didn't say they were unlikely to persist but many factor-lovers seem to think it is highly likely that they'll get the full historical premium going forward. And there is still a possibility that there's no statistically significant premium in the future (or even a negative premium) - that is often not even considered a possibility by many who are factor tilting. I tilt to SCV 30% but I understand that even over 30+ years, it is possible I'll be worse off than if I had just gone with a market-only portfolio.
Sure, it’s possible.

It’s also possible the S&P 500 underperforms bonds for thirty years

But I think both scenarios are unlikely even if possible. So factor heads generally believe in a premium because that is what is likely, but I don’t think many would rule out the possibility of poor performance during a long horizon
So you are putting equal weight on the persistence of the market premium (based on a 60-year old model) vs 3-factor (first introduced 30 years ago)? You do realize there hasn't been enough time to conclusively determine if non-market factor premiums were primarily behavioral-based or not?
Why does it matter if they are behavioral based or not?
What would conclusive proof in either direction mean for your portfolio construction?
Because post-publication, the portion of the premium (if any) due to investor behavior can be arbitraged away. 30 years is not long enough to make that determination. Really, anyone tilting with factors is practically an early adopter even though 30 years sounds like a long time. There's no such thing as "conclusive proof" but there would be a higher confidence in the factor model(s) with more time (assuming the model(s) held up).
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Re: AVUV - difficult to hold

Post by Nathan Drake »

burritoLover wrote: Wed Apr 26, 2023 2:32 pm
Nathan Drake wrote: Wed Apr 26, 2023 1:14 pm
burritoLover wrote: Wed Apr 26, 2023 11:01 am
Nathan Drake wrote: Wed Apr 26, 2023 10:28 am
burritoLover wrote: Wed Apr 26, 2023 10:12 am If you want to take on more risk on the equity side, without increasing its allocation, tilting towards factors would be the way to do it. It's that simple.

These conversations are always ridiculous because usually those pooh-poohing factors envision it as some free lunch, while the factor-heads think the historical factor premiums are highly likely to persist going forward. Both are wrong.
Why are factor premiums unlikely to persist if that argument is wrong?

Is the market premium gone?
I didn't say they were unlikely to persist but many factor-lovers seem to think it is highly likely that they'll get the full historical premium going forward. And there is still a possibility that there's no statistically significant premium in the future (or even a negative premium) - that is often not even considered a possibility by many who are factor tilting. I tilt to SCV 30% but I understand that even over 30+ years, it is possible I'll be worse off than if I had just gone with a market-only portfolio.
Sure, it’s possible.

It’s also possible the S&P 500 underperforms bonds for thirty years

But I think both scenarios are unlikely even if possible. So factor heads generally believe in a premium because that is what is likely, but I don’t think many would rule out the possibility of poor performance during a long horizon
So you are putting equal weight on the persistence of the market premium (based on a 60-year old model) vs 3-factor (first introduced 30 years ago)? You do realize there hasn't been enough time to conclusively determine if non-market factor premiums were primarily behavioral-based or not?
The 30 year old model applies to the same data set as the 60 year old model

Just because these factors weren’t discovered empirically until later doesn’t mean they never existed before discovery
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Nathan Drake
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Re: AVUV - difficult to hold

Post by Nathan Drake »

burritoLover wrote: Wed Apr 26, 2023 2:59 pm
muffins14 wrote: Wed Apr 26, 2023 2:39 pm
burritoLover wrote: Wed Apr 26, 2023 2:32 pm
Nathan Drake wrote: Wed Apr 26, 2023 1:14 pm
burritoLover wrote: Wed Apr 26, 2023 11:01 am
I didn't say they were unlikely to persist but many factor-lovers seem to think it is highly likely that they'll get the full historical premium going forward. And there is still a possibility that there's no statistically significant premium in the future (or even a negative premium) - that is often not even considered a possibility by many who are factor tilting. I tilt to SCV 30% but I understand that even over 30+ years, it is possible I'll be worse off than if I had just gone with a market-only portfolio.
Sure, it’s possible.

It’s also possible the S&P 500 underperforms bonds for thirty years

But I think both scenarios are unlikely even if possible. So factor heads generally believe in a premium because that is what is likely, but I don’t think many would rule out the possibility of poor performance during a long horizon
So you are putting equal weight on the persistence of the market premium (based on a 60-year old model) vs 3-factor (first introduced 30 years ago)? You do realize there hasn't been enough time to conclusively determine if non-market factor premiums were primarily behavioral-based or not?
Why does it matter if they are behavioral based or not?
What would conclusive proof in either direction mean for your portfolio construction?
Because post-publication, the portion of the premium (if any) due to investor behavior can be arbitraged away. 30 years is not long enough to make that determination. Really, anyone tilting with factors is practically an early adopter even though 30 years sounds like a long time. There's no such thing as "conclusive proof" but there would be a higher confidence in the factor model(s) with more time (assuming the model(s) held up).
It has held up post publication across all markets. It’s proven to be robust
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burritoLover
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Re: AVUV - difficult to hold

Post by burritoLover »

Nathan Drake wrote: Wed Apr 26, 2023 4:04 pm
burritoLover wrote: Wed Apr 26, 2023 2:32 pm
Nathan Drake wrote: Wed Apr 26, 2023 1:14 pm
burritoLover wrote: Wed Apr 26, 2023 11:01 am
Nathan Drake wrote: Wed Apr 26, 2023 10:28 am

Why are factor premiums unlikely to persist if that argument is wrong?

Is the market premium gone?
I didn't say they were unlikely to persist but many factor-lovers seem to think it is highly likely that they'll get the full historical premium going forward. And there is still a possibility that there's no statistically significant premium in the future (or even a negative premium) - that is often not even considered a possibility by many who are factor tilting. I tilt to SCV 30% but I understand that even over 30+ years, it is possible I'll be worse off than if I had just gone with a market-only portfolio.
Sure, it’s possible.

It’s also possible the S&P 500 underperforms bonds for thirty years

But I think both scenarios are unlikely even if possible. So factor heads generally believe in a premium because that is what is likely, but I don’t think many would rule out the possibility of poor performance during a long horizon
So you are putting equal weight on the persistence of the market premium (based on a 60-year old model) vs 3-factor (first introduced 30 years ago)? You do realize there hasn't been enough time to conclusively determine if non-market factor premiums were primarily behavioral-based or not?
The 30 year old model applies to the same data set as the 60 year old model

Just because these factors weren’t discovered empirically until later doesn’t mean they never existed before discovery
That isn't what that means. A behavioral component of the premium can be arbitraged away after discovery even if the premium existed prior to discovery. Now, I know you are a proponent of international investing and when those that are 100% US say the US has dominated the last 30 years - don't you tell them that isn't a long enough period to determine anything? If so, then why is 30 years of factor returns convincing to you?
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Re: AVUV - difficult to hold

Post by rushrocker »

Nathan Drake wrote: Wed Apr 26, 2023 4:06 pm
It has held up post publication across all markets. It’s proven to be robust
It might have held up in the frictionless data, but has not fared as well in real life, at least not in the USA:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

A lower risk-adjusted return than both the S&P 500 and S&P 400 since DFSVX inception (the link is for 1995, but if you go back to 1993 without MDY it's the same story).
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Re: AVUV - difficult to hold

Post by Nathan Drake »

burritoLover wrote: Wed Apr 26, 2023 4:37 pm
Nathan Drake wrote: Wed Apr 26, 2023 4:04 pm
burritoLover wrote: Wed Apr 26, 2023 2:32 pm
Nathan Drake wrote: Wed Apr 26, 2023 1:14 pm
burritoLover wrote: Wed Apr 26, 2023 11:01 am
I didn't say they were unlikely to persist but many factor-lovers seem to think it is highly likely that they'll get the full historical premium going forward. And there is still a possibility that there's no statistically significant premium in the future (or even a negative premium) - that is often not even considered a possibility by many who are factor tilting. I tilt to SCV 30% but I understand that even over 30+ years, it is possible I'll be worse off than if I had just gone with a market-only portfolio.
Sure, it’s possible.

It’s also possible the S&P 500 underperforms bonds for thirty years

But I think both scenarios are unlikely even if possible. So factor heads generally believe in a premium because that is what is likely, but I don’t think many would rule out the possibility of poor performance during a long horizon
So you are putting equal weight on the persistence of the market premium (based on a 60-year old model) vs 3-factor (first introduced 30 years ago)? You do realize there hasn't been enough time to conclusively determine if non-market factor premiums were primarily behavioral-based or not?
The 30 year old model applies to the same data set as the 60 year old model

Just because these factors weren’t discovered empirically until later doesn’t mean they never existed before discovery
That isn't what that means. A behavioral component of the premium can be arbitraged away after discovery even if the premium existed prior to discovery. Now, I know you are a proponent of international investing and when those that are 100% US say the US has dominated the last 30 years - don't you tell them that isn't a long enough period to determine anything? If so, then why is 30 years of factor returns convincing to you?
It’s only 30 years post publication in multiple markets, and within those 30 years are periods where it underperforms (risk).

Is it guaranteed? No that’s not what I’m saying. But I find it convincing enough to allocate highly towards. The amount of time the market has isn’t much longer out of sample.

So I find it highly likely for premiums to persist. Perhaps not at the same magnitude, but I would argue that for the market factor as well
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Nathan Drake
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Re: AVUV - difficult to hold

Post by Nathan Drake »

rushrocker wrote: Wed Apr 26, 2023 4:50 pm
Nathan Drake wrote: Wed Apr 26, 2023 4:06 pm
It has held up post publication across all markets. It’s proven to be robust
It might have held up in the frictionless data, but has not fared as well in real life, at least not in the USA:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

A lower risk-adjusted return than both the S&P 500 and S&P 400 since DFSVX inception (the link is for 1995, but if you go back to 1993 without MDY it's the same story).
Value has outperformed most of the sample time. I never claimed it has higher risk adjusted returns, which is a highly volatile metric
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burritoLover
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Re: AVUV - difficult to hold

Post by burritoLover »

Nathan Drake wrote: Wed Apr 26, 2023 5:39 pm
burritoLover wrote: Wed Apr 26, 2023 4:37 pm
Nathan Drake wrote: Wed Apr 26, 2023 4:04 pm
burritoLover wrote: Wed Apr 26, 2023 2:32 pm
Nathan Drake wrote: Wed Apr 26, 2023 1:14 pm

Sure, it’s possible.

It’s also possible the S&P 500 underperforms bonds for thirty years

But I think both scenarios are unlikely even if possible. So factor heads generally believe in a premium because that is what is likely, but I don’t think many would rule out the possibility of poor performance during a long horizon
So you are putting equal weight on the persistence of the market premium (based on a 60-year old model) vs 3-factor (first introduced 30 years ago)? You do realize there hasn't been enough time to conclusively determine if non-market factor premiums were primarily behavioral-based or not?
The 30 year old model applies to the same data set as the 60 year old model

Just because these factors weren’t discovered empirically until later doesn’t mean they never existed before discovery
That isn't what that means. A behavioral component of the premium can be arbitraged away after discovery even if the premium existed prior to discovery. Now, I know you are a proponent of international investing and when those that are 100% US say the US has dominated the last 30 years - don't you tell them that isn't a long enough period to determine anything? If so, then why is 30 years of factor returns convincing to you?
It’s only 30 years post publication in multiple markets, and within those 30 years are periods where it underperforms (risk).

Is it guaranteed? No that’s not what I’m saying. But I find it convincing enough to allocate highly towards. The amount of time the market has isn’t much longer out of sample.

So I find it highly likely for premiums to persist. Perhaps not at the same magnitude, but I would argue that for the market factor as well
The value premium has been weak over the last 30 years in the US. So has the size premium (which has been indistinguishable from zero). Now we have factor proponents saying size has to be combined with other factors or it doesn't work (controlling your "junk"). Who knows what things will look like 30 years from now - I'd hardly say it is entirely convincing or robust at this point.
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Re: AVUV - difficult to hold

Post by KyleAAA »

burritoLover wrote: Wed Apr 26, 2023 6:01 pm
Nathan Drake wrote: Wed Apr 26, 2023 5:39 pm
burritoLover wrote: Wed Apr 26, 2023 4:37 pm
Nathan Drake wrote: Wed Apr 26, 2023 4:04 pm
burritoLover wrote: Wed Apr 26, 2023 2:32 pm
So you are putting equal weight on the persistence of the market premium (based on a 60-year old model) vs 3-factor (first introduced 30 years ago)? You do realize there hasn't been enough time to conclusively determine if non-market factor premiums were primarily behavioral-based or not?
The 30 year old model applies to the same data set as the 60 year old model

Just because these factors weren’t discovered empirically until later doesn’t mean they never existed before discovery
That isn't what that means. A behavioral component of the premium can be arbitraged away after discovery even if the premium existed prior to discovery. Now, I know you are a proponent of international investing and when those that are 100% US say the US has dominated the last 30 years - don't you tell them that isn't a long enough period to determine anything? If so, then why is 30 years of factor returns convincing to you?
It’s only 30 years post publication in multiple markets, and within those 30 years are periods where it underperforms (risk).

Is it guaranteed? No that’s not what I’m saying. But I find it convincing enough to allocate highly towards. The amount of time the market has isn’t much longer out of sample.

So I find it highly likely for premiums to persist. Perhaps not at the same magnitude, but I would argue that for the market factor as well
The value premium has been weak over the last 30 years in the US. So has the size premium (which has been indistinguishable from zero). Now we have factor proponents saying size has to be combined with other factors or it doesn't work (controlling your "junk"). Who knows what things will look like 30 years from now - I'd hardly say it is entirely convincing or robust at this point.
Certainly smaller, but not indistinguishable from zero. Changing the start date but a little makes a significant difference, too.

https://www.portfoliovisualizer.com/fac ... F01%2F1994
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Re: AVUV - difficult to hold

Post by rushrocker »

Nathan Drake wrote: Wed Apr 26, 2023 5:42 pm
rushrocker wrote: Wed Apr 26, 2023 4:50 pm
Nathan Drake wrote: Wed Apr 26, 2023 4:06 pm
It has held up post publication across all markets. It’s proven to be robust
It might have held up in the frictionless data, but has not fared as well in real life, at least not in the USA:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

A lower risk-adjusted return than both the S&P 500 and S&P 400 since DFSVX inception (the link is for 1995, but if you go back to 1993 without MDY it's the same story).
Value has outperformed most of the sample time. I never claimed it has higher risk adjusted returns, which is a highly volatile metric
But isn't one main point of factors that when combined, they outperform on a risk adjusted basis, since otherwise we could just add more allocation % to our less volatile S&P 500 holding to match the return?

From 1993 there was a 15.02 total return for value, compared to 69.31 total return for the market. DFSVX captured 6.71 of that, which is nice and certainly nothing to scoff at.

https://www.portfoliovisualizer.com/fac ... sion=false
Nathan Drake
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Re: AVUV - difficult to hold

Post by Nathan Drake »

rushrocker wrote: Wed Apr 26, 2023 8:47 pm
Nathan Drake wrote: Wed Apr 26, 2023 5:42 pm
rushrocker wrote: Wed Apr 26, 2023 4:50 pm
Nathan Drake wrote: Wed Apr 26, 2023 4:06 pm
It has held up post publication across all markets. It’s proven to be robust
It might have held up in the frictionless data, but has not fared as well in real life, at least not in the USA:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

A lower risk-adjusted return than both the S&P 500 and S&P 400 since DFSVX inception (the link is for 1995, but if you go back to 1993 without MDY it's the same story).
Value has outperformed most of the sample time. I never claimed it has higher risk adjusted returns, which is a highly volatile metric
But isn't one main point of factors that when combined, they outperform on a risk adjusted basis, since otherwise we could just add more allocation % to our less volatile S&P 500 holding to match the return?

From 1993 there was a 15.02 total return for value, compared to 69.31 total return for the market. DFSVX captured 6.71 of that, which is nice and certainly nothing to scoff at.

https://www.portfoliovisualizer.com/fac ... sion=false
I think you can get lucky over a certain period for having higher sharpe ratios but over the very long term the risk adjusted return between the asset classes should be fairly similar, but when combined within the context of an overall portfolio it may improve sharpe ratios.

I don't think most factor investors claim it has higher risk adjusted returns, but it has a different sequence of returns with the market and higher total returns over the long term, so you get not only a premium but also diversification benefits as well.
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Re: AVUV - difficult to hold

Post by rkhusky »

Nathan Drake wrote: Wed Apr 26, 2023 1:17 pm
rkhusky wrote: Wed Apr 26, 2023 11:18 am The market sets prices based on expectations of total return and the uncertainty of the return. But investors have no control on the actual return. Unlike bonds or CD’s, where investors can choose the nominal return they want for a given level of risk.
Bond investors have no control over the risk of inflation, it’s why duration has a premium

Stock investors have no control over the certainty of future cash flows, that’s why uncertainty with future cash flows is priced for a higher premium
Bond investors have control over nominal return and risk. Stock investors only have control over risk and have no control over nominal return or inflation. That is the fundamental difference between the two.
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Re: AVUV - difficult to hold

Post by muffins14 »

The bond may not give you the nominal return. There is credit risk in addition to volatility due to duration/rate changes

Returns are only expected in both cases, not guaranteed
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Re: AVUV - difficult to hold

Post by rkhusky »

muffins14 wrote: Wed Apr 26, 2023 9:52 pm The bond may not give you the nominal return. There is credit risk in addition to volatility due to duration/rate changes

Returns are only expected in both cases, not guaranteed
Sure, in the sense that nothing in life is guaranteed. We could all die in a nuclear war or an asteroid could hit the Earth.

Bonds and CD’s and the like have terms that contractually promise a certain amount of interest. Stocks don’t have that contractual promise.

Just because a guarantee is not fulfilled does not mean there was no guarantee. It’s just a broken guarantee.
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Re: AVUV - difficult to hold

Post by muffins14 »

rkhusky wrote: Thu Apr 27, 2023 8:14 am
muffins14 wrote: Wed Apr 26, 2023 9:52 pm The bond may not give you the nominal return. There is credit risk in addition to volatility due to duration/rate changes

Returns are only expected in both cases, not guaranteed
Sure, in the sense that nothing in life is guaranteed. We could all die in a nuclear war or an asteroid could hit the Earth.

Bonds and CD’s and the like have terms that contractually promise a certain amount of interest. Stocks don’t have that contractual promise.

Just because a guarantee is not fulfilled does not mean there was no guarantee. It’s just a broken guarantee.

Sure. It’s an expectation value of returns. Yes, the variance is more narrow for bonds than stocks because credit risk somewhat unlikely, but it does happen.

There is a mean expected return and variance, just like for stocks. There is no written promise for stocks, but there is an expectation value nonetheless.

Expected Risk vs expected reward. No guarantees. Neither for stocks nor for bonds. I feel like the only guarantee is that you would be paid out before shareholders in a bankruptcy
Crom laughs at your Four Winds
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Re: AVUV - difficult to hold

Post by rkhusky »

muffins14 wrote: Thu Apr 27, 2023 9:16 am No guarantees. Neither for stocks nor for bonds
There is a guarantee for bonds. The guarantee might not be fulfilled. Just like all guarantees offered by all companies.

The expectation of return for stocks is worthless because there is nothing backing it up. It’s just a guess.
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Re: AVUV - difficult to hold

Post by sperry8 »

Yesterdaysnews wrote: Fri Apr 21, 2023 1:06 pm I absolutely find the data behind factor investing convincing and believe AVUV is a good product.... but man does it make it difficult to hold, especially in an IRA where there is no tax consequence to dumping it.

It seems to be a significant drag on overall portfolio returns for me personally. International has even done better overall.

I can see the allure of factor investing but it absolutely tests the commitment of the investor and who knows may never actually yield any excess returns..... Factor investing is a tough game to play.
You think that's hard... try holding Int'l small cap... i've been holding SCZ for over a decade and still waiting for that small cap beta to appear. :oops:
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Re: AVUV - difficult to hold

Post by getmoneygetpaid »

burritoLover wrote: Fri Apr 21, 2023 9:54 pm SCV is for the type of investor who salivates during a downturn because they can buy more cheaper. If that isn’t you, it’s not for you.
My monthly investment in M1 (used to rebalance my asset allocation) has been 85-99% toward AVUV the past 4 months lol. Sorry VOO 8-)
buy low, sell high
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Re: AVUV - difficult to hold

Post by burritoLover »

getmoneygetpaid wrote: Thu May 11, 2023 9:00 am
burritoLover wrote: Fri Apr 21, 2023 9:54 pm SCV is for the type of investor who salivates during a downturn because they can buy more cheaper. If that isn’t you, it’s not for you.
My monthly investment in M1 (used to rebalance my asset allocation) has been 85-99% toward AVUV the past 4 months lol. Sorry VOO 8-)
Ha - yeah, you might be one of them especially since AVUV's 30% in financials has gotten slammed lately.
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Re: AVUV - difficult to hold

Post by TheContrarian »

Robert20 wrote: Fri Apr 21, 2023 1:08 pm
Yesterdaysnews wrote: Fri Apr 21, 2023 1:06 pm I absolutely find the data behind factor investing convincing and believe AVUV is a good product.... but man does it make it difficult to hold, especially in an IRA where there is no tax consequence to dumping it.

It seems to be a significant drag on overall portfolio returns for me personally. International has even done better overall.

I can see the allure of factor investing but it absolutely tests the commitment of the investor and who knows may never actually yield any excess returns..... Factor investing is a tough game to play.
why this fund with 0.25%?. why not use equivalent vanuguard ETF or else just VTI?
Because vanguard's small cap value fund (VBR) tracks the CRSP Small Cap Value Index, which (in addition to value stocks) also includes many stocks that do not exhibit strong value characteristics.

Essentially, the CRSP Value and Growth Indexes (for large, mid, and small caps) force categorize every stock in the market (excluding the bottom 2% of mkt capitalization) into their value and growth indices rather than excluding stocks that have low scores in both value and growth characteristics.

Simply put, AVUV does a better job at only buying stocks with strong value characteristics.
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Re: AVUV - difficult to hold

Post by burritoLover »

isaachemingway wrote: Tue Jun 06, 2023 3:22 pm
Robert20 wrote: Fri Apr 21, 2023 1:08 pm
Yesterdaysnews wrote: Fri Apr 21, 2023 1:06 pm I absolutely find the data behind factor investing convincing and believe AVUV is a good product.... but man does it make it difficult to hold, especially in an IRA where there is no tax consequence to dumping it.

It seems to be a significant drag on overall portfolio returns for me personally. International has even done better overall.

I can see the allure of factor investing but it absolutely tests the commitment of the investor and who knows may never actually yield any excess returns..... Factor investing is a tough game to play.
why this fund with 0.25%?. why not use equivalent vanuguard ETF or else just VTI?
Because vanguard's small cap value fund (VBR) tracks the CRSP Small Cap Value Index, which (in addition to value stocks) also includes many stocks that do not exhibit strong value characteristics.

Essentially, the CRSP Value and Growth Indexes (for large, mid, and small caps) force categorize every stock in the market (excluding the bottom 2% of mkt capitalization) into their value and growth indices rather than excluding stocks that have low scores in both value and growth characteristics.

Simply put, AVUV does a better job at only buying stocks with strong value characteristics.
It is all relative, you could get even deeper value exposure going with something like QVAL
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Re: AVUV - difficult to hold

Post by secondopinion »

isaachemingway wrote: Tue Jun 06, 2023 3:22 pm
Robert20 wrote: Fri Apr 21, 2023 1:08 pm
Yesterdaysnews wrote: Fri Apr 21, 2023 1:06 pm I absolutely find the data behind factor investing convincing and believe AVUV is a good product.... but man does it make it difficult to hold, especially in an IRA where there is no tax consequence to dumping it.

It seems to be a significant drag on overall portfolio returns for me personally. International has even done better overall.

I can see the allure of factor investing but it absolutely tests the commitment of the investor and who knows may never actually yield any excess returns..... Factor investing is a tough game to play.
why this fund with 0.25%?. why not use equivalent vanuguard ETF or else just VTI?
Because vanguard's small cap value fund (VBR) tracks the CRSP Small Cap Value Index, which (in addition to value stocks) also includes many stocks that do not exhibit strong value characteristics.

Essentially, the CRSP Value and Growth Indexes (for large, mid, and small caps) force categorize every stock in the market (excluding the bottom 2% of mkt capitalization) into their value and growth indices rather than excluding stocks that have low scores in both value and growth characteristics.

Simply put, AVUV does a better job at only buying stocks with strong value characteristics.
Right. It is like wanting a high-yield bond fund and ending up with plenty of the BBB-grade bonds along with it (which are not high-yield bonds but lower-tier investment-grade). However, I do not think either is wrong; one could actually get a CCC-grade bond ETF if they wanted to take credit risk to the extreme.

Similarly for value stock ETFs/funds, it just depends on how intense of value risk one wants to take. Vanguard is not wrong; they just are more timid to do anything extreme or close to it. AVUV is like excluding the BBB-grade bonds out a "high-yield bond fund"; it will either make it better or worse at the end of the day, but at least it is more pure of a risk.
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Re: AVUV - difficult to hold

Post by Call_Me_Op »

AVUV certainly was not difficult to hold the past couple of days.
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Re: AVUV - difficult to hold

Post by e5116 »

Call_Me_Op wrote: Wed Jun 07, 2023 6:11 am AVUV certainly was not difficult to hold the past couple of days.
Right on!

I have purchased AVUV over the last few years, mostly starting my position in Feb 2021 and adding to it in January 2022. When compared to VTI, it has outperformed by 10% over the longer-time frame and by about 4% over the shorter-time frame.

I guess the OP is talking about the 3/3-3/23 where it dropped 15% whereas VTI dropped only 3%. Prior drops over the 3-year period are somewhat more mirrored and this did seem to show a more extreme difference than prior drawdowns. Happens sometimes with a more concentrated fund, but I'm certainly sticking with it. AVUV got crushed with COVID in March 2020 and then was up over 100% over the next 18 months. So, comes with the territory, but as a long-term holding, I still like it. I actually have somewhat of a "barbell" approach using AVUV in tandem with MGK (Mega-Cap Growth) as opposite ends of the spectrum (although I hold much more small-cap value than market weight). And I hold Total Stock Market in larger numbers too, so my tilt probably isn't that extreme.
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Re: AVUV - difficult to hold

Post by TheContrarian »

burritoLover wrote: Tue Jun 06, 2023 4:18 pm
isaachemingway wrote: Tue Jun 06, 2023 3:22 pm
Robert20 wrote: Fri Apr 21, 2023 1:08 pm
Yesterdaysnews wrote: Fri Apr 21, 2023 1:06 pm I absolutely find the data behind factor investing convincing and believe AVUV is a good product.... but man does it make it difficult to hold, especially in an IRA where there is no tax consequence to dumping it.

It seems to be a significant drag on overall portfolio returns for me personally. International has even done better overall.

I can see the allure of factor investing but it absolutely tests the commitment of the investor and who knows may never actually yield any excess returns..... Factor investing is a tough game to play.
why this fund with 0.25%?. why not use equivalent vanuguard ETF or else just VTI?
Because vanguard's small cap value fund (VBR) tracks the CRSP Small Cap Value Index, which (in addition to value stocks) also includes many stocks that do not exhibit strong value characteristics.

Essentially, the CRSP Value and Growth Indexes (for large, mid, and small caps) force categorize every stock in the market (excluding the bottom 2% of mkt capitalization) into their value and growth indices rather than excluding stocks that have low scores in both value and growth characteristics.

Simply put, AVUV does a better job at only buying stocks with strong value characteristics.
It is all relative, you could get even deeper value exposure going with something like QVAL
QVAL has a 15 bps higher expense ratio.
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Re: AVUV - difficult to hold

Post by burritoLover »

isaachemingway wrote: Wed Jun 07, 2023 4:16 pm
burritoLover wrote: Tue Jun 06, 2023 4:18 pm
isaachemingway wrote: Tue Jun 06, 2023 3:22 pm
Robert20 wrote: Fri Apr 21, 2023 1:08 pm
Yesterdaysnews wrote: Fri Apr 21, 2023 1:06 pm I absolutely find the data behind factor investing convincing and believe AVUV is a good product.... but man does it make it difficult to hold, especially in an IRA where there is no tax consequence to dumping it.

It seems to be a significant drag on overall portfolio returns for me personally. International has even done better overall.

I can see the allure of factor investing but it absolutely tests the commitment of the investor and who knows may never actually yield any excess returns..... Factor investing is a tough game to play.
why this fund with 0.25%?. why not use equivalent vanuguard ETF or else just VTI?
Because vanguard's small cap value fund (VBR) tracks the CRSP Small Cap Value Index, which (in addition to value stocks) also includes many stocks that do not exhibit strong value characteristics.

Essentially, the CRSP Value and Growth Indexes (for large, mid, and small caps) force categorize every stock in the market (excluding the bottom 2% of mkt capitalization) into their value and growth indices rather than excluding stocks that have low scores in both value and growth characteristics.

Simply put, AVUV does a better job at only buying stocks with strong value characteristics.
It is all relative, you could get even deeper value exposure going with something like QVAL
QVAL has a 15 bps higher expense ratio.
Yeah, well AVUV has a 19 bps higher ER than VBR. Gotta pay to play.
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Re: AVUV - difficult to hold

Post by hiddenpower »

@OP 💎🖐
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Re: AVUV - difficult to hold

Post by getmoneygetpaid »

hiddenpower wrote: Wed Jun 07, 2023 5:40 pm @OP 💎🖐
:sharebeer
buy low, sell high
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Re: AVUV - difficult to hold

Post by z3r0c00l »

Hold a small cap fund in my 401K among three others to approximate a total US market ratio, since they don't have a total stock option. It was a pleasant portfolio element between spring 2020 and spring 2021. (Up more than 100% in that time!) It looks like AVUV did something similar in that time, as it should have. So you go from a low of $28 to $76 in the space of one year which is silly performance for a large fund of stocks. It is perfectly reasonable that it would go sideways for a few years after that kind of move especially in the face of rapidly rising interest rates. In fact merely holding on to those gains seems like a pretty impressive move where other funds fell considerably.
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Re: AVUV - difficult to hold

Post by hiddenpower »

getmoneygetpaid wrote: Thu Jun 08, 2023 5:40 am
hiddenpower wrote: Wed Jun 07, 2023 5:40 pm @OP 💎🖐
:sharebeer
tbf I bought a large slug at 80 :oops:. But HODL as they say.
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