What is the "Blend" stock category?
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What is the "Blend" stock category?
I currently have a portfolio with equal weighting towards both Growth and Value Indices. They are:
Large Cap: VTV and VUG
Mid Cap: VOT and VOE
Small Cap: VBR and VBK
Because of this, am I totally missing out on the "Blend" category of stocks?
For example, in Morningstar's stock style chart, the S&P 500 consists of:
- 28% Blend stocks
- 39% Growth stocks
- 24% Value stocks
To continue this example, if instead of owning the S&P 500, I choose to own VTV (Lrg Value) and VUG (Lrg Growth) in equal weights, will I miss out on the entire "Blend" section of stocks?
Thanks!
- @isaachemingway
Large Cap: VTV and VUG
Mid Cap: VOT and VOE
Small Cap: VBR and VBK
Because of this, am I totally missing out on the "Blend" category of stocks?
For example, in Morningstar's stock style chart, the S&P 500 consists of:
- 28% Blend stocks
- 39% Growth stocks
- 24% Value stocks
To continue this example, if instead of owning the S&P 500, I choose to own VTV (Lrg Value) and VUG (Lrg Growth) in equal weights, will I miss out on the entire "Blend" section of stocks?
Thanks!
- @isaachemingway
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- Posts: 165
- Joined: Wed May 03, 2023 6:42 pm
- Location: Greatest snow on earth
Re: What is the "Blend" stock category?
In other words, if I own...
VTV: CRSP Large Cap Value
VUG: CRSP Large Cap Growth
VOE: CRSP Mid Cap Value
VOT: CRSP Mid Cap Growth
VBR: CRSP Small Cap Value
VBK: CRSP Small Cap Growth
...do I effectively own the whole market (including "blend" stocks)?
VTV: CRSP Large Cap Value
VUG: CRSP Large Cap Growth
VOE: CRSP Mid Cap Value
VOT: CRSP Mid Cap Growth
VBR: CRSP Small Cap Value
VBK: CRSP Small Cap Growth
...do I effectively own the whole market (including "blend" stocks)?
Re: What is the "Blend" stock category?
It depends on whether you break the value/growth spectrum into two or three bins. It’s completely arbitrary.
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Re: What is the "Blend" stock category?
You can define Value & Growth one of two ways.
The first is to find the 50% of companies that are the most valuely, the rest are growth.
The second is to find the 1/3 of the companies that are mist valuely, the next 1/3 will be classified as blend, and the last 1/3 will be growth.
i.e. do you divide the universe into 2 or 3 bins.
Now everyone has a slightly different definition of what value is, so applying Morningstar’s definition against other indexes will get you so odd numbers.
The first is to find the 50% of companies that are the most valuely, the rest are growth.
The second is to find the 1/3 of the companies that are mist valuely, the next 1/3 will be classified as blend, and the last 1/3 will be growth.
i.e. do you divide the universe into 2 or 3 bins.
Now everyone has a slightly different definition of what value is, so applying Morningstar’s definition against other indexes will get you so odd numbers.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Re: What is the "Blend" stock category?
The CRSP indexes these Vanguard ETFs follow force categorize all the stocks into growth and value buckets.
Morningstar is an index provider that splits stocks into growth/blend/value. Essentially Morningstar has a bucket where they can answer “meh” to the question “is this stock growth or value?”
- Thorfinn
Morningstar is an index provider that splits stocks into growth/blend/value. Essentially Morningstar has a bucket where they can answer “meh” to the question “is this stock growth or value?”
- Thorfinn
Age minus 10 in bonds/cash | 5% commodities | 50/50 US/Int Equity
- asset_chaos
- Posts: 2629
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- Location: Melbourne
Re: What is the "Blend" stock category?
One possible test is to add up the numbers of stocks in these 6 funds and compare to the number of stocks in the CRSP total market index fund. Do you get about the same number or about 2/3 rds of the number in total market?isaachemingway wrote: ↑Fri May 26, 2023 6:10 pm In other words, if I own...
VTV: CRSP Large Cap Value
VUG: CRSP Large Cap Growth
VOE: CRSP Mid Cap Value
VOT: CRSP Mid Cap Growth
VBR: CRSP Small Cap Value
VBK: CRSP Small Cap Growth
...do I effectively own the whole market (including "blend" stocks)?
There's also a wiki page describing the CRSP methodology. With AR being the blended growth-value score CRSP assigns to stocks the wiki says, "The AR score style continuum breakpoint is not well defined, so CRSP defines the middle third of the AR range as a transition zone." That middle third transition zone may mean that CRSP makes blend distinct from value and growth segments. But I don't think the wiki page is completely clear on that, so suggest you follow the link in the wiki page to the CRSP methodology guide to research this point.
Regards, |
|
Guy
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Re: What is the "Blend" stock category?
It's not so straightforward. There are criteria by which companies are ranked as to how much "growth" they are, and there are other, independent criteria, that are used to rank how much "value" they are. Here's what CRSP uses:
So to answer this question:
There are some companies that rank highly in both definitions, which is why there is an approximately 10% overlap between VTV and VUG. The iShares Russell 1000 Growth (IWF) and Value (IWD) ETFs hold 345 of the same companies.VALUE FACTORS USED IN THE MULTI-FACTOR MODEL
1. Book-to-Price Ratio (BP)
2. Future Earnings-to-Price Ratio (FEP)
3. Historical Earnings-to-Price Ratio (HEP)
4. Dividend-to-Price Ratio (DP)
5. Sales-to-Price Ratio (SP)
GROWTH FACTORS USED IN THE MULTI-FACTOR MODEL
1. Future Long-term Growth in Earnings Per Share (FLGE)
2. Future Short-term Growth in Earnings Per Share (FSGE)
3. Three-year Historical Growth in Earnings Per Share (HGE)
4. Three-year Historical Growth in Sales Per Share (HGS)
5. Current Investment-to-Assets Ratio (INV)
6. Return on Assets (ROA)
So to answer this question:
No. Because a company can rank low on both the growth and value indexes and thus be excluded from both factor ETFs.isaachemingway wrote: ↑Fri May 26, 2023 6:10 pm In other words, if I own...
VTV: CRSP Large Cap Value
VUG: CRSP Large Cap Growth
VOE: CRSP Mid Cap Value
VOT: CRSP Mid Cap Growth
VBR: CRSP Small Cap Value
VBK: CRSP Small Cap Growth
...do I effectively own the whole market (including "blend" stocks)?
Re: What is the "Blend" stock category?
And this methodology is the reason that counting stocks doesn't work. Stocks moving between indexes can be split between two indexes. If a small-cap stock moves too far into the mid-cap range, then at the next reconstitution, it will be half in the small-cap index and half in the mid-cap index. And it can stay split 50/50 for a while if it is near the mid/small boundary at later reconstitutions.asset_chaos wrote: ↑Fri May 26, 2023 7:20 pmOne possible test is to add up the numbers of stocks in these 6 funds and compare to the number of stocks in the CRSP total market index fund. Do you get about the same number or about 2/3 rds of the number in total market?isaachemingway wrote: ↑Fri May 26, 2023 6:10 pm In other words, if I own...
VTV: CRSP Large Cap Value
VUG: CRSP Large Cap Growth
VOE: CRSP Mid Cap Value
VOT: CRSP Mid Cap Growth
VBR: CRSP Small Cap Value
VBK: CRSP Small Cap Growth
...do I effectively own the whole market (including "blend" stocks)?
There's also a wiki page describing the CRSP methodology.
As a separate issue, the Large-Cap indexes include mid-caps; you would use Mega-Cap to get an index excluding mid-caps. CRSP splits the market as Mega-Cap (top 70%), Mid-Cap (70-85%), and Small-Cap (85-98%); the total market indexes also include the bottom 2%.
- asset_chaos
- Posts: 2629
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Re: What is the "Blend" stock category?
Ah yes, the packeting to reduce turnover. Thank you. I'd forgotten about that.grabiner wrote: ↑Fri May 26, 2023 9:32 pmAnd this methodology is the reason that counting stocks doesn't work. Stocks moving between indexes can be split between two indexes. If a small-cap stock moves too far into the mid-cap range, then at the next reconstitution, it will be half in the small-cap index and half in the mid-cap index. And it can stay split 50/50 for a while if it is near the mid/small boundary at later reconstitutions.asset_chaos wrote: ↑Fri May 26, 2023 7:20 pmOne possible test is to add up the numbers of stocks in these 6 funds and compare to the number of stocks in the CRSP total market index fund. Do you get about the same number or about 2/3 rds of the number in total market?isaachemingway wrote: ↑Fri May 26, 2023 6:10 pm In other words, if I own...
VTV: CRSP Large Cap Value
VUG: CRSP Large Cap Growth
VOE: CRSP Mid Cap Value
VOT: CRSP Mid Cap Growth
VBR: CRSP Small Cap Value
VBK: CRSP Small Cap Growth
...do I effectively own the whole market (including "blend" stocks)?
There's also a wiki page describing the CRSP methodology.
As a separate issue, the Large-Cap indexes include mid-caps; you would use Mega-Cap to get an index excluding mid-caps. CRSP splits the market as Mega-Cap (top 70%), Mid-Cap (70-85%), and Small-Cap (85-98%); the total market indexes also include the bottom 2%.
Regards, |
|
Guy