What is the "Blend" stock category?

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TheContrarian
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What is the "Blend" stock category?

Post by TheContrarian »

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!
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TheContrarian
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Re: What is the "Blend" stock category?

Post by TheContrarian »

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)?
rkhusky
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Re: What is the "Blend" stock category?

Post by rkhusky »

It depends on whether you break the value/growth spectrum into two or three bins. It’s completely arbitrary.
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TheContrarian
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Re: What is the "Blend" stock category?

Post by TheContrarian »

rkhusky wrote: Fri May 26, 2023 6:21 pm It depends on whether you break the value/growth spectrum into two or three bins. It’s completely arbitrary.
What do you mean by bins?

Thanks!
alex_686
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Re: What is the "Blend" stock category?

Post by alex_686 »

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.
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Karlsefni
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Re: What is the "Blend" stock category?

Post by Karlsefni »

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?”

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asset_chaos
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Re: What is the "Blend" stock category?

Post by asset_chaos »

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)?
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?

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.
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toddthebod
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Re: What is the "Blend" stock category?

Post by toddthebod »

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:
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)
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.

So to answer this question:
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)?
No. Because a company can rank low on both the growth and value indexes and thus be excluded from both factor ETFs.
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grabiner
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Re: What is the "Blend" stock category?

Post by grabiner »

asset_chaos wrote: Fri May 26, 2023 7:20 pm
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)?
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?

There's also a wiki page describing the CRSP methodology.
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.

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%.
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asset_chaos
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Re: What is the "Blend" stock category?

Post by asset_chaos »

grabiner wrote: Fri May 26, 2023 9:32 pm
asset_chaos wrote: Fri May 26, 2023 7:20 pm
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)?
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?

There's also a wiki page describing the CRSP methodology.
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.

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%.
Ah yes, the packeting to reduce turnover. Thank you. I'd forgotten about that.
Regards, | | Guy
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