ETF Vanguard Global Value Equity Active ETF (VVLU)

VTV is:
-mainly large cap value whereas VVLU has med+small cap. I believe value investing comes from established cashflow business as opposed to growth prospect of smaller firm
- top heavy (21pct from top 10) vs VVLU has way too many (1300 of them) pretty much evenly distribted. During the time value style outperforms (next 2-3yrs I believe) i like the concentrated nature of big names, over conservatively diversified VVLU that miss out on upside potential.
- i am not a fan of "active" quant ETF, that to me is just strictly excel filter downloading annual statements without understanding of the firms. the VTV is index based thats less prone to subjective criteria and can measure sharpe ratio against its benchmark

 

This recent interview with Gerard O’Reilly, Co-Chief Executive Officer and Chief Investment Officer of Dimensional Fund Advisors is well worth a listen for folks interest in factor investing. Amongst other things he discusses the size premium and why holding small stocks is a good thing with factor investing
Episode 198: Gerard O’Reilly: Deep Dive with Dimensional’s co-CEO & CIO — Rational Reminder

 

We hold differing opinions.

I'm not a fan of indexed based factor implementation. I feel the manager not the index provider needs control of the system rules. The cutting edge of implementing these empirical academic models are fund managers not index providers. For me vanguard are much more on track with active implementation of VVLU than index implementation of VTV.

I also personally prefer the company, country and size diversification of VVLU. But it's largest potential benefit is active implementation rather than set rebalance dates so that it can maintain high factor loadings and manage transaction flow.

We all have different opinions but IMO I feel very pleased to have simple access to VVLU. Its cutting edge and right up there with dedicated factor manager offerings. It is potent factor exposure over a diversified universe. But not everybody needs that or wants that.

If you make it through the two hour marathon podcast @Hockey Monkey posted on Gerard O'reilly maybe also check out Antonio Picca in episode 173 for some insight to the Vangaurd active factor funds.

 

VGMF is being wound up.

With only half a days notice before EX date for a large special dividend and the market makers spreads don't look enticing for a clean exit. Pretty Shabby process so far.

Think I'll just run it through the termination process for a bit of hands on learning experience. Can't say that this has filled me with confidence in Vangaurd.

Interesting that they didn't wind up VMIN at the same time as its tiny.

 

What a shambles. Not all that surprising given VGMF has ~$50m AUM. Wouldn't be surprised to see VMIN follow with ~$15m AUM

With VVLU > $500m now, one would hope it is now immune from a similar outcome, but this is definitely a contributing factor stopping me investing in ASX based factor funds.

 

@The Falcon called it, with precision timing, certifed market timer

Vanguard Global Multi-Factor Active ETF (Managed Fund) (VGMF) [ETF]

 

Ha.I’ve also been tempted to revive comments on other hyped funds and how far they’ve fallen, but then I’d need to mea culpa on QVE which has shown greater “discounted buying opportunities” than I would have expected at the time…so I’ll remain silent on that matter!

 

Are there other factor funds you consider? I note AVUV/AVDV etc. are popular US domiciled SCV funds.

While VVLU has a decent small cap allocation, it's not perfect for those trying to get pure SCV.

 

DFA now have their ETF offerings as well. eg DFSV and DISV

 

I held VGMF through its termination as a learning exercise in case I get caught again down the track. I was curious how the tax elements would play out as the last minute rather large, late in the FY distributions had the potential to be annoying if it was all income.

Once I got the tax statement (which was delayed longer than other vanguard statements) It turns out not too bad.

Below would be the outcome for a $10K distribution received in a SMSF.


So Vangaurd closed this fund when it was down for me from my adjusted purchase cost base but importantly it was outperforming relatively to VGS which is what I would have held more of if I didn't hold VGMF. All in all, that timing is not too bad from my perspective and the distributions have not been tax in-efficient.

Vanguard didn't axe VMIN with much smaller FUM, So I'm guessing it's not just a cost measure, but maybe they have seen something in the implementation of Multifactor that doesn't accord with academia that has led to the termination.

Timing was O.K Price was down but outperforming which minimizes tax and maximizes re-investment opportunity. Distribution Tax efficiency was O.K. Reason for termination may just have saved me from myself - I'll give them the benefit of any doubt I have.

I'm going to give the whole episode a pass mark and stick with VVLU despite this precedent of them closing a factor fund.

 

Was that luck or the way Vanguard closed VGMF?

I'm still holding VVLU, which has achieved middling performance thus far. Hoping that it will outperform at some point and offers some diversification away from vanilla indexing, which is my strategy. It has large spreads, not that I have sold, but I'm not sure one would be able to exit at the reported market price.

Vanguard, at what point do you stop profiting off the spread? When the cheapest bottle of wine in the CEO's fridge is more than $2k?

The risk of VVLU being terminated Schwarzenegger style is there but at $500M FUM it appears less likely than before.

 

Not sure if it was good luck or good management. BUT if it hadn't worked out O.K I wouldn't be accepting bad luck as an excuse. Would have chucked the frock for sure.

Middling performance for sure since listing but it really is the tale of two periods. Underperformance prior to the Covid low and outperformance since. This is exactly what I'm looking for. Not overall outperformance - I don't really trust that story - But similar long-term returns achieved via a different path which smooths portfolio performance and mitigates sequence risk in de-accumulation.

In terms of performance VVLU and DFA global value fund are performing similarly, So it would seem Factor characteristics are by and large the dominant driver of the price path and not idiosyncratic fund risks, Although with Vangaurds higher factor loading via more constant rebalancing it looks like it deviates further from MCW than DFA but as far as I'm concerned that path volatility is part of the reason for having the factor exposure.

You're a hard task master. The reported spread in the latest ASX ETF report is only 0.14% and whenever I look it is only a few cents apart. The ETF spread also goes to the market maker for providing liquidity - Not to Vangaurd. The buy/sell spread on the managed fund version .08%/.08%

Never say Never I guess. - It is one of the inherent risks with moving away from Vanilla.

 

Looks like VVLU at $700m cap has passed the viability test. Taking a closer look which I haven’t in the past it’s proper value factor exposure with small cap tilt, my assumption was it was more a large cap value fund. Looks solid imo.

 

I'm currently using VVLU for a value tilt outside of super.

I think the area is quite ripe for a disruption if any solid low fee small cap value ETF or an ETF version of VVLU came out.

While not a huge deal, my preference is for an ETF instead of managed fund, which VVLU is.

Concur with Falcon, VVLU is more large cap than anything else, but has some small and mid at least.

 

?
VVLU is the ETF unit class with 700 AUM
VAN0074AU is the managed fund unit class with 140 AUM

Its size profile looks like this.




Certainly, a solid enough offering to pick up the different return profile of value and harness some volatility smoothing when combined with other holdings.
I'm a sceptic in the logic of betting on future long term absolute outperformance of SCV but happy to hold VVLU for return path diversification.

 

Thanks @dunno.

Was my ignorance, i was confused why managed fund was in the title of this website: Products . I assume its because it offers details for the ETF and Managed fund.

Agree VVLU is a good ETF for all sized value tilt exposure.

Without going down too much of a rabbit hole, I also recall each company may have a different definition of small, mid, large etc. To the extent almost all ASX stocks could be considered small or medium by some company metrics.

 

That is as I understand it.

It's done as a proportional thing based on each individual market. (or regeion? cant remember for sure) The proportions are done on market capitalization NOT number of companies. The Mega's whilst 40% of the market capitalization normally only make up a small number of companies whilst Micro might number in the 1000's.

Largest 40% is Mega
next 30% are Large
Next 20% Mid
Next 7% Small
Smallest 3% Micro.

What is considered mid in Australia could have a smaller market capitalization then something considered small in USA. It depends how the proportions playout for each market.

 

Interesting. Thank you.

So as a predominantly world wide ETF [VVLU], I wonder how Vanguard handles this? I guess if its by region there could be a second rule to include X% from each region (maybe in line with global market cap) and then the overall mega/large/med etc. Fills itself out.

 

I havn’t really cared enough to understand their processes for size selection in detail and you probably couldn’t get the transparency even if you wanted as it is an Active ETF.

But their general principles have been no to take on too much concentration as they chase the value loading hence the goal of similar geographic diversification as MCW and approx. a third each in Large/Mega, Mid, Small/Micro.

Allowing it a tolerance for active management, I have not seen it deviate alarmingly from those principles. But as for the minute detail of how it calculates/aggregates size per region etc, No Idea. It tries too and seeming succeeds at being diversified across size is about the limit of my insight.

 

On this topic, I was just reading something that had this very interesting chart.



Australian Small Cap index is both a lot smaller and a lot less diversified than Global Small Cap. Incidentally it also has a lot more unprofitable companies. (looking at you, mining exploration companies)

Apparently, the largest company in the Global Small Cap Index would rank as approx 20th largest company on ASX.