Vanguard Factor Funds

[GeoffF100]

Here is an interesting article on Vanguard factor funds:

https://pensioncraft.com/review-vanguard-factor-funds/

[torata]

Here is an interesting article on Vanguard factor funds:

https://pensioncraft.com/review-vanguard-factor-funds/

Thanks. What a great article. I have bookmarked it.

I put roughly 5% of my SIPP each into Momentum and Value almost 2 years ago with the intention/expectation of rebalancing between the two once a year. So far, I haven't touched them as there is no appriciable difference between them in performance. This surprised me but the article goes a long way to explaining that.
We'll see what happens over time and in less benign markets.

torata

[bobsmydog]

Interesting artcicle here on msci factors (ishares track these)

https://www.msci.com/documents/1296102/ ... f56346ca35

Lower risk and higher gains with most of the factors compared to the parent index.

[colin]

Yes it's interesting to see that from the 'manage your expectations' chart the market return was never at the top and never at the bottom of the 10 year study period, which is why i suppose that index trackers were first designed to track a cap weighted index.

[JohnB]

A very good explanation of the different factors, though the patchwork quilt at the end does suggest no one approach is best, and if you chose many you end back with the overall index. But at least you are only paying 0.15% extra, a much smaller fee to cover algorithm writer's lunches compared with fund analysts lunches.

[poppy101]

One thing I don't get about the factor funds... in the video the Vanguard guy talks about the relative fast turnover i.e. they don't assess the factor weightings each year or even each quarter but more frequently than that.
Surely that means the holding period of each stock will be fairly low, thus you would lose out on any dividends.

The Vanguard Momentum Factor ETF has a turnover rate of 180% so it buys and sells its entire portfolio almost twice over in a year.

The Vanguard factor ETFs are accumulating rather than distributing like all their other ETFs. But there doesn't seem to be any yield. If you lose out on dividends wouldn't you be better off with a simple tracker as you are already down 2-3% of total return

[Hariseldon58]

An accumulating ETF reinvests the dividend , it is not lost

If you hold the ETF in a taxable account you need to account for this income to HMRC. You need to visit the providers website to see the amount of ERI ( Excess Reportable Income)

A quirk of the rules is that if you hold the ETF at the end of the reporting period, you are deemed to receive the years income 6 months later.

With State Street I have found that the period ends in March for some ETFs, such that holding the ETF in one tax year leads to income being subject to tax in the following tax year.

There has been some reporting in the press that HMRC is looking closer at ERI, given the platforms do not presently report this ERI, is could cause some difficulties...

I now realise that some ETFs, that do pay dividends also have ERI, which is declarable and taxable in taxed accounts.

[GeoffF100]

Surely that means the holding period of each stock will be fairly low, thus you would lose out on any dividends.

No, you do not lose out on dividends. Suppose you buy stock A, hold it for a year, sell it , buy stock B and hold it for a year. you get the dividends for stock A in the first year and the dividends for stock B in the second year. When a stock goes ex-dividend its value falls by the value of the dividend, because a buyer of the stock no longer receives the dividend. If everything else remains the same, the capital value of the stock gradually rises as the company accumulates earnings until the next ex-dividend date, when it falls back again. It does not matter whether you sell before or after the ex-dividend date. You either get the dividend payment, or receive an increased amount of capital instead of the dividend. If you sell a stock when half of the dividend has been earned by the company, all else being equal, you get half the dividend as capital when you sell. You do not lose out.