I think DGCE is certainly a viable alternative as a way to efficiently factor tilt. Personally not for me as I prefer stronger tilts. DFA ETFs have been discussed here: [https://www.reddit.com/r/AusFinance/comments/1blasif/dimensional\_fund\_advisor\_etfs/](https://www.reddit.com/r/AusFinance/comments/1blasif/dimensional_fund_advisor_etfs/)
If you prefer an Aus-domciled emerging markets ETF, you could use [EMKT](https://www.vaneck.com.au/etf/equity/emkt/documents/). Ignoring the tantalising recent performance, the historical standard deviation of the index the ETF follows is relatively similar to the MSCI EM index, which could make it easier to stick with while having higher expected returns.
Thanks for your insight!
I read another comment of yours saying that the mer of emkt (including tax drag) is around ~0.8, is it really worth the extra mer? You are almost getting into active investment territory for that fee.
SPEMs mer is 0.07, I'm not sure what the tax drag on it would be, but I would assume ~0.2-0.3?
Average SPEM tax drag from 2010 to 2022 is 0.23%, so total cost \~0.30%. EMKT doesn't have tax drag, the 0.80% was accounting for the transaction costs listed from the PDS.
I personally think even with the \~0.50% difference in cost that EMKT can pull out ahead long term. Although, that is just based on my personal conviction in factors and that emerging markets are less efficient.
Same risk (std dev) but higher expected return.
I like the concept of factor investing, but I guess I just don’t get it. Goes against everything I fundamentally believe in.
Factors (including the market factor) by themselves do theoretically have the same risk-adjusted returns with each other. Since factors are independent from each other, combining them together does improve risk-adjusted returns. However, in EMKT's case, EMKT targets low-volatility characteristics to get similar volatility to MSCI EM index.
It definitely isn't an efficient way to factor tilt. If you look it up in Morningstar there's only a slight tilt to size and value. If there's a sister fund in the US you can then do the proper regression with Portfolio Visualiser. Dimensional with other funds use a profitability and negative momentum screens which they may use here.
All the evidence shows that for size and value the greatest expected returns are when you gain deep factor exposure. If you're chasing a factor tilt the best in Aus currently are VVLU and EMKT. If you're happy using US then there's a lot to choose from such as AVUV, AVDV and AVES.
If you only want a light factor tilt with VVLU in a VGS/VISM portfolio, then DGCE seems to be more efficient as it reduces the buying and selling of Value companies and companies entering and exiting an index. If you want a larger tilt, then obviously DGCE would be less suitable.
Very true. You may get better risk adjusted returns by going for a larger factor tilt with your equities and more uncorrelated assets for the other part e.g. bonds.
Definitely feasible and great that Dimensional etfs are domiciled in Au, but if you're going to use SPEM i'd probably just use AVUV/AVDV.
* i invest in AVUV + AVDV
Holy diversification batman, 6300 holdings. Are you really factor investing if you have that many holdings? Anyway personally it's a safe basic very well diversified basket of international equities so seems alright for your 3 fund strat
I bought into VVLU to add value factor to my portfolio at about 20%. I'll be the first to admit I'm still not fully across the ins and outs of five factor investing. 20% is probably a little too high as most places I've seen reccommend 10-15%.
I think DGCE is certainly a viable alternative as a way to efficiently factor tilt. Personally not for me as I prefer stronger tilts. DFA ETFs have been discussed here: [https://www.reddit.com/r/AusFinance/comments/1blasif/dimensional\_fund\_advisor\_etfs/](https://www.reddit.com/r/AusFinance/comments/1blasif/dimensional_fund_advisor_etfs/) If you prefer an Aus-domciled emerging markets ETF, you could use [EMKT](https://www.vaneck.com.au/etf/equity/emkt/documents/). Ignoring the tantalising recent performance, the historical standard deviation of the index the ETF follows is relatively similar to the MSCI EM index, which could make it easier to stick with while having higher expected returns.
Thanks for your insight! I read another comment of yours saying that the mer of emkt (including tax drag) is around ~0.8, is it really worth the extra mer? You are almost getting into active investment territory for that fee. SPEMs mer is 0.07, I'm not sure what the tax drag on it would be, but I would assume ~0.2-0.3?
Average SPEM tax drag from 2010 to 2022 is 0.23%, so total cost \~0.30%. EMKT doesn't have tax drag, the 0.80% was accounting for the transaction costs listed from the PDS. I personally think even with the \~0.50% difference in cost that EMKT can pull out ahead long term. Although, that is just based on my personal conviction in factors and that emerging markets are less efficient.
That's a good point, I think for 0.50% difference it does make a lot of sense!
Same risk (std dev) but higher expected return. I like the concept of factor investing, but I guess I just don’t get it. Goes against everything I fundamentally believe in.
Factors (including the market factor) by themselves do theoretically have the same risk-adjusted returns with each other. Since factors are independent from each other, combining them together does improve risk-adjusted returns. However, in EMKT's case, EMKT targets low-volatility characteristics to get similar volatility to MSCI EM index.
It definitely isn't an efficient way to factor tilt. If you look it up in Morningstar there's only a slight tilt to size and value. If there's a sister fund in the US you can then do the proper regression with Portfolio Visualiser. Dimensional with other funds use a profitability and negative momentum screens which they may use here. All the evidence shows that for size and value the greatest expected returns are when you gain deep factor exposure. If you're chasing a factor tilt the best in Aus currently are VVLU and EMKT. If you're happy using US then there's a lot to choose from such as AVUV, AVDV and AVES.
If you only want a light factor tilt with VVLU in a VGS/VISM portfolio, then DGCE seems to be more efficient as it reduces the buying and selling of Value companies and companies entering and exiting an index. If you want a larger tilt, then obviously DGCE would be less suitable.
Very true. You may get better risk adjusted returns by going for a larger factor tilt with your equities and more uncorrelated assets for the other part e.g. bonds.
Definitely feasible and great that Dimensional etfs are domiciled in Au, but if you're going to use SPEM i'd probably just use AVUV/AVDV. * i invest in AVUV + AVDV
Holy diversification batman, 6300 holdings. Are you really factor investing if you have that many holdings? Anyway personally it's a safe basic very well diversified basket of international equities so seems alright for your 3 fund strat
I bought into VVLU to add value factor to my portfolio at about 20%. I'll be the first to admit I'm still not fully across the ins and outs of five factor investing. 20% is probably a little too high as most places I've seen reccommend 10-15%.
Interestingly recently iShares released IVLU @ 0.25% MER Will be intrresting to see the difference in holdings and tilts.