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I was comparing VMVFX with PRGSX and they seem to be charting very similarly. Curious what happened to the "secret sauce" for this fund's (Vanguard Minimum Global Volatility Fund) purported minimum volatility characteristics?
I noticed that too, but I'm planning on buying, hopefully sometime soon if the markets keep falling. It's hard to avoid this kind of storm, but a well-diversified global fund with some smart quants running it seems worth a 21 basis-point ER to me.
During 'normal' periods, VMVFX has been fine. However, when you have such a violent and immediate equity selloff across the board, all correlations go to 1 and I would not expect any equity fund to perform noticeably better than others. Sometimes you just have to take your lumps.
Reminder: I've owned VMVFX since inception, not for the volatility thing but b/c I like how the fund is comprised as a quirky & very low-cost global stock fund that skews midcap.
I'm not sure that I've imported the daily figures correctly from Yahoo (website change among other uncertainties), and I think that daily returns tend to have too much noise (which is one reason why std dev of funds is typically calculated on monthly returns).
Given those qualifications, it seems that YTD VMVFX still has lower volatility. I calculate the standard deviations of the daily returns for VMVFX and PRGSX to be respectively 0.0114 and 0.0149.
This is even visible in the graph @bee provided. PRGSX crisscrosses VMVFX - generally as the latter turns up, the former turns up more sharply, and as the latter dips (e.g. multiple times in late January and around the third week of February), the former takes sharper dives. (Std dev takes the square of movements, so it exaggerates the differences at extreme points.)
Sometimes though, pictures are not worth a thousand words. Dull black and white numbers on a page can give a more accurate "picture".
Seems to me a minimum volatility fund should be positioned to deal with both upside (optimize positive volatility) and downside (minimize negative volatility). In a sense, I am referring to successfully positioning a fund to maximize "upside/downside capture".
IMHO, when a fund is successful at capturing more of the upside (positive volatility) while limiting some of the downside (some of the selloff or negative volatility) you've "maximized" volatility.
According to M* VMVFX has an upside capture of 65 (65/100th of the upside of the category) and a downside capture of 35 (35/100th of the downside of the category). These numbers are not much different than VWINX capture of 68% of upside and 37% of the downside. That is impressive under normal market conditions. Under stressful conditions the difference between the two (VMVFX vs VWINX) YTD looks like this: https://screencast.com/t/mdvS7utO
@rforno Maybe these are not normal markets, but isn't that the point for owning such a fund? I don't want a fund like this to mimic the market during extremes (up or down)...well I am OK with extreme upside correlation...instead, I want a fund like this to position itself to maximize volatility.
Volatility is opportunity.
High volatility on the downside creates buying opportunities and high volatility on the upside create capital appreciation.
It feels like VMVFX misses the mark on both counts.
For what it's worth PRGSX has an upside capture of 116 while maintaining a downside capture of 53. Better volatility numbers in my opinion.
@rforno Maybe these are not normal markets, but isn't that the point for owning such a fund? I don't want a fund like this to mimic the market during extremes (up or down)...well I am OK with extreme upside correlation...instead, I want a fund like this to position itself to maximize volatility. 6
From the VMVFX annual report: "Our objective is to create a portfolio that has broad equity exposure with less volatility than the global equity market. We achieved this over the performance period, as the fund’s weekly volatility averaged about 32% less than that of its benchmark.
It is important to mention, as we have in the past, that we do not target a specific volatility level. Rather, we seek to provide an equity fund that has lower absolute risk than the broad global market. Thus, when the broad global equity market is experiencing periods of low volatility, you should expect this fund’s volatility to be much closer to the volatility level of its benchmark.
We recognize that equity-like returns are also an important outcome of an investment in this fund, but achieving a total return higher than the benchmark’s is not our objective. Although our research leads us to expect that, on average, a minimum volatility fund may outperform the overall global market in sharp downturns (while still experiencing losses), the fund should be expected to trail in strong bull markets. With that in mind, because the fund is expected to have a lower level of risk than the global equity market, you should not expect it to outperform the market over the long run.
We think an acceptable comparative performance measure for the fund over the long term is its risk-adjusted return. This can be calculated by dividing the portfolio’s total return for the period by the annualized standard deviation of weekly returns. We view 12 months to be a relatively short time, but for the annual period, the risk-adjusted return was about 1.64, compared with 1.14 for the benchmark. Over a longer period— since the fund’s inception on December 12, 2013—its risk-adjusted return was 1.21, compared with 0.89 for the benchmark."
... I guess we just own things for different reasons and/or have different perspectives, which is fine. I don't expect this fund to completely zig when others completely zag. IMO, you can build the most stable oceanliner in the world to minimize the roll of the waves, but if you encouter hellaciously rough seas (ala the 'Poseidon Adventure'), you're going to feel it regardless of how well it's built. I'm not concerned here.
@rforno from the VMVFX annual report you refernced:
Although our research leads us to expect that, on average, a minimum volatility fund may outperform the overall global market in sharp downturns (while still experiencing losses), the fund should be expected to trail in strong bull markets.
This downturn was such a test...VMVFX did not loss less...instead it mimicked the market. I'm I missing something?
So ... yeah a big loss, but on an absolute basis it did technically did 'beat' the market yesterday, albeit by a vey little, which is probably good enough for its managers to say it's meeting its mandate.
When I compare VMVFX to PRGSX's performance I have no long term complaints...just that these most recent losses seem worth noting. VMVFX did behaved more in line with its mandate during the last two downturns (2016 & 2018).
For additional comparison I also charted PRWCX (I have always appreciated that VMVFX closely mimics PRWCX past performance).
High volatility on the downside creates buying opportunities and high volatility on the upside create capital appreciation.
It feels like VMVFX misses the mark on both counts.
Volatility is not an opportunity for those with short-time horizons and low risk tolerance. While one could argue such investors should just be in bonds or cash, that is not practical for many investors seeking to achieve their investment/retirement goals. I feel like this fund largely does a good job of helping investors stay in the market even when times are rough. A lot of what volatility is depends on your perspective and individual psychology. Some people can't stomach it and the idea that one size fits all in this regard is not realistic.
As for comparison of VMVFX and VWINX, VWINX is 33% US stocks, the rest is bonds, whereas VMVFX is 50/50 in US/Non-US stocks, nothing in bonds. Thus it is hard to compare them. Taking into account bad performance of non-US stocks, it is interesting that VMVFX outperformed VWINX during the last 10 years
"Taking into account bad performance of non-US stocks ..."
Local performance or converted back to dollars? VMVFX "seek[s] to hedge away most of the currency exposure resulting from its foreign stock holdings."
I didn't go back to check, but I'm reasonably sure that the dollar was rising for much of the past decade. So much of VMVFX's better performance (relative to foreign funds) could simply be due to currency movements.
Seems to me like there is room for both VMVFX and PRGSX in a portfolio if one is looking for some global exposure.
Lipper calls the first a global small/mid cap, and the latter a global multi-cap growth fund. M* calls the Price fund a global large cap, but agrees on the Vanguard fund.
As mentioned previously, VMVFX is in the top 10% in it's category YTD. Looking at it's performance over the past six years (which is approximately the life of the fund) with the MFO premium tool, VMVFX leads its category in performance with half the standard deviation and twice the Sharpe ratio.
Using the same tool, and six year period, PRGSX is third in it's category with a better standard deviation, but a lower Sharpe.
So it seems to me that both funds are doing a pretty good job at what they advertise they are trying to do. When I'm shopping for a fund in a specific category I find it more useful to compare it to other funds in the same category
Comments
During 'normal' periods, VMVFX has been fine. However, when you have such a violent and immediate equity selloff across the board, all correlations go to 1 and I would not expect any equity fund to perform noticeably better than others. Sometimes you just have to take your lumps.
Reminder: I've owned VMVFX since inception, not for the volatility thing but b/c I like how the fund is comprised as a quirky & very low-cost global stock fund that skews midcap.
I expect to be buying some for my taxable sometime this year.
Given those qualifications, it seems that YTD VMVFX still has lower volatility. I calculate the standard deviations of the daily returns for VMVFX and PRGSX to be respectively 0.0114 and 0.0149.
This is even visible in the graph @bee provided. PRGSX crisscrosses VMVFX - generally as the latter turns up, the former turns up more sharply, and as the latter dips (e.g. multiple times in late January and around the third week of February), the former takes sharper dives. (Std dev takes the square of movements, so it exaggerates the differences at extreme points.)
Sometimes though, pictures are not worth a thousand words. Dull black and white numbers on a page can give a more accurate "picture".
IMHO, when a fund is successful at capturing more of the upside (positive volatility) while limiting some of the downside (some of the selloff or negative volatility) you've "maximized" volatility.
According to M* VMVFX has an upside capture of 65 (65/100th of the upside of the category) and a downside capture of 35 (35/100th of the downside of the category). These numbers are not much different than VWINX capture of 68% of upside and 37% of the downside. That is impressive under normal market conditions. Under stressful conditions the difference between the two (VMVFX vs VWINX) YTD looks like this:
https://screencast.com/t/mdvS7utO
@rforno Maybe these are not normal markets, but isn't that the point for owning such a fund? I don't want a fund like this to mimic the market during extremes (up or down)...well I am OK with extreme upside correlation...instead, I want a fund like this to position itself to maximize volatility.
Volatility is opportunity.
High volatility on the downside creates buying opportunities and high volatility on the upside create capital appreciation.
It feels like VMVFX misses the mark on both counts.
For what it's worth PRGSX has an upside capture of 116 while maintaining a downside capture of 53. Better volatility numbers in my opinion.
Other note worthy "captures" (upside/downside):
PRWCX - 119/79
PRMTX - 123/66
"Our objective is to create a portfolio that has broad equity exposure with less volatility than the global equity market. We achieved this over the performance period, as the fund’s weekly volatility averaged about 32% less than that of its benchmark.
It is important to mention, as we have in the past, that we do not target a specific volatility level. Rather, we seek to provide an equity fund that has lower absolute risk than the broad global market. Thus, when the broad global equity market is experiencing periods of low volatility, you should expect this fund’s volatility to be much closer to the volatility level of its benchmark.
We recognize that equity-like returns are also an important outcome of an investment in this fund, but achieving a total return higher than the benchmark’s is not our objective. Although our research leads us to expect that, on average, a minimum volatility fund may outperform the overall global market in sharp downturns (while still experiencing losses), the fund should be expected to trail in strong bull markets. With that in mind, because the fund is expected to have a lower level of risk than the global equity market, you should not expect it to outperform the market over the long run.
We think an acceptable comparative performance measure for the fund over the long term is its risk-adjusted return. This can be calculated by dividing the portfolio’s total return for the period by the annualized standard deviation of weekly returns. We view 12 months to be a relatively short time, but for the annual period, the risk-adjusted return was about 1.64, compared with 1.14 for the benchmark. Over a longer period— since the fund’s inception on December 12, 2013—its risk-adjusted return was 1.21, compared with 0.89 for the benchmark."
... I guess we just own things for different reasons and/or have different perspectives, which is fine. I don't expect this fund to completely zig when others completely zag. IMO, you can build the most stable oceanliner in the world to minimize the roll of the waves, but if you encouter hellaciously rough seas (ala the 'Poseidon Adventure'), you're going to feel it regardless of how well it's built. I'm not concerned here.
Quick comment before i head off to meetings --
Using SeekingAlpha data regarding yesterday's pricing:
VIIIX -20.32 (-7.58%)
PRGSX -3.00 (-6.91%)
VMVFX -0.89 (-6.46%)
So ... yeah a big loss, but on an absolute basis it did technically did 'beat' the market yesterday, albeit by a vey little, which is probably good enough for its managers to say it's meeting its mandate.
When I compare VMVFX to PRGSX's performance I have no long term complaints...just that these most recent losses seem worth noting. VMVFX did behaved more in line with its mandate during the last two downturns (2016 & 2018).
For additional comparison I also charted PRWCX (I have always appreciated that VMVFX closely mimics PRWCX past performance).
VMVFX since inception (vs PRGSX & PRWCX):
https://screencast.com/t/ftSTamcSZWtj
Local performance or converted back to dollars? VMVFX "seek[s] to hedge away most of the currency exposure resulting from its foreign stock holdings."
I didn't go back to check, but I'm reasonably sure that the dollar was rising for much of the past decade. So much of VMVFX's better performance (relative to foreign funds) could simply be due to currency movements.
https://investor.vanguard.com/mutual-funds/profile/VMVFX
Lipper calls the first a global small/mid cap, and the latter a global multi-cap growth fund. M* calls the Price fund a global large cap, but agrees on the Vanguard fund.
As mentioned previously, VMVFX is in the top 10% in it's category YTD. Looking at it's performance over the past six years (which is approximately the life of the fund) with the MFO premium tool, VMVFX leads its category in performance with half the standard deviation and twice the Sharpe ratio.
Using the same tool, and six year period, PRGSX is third in it's category with a better standard deviation, but a lower Sharpe.
So it seems to me that both funds are doing a pretty good job at what they advertise they are trying to do. When I'm shopping for a fund in a specific category I find it more useful to compare it to other funds in the same category