2021 bic etf update podcast - paul a. merriman2021 bic etf update podcast paul on portfolios, the...

2021 BIC ETF Update Podcast

Paul on portfolios, the foundation, our role, timing, art vs. science

Chris on the new recommendations

Q&A’s

2021 BIC ETF Update & Comparisons

Vanguard Reference

VOO, VONV, VIOO, VIOV, VNQ, VEA, VYMI, VSS, VNQI,

VWO

DFA ReferenceDFUSX, DFLVX, DFSTX, DFSVX,

DFREX, DFALX, DFIVX, DFISX, DISVX,

DFEMX, DEMSX, DFEVX

2019 BIC ETFs UB&H

VTI, RPV, IJR, SLYV/IJS, VNQ,VEA, EFV, FNDC, DLS,

DGS

2021 BIC ETFs UB&H

AVUS, RPV, IJR, AVUV, VNQ, AVDE, EFV, FNDC, AVDV,

AVEM

2021 BIC ETFs US 4FC

AVUS, RPV, IJR, AVUV

2021 BIC ETFs WW 4FC

AVUS, AVUV, EFV, FNDC

2021 BIC ETFs All Value

RPV, AVUV, EFV, AVDV, AVEM

2021 BIC ETFs All Small Value

AVUV, AVDV, AVEM

Morningstar X-Ray Styleboxes

Price/Book 1.33 1.13 1.12 1.09 1.09 1.04 0.88 0.90

Avg. Co. Size $10.69B $9.41B $6.45B $7.84B $6.99B $8.47B $7.49B $2.58B

Expense Ratio

0.11% 0.37%+ ~1% Mgt

0.28% 0.26% 0.20% 0.30% 0.33% 0.30%

Yield 2.69% 2.09% 2.81% 2.11% 1.81% 2.34% 2.02% 1.21%

Holdings (Companies)

>12,500 >6,000 >8,900 >8,000 ~2,000 ~4100 >6,500 ~4,000

All data as of 10/30/2020 sourced from Morningstar X-Rays, and etfrc.com

Best-in-Class Alternative Recommendations

US Large Cap Blend Avantis U.S. Equity (AVUS)

Vanguard S&P 500 (VOO), Vanguard Total US Market (VTI), iShares Core S&P 500 (IVV), SPDR Large Cap (SPLG), Schwab Large-Cap (SCHX)

US Large Cap Value Invesco S&P 500 Pure Value (RPV)

Vanguard Russell 1000 Value Index (VONV), iShares Core US Value (IUSV), Schwab U.S. Large-Cap Value (SCHV), S&P 500 Value (SPYV)

US Small Cap Blend iShares Core S&P Small-Cap (IJR)

Vanguard S&P Small-Cap 600 Index (VIOO), Russell Micro-Cap (IWC), Schwab U.S. Small-Cap (SCHA), SPDR Small Cap (SPSM)

US Small Cap Value Avantis U.S. Small Cap Value(AVUV)

Vanguard S&P Small-Cap 600 Value (VIOV), SPDR Small Cap Value (SLYV), iShares S&P; SmCp 600 Value (IJS), Invesco S&P SmallCap 600 Pure Value ETF (RZV)

US REIT Vanguard Real Estate Index (VNQ)

Fidelity MSCI Real Estate (FREL), iShares U.S. REIT (USRT), Schwab U.S. REIT (SCHH)

Int’l Large Cap Blend Avantis International Equity (AVDE)

Vanguard FTSE Developed Markets (VEA), iShares Core MSCI EAFE (IEFA), SPDR World Ex-US (SPDW), Schwab Intl Equity (SCHF)

Int’l Large Cap Value iShares MSCI EAFE Value (EFV)

Vanguard International High Dividend (VYMI), Fidelity International Value Factor ETF (FIVA), iShares MSCI EAFE Value (EFV),

SPDR S&P Intl Dividend (DWX)

Int’l Small Cap Blend Schwab Fundamental International Small Company Index (FNDC)

Vanguard FTSE All-World ex-US Small-Cap Index (VSS), iShares MSCI EAFE SmCap (SCZ), SPDR S&P Intl. Small Cap (GWX),

Schwab Intl Sm-Cp Equity (SCHC)

Int’l Small Cap Value Avantis International Small Cap Value (AVDV)

WisdomTree Intl. S. Cap Div (DLS)

Emerging Markets Avantis Emerging Markets Equity (AVEM)

Vanguard FTSE Emerging Markets (VWO), iShares Core MSCI EmMkts. (IEMG),SPDR Emerging Markets (SPEM), Schwab Emerging Mkt Eq (SCHE),

WisdomTree Emerging Markets SmCp Div ETF (DGS in tax-deferred)

Em. Mkts. Small Cap --- iShares MSCI Em. Mkts. Sm.-Cap (EEMS)

Em. Mkts. Value --- SPDR Emerging Mkts. S. Cap (EWX)

Int’l REITs --- Vanguard Global ex-US Real Estate (VNQI), iShares FTSE Real Estate ex-US (IFGL),

Short-Term Bonds Vanguard Short-Term Government Bond (VGSH)

iShares Barclays S-T Treasury (SHY), SPDR Short Term Treasury (SPTS), Schwab S-T U.S. Treasury (SCHO)

Int.-Term Bonds Vanguard Intermediate-Term Government Bond (VGIT)

iShares Barclays 7-10 Yr Treasury (IEF), SPDR Inter. Term Treasury (SPTI), Schwab I-T U.S. Treasury (SCHR)

Infl.-Prot. Bonds Vanguard Short-Term Infl. Prot. Securities (VTIP)

iShares Barclays 0-5 TIPS (STIP), Schwab U.S. TIPS (SCHP)

Why AVUS instead of VTI for US LCB?

Average Co. Size $98B → $54B

Price-to-Book 3.29 → 2.81

Expense Ratio 0.03% → 0.12%

After-Expense Factor Predicted Return increase of ~0.3%

Why AVUV instead of SLYV/IJS?

Average Co. Size $1.6B → $2.2B


Expense Ratio 0.15-0.18% → 0.23%


Why AVDE instead of VEA?





Why AVDV instead of DLS?




Factor-Predicted Returns Similar, but Lower ER & Yield 2.45% → 1.63%

Why AVEM instead of DGS?




Factor-Predicted Returns Similar, but Lower ER & Yield 3.66% → 1.59%

2021 BIC ETF Update & Comparisons

Vanguard Reference

VOO, VONV, VIOO, VIOV, VNQ, VEA, VYMI, VSS, VNQI,

VWO

DFA ReferenceDFUSX, DFLVX, DFSTX, DFSVX,

DFREX, DFALX, DFIVX, DFISX, DISVX,

DFEMX, DEMSX, DFEVX

2019 BIC ETFs UB&H

VTI, RPV, IJR, SLYV/IJS, VNQ,VEA, EFV, FNDC, DLS,

DGS

2021 BIC ETFs UB&H

AVUS, RPV, IJR, AVUV, VNQ, AVDE, EFV, FNDC, AVDV,

AVEM

2021 BIC ETFs US 4FC

AVUS, RPV, IJR, AVUV

2021 BIC ETFs WW 4FC

AVUS, AVUV, EFV, FNDC

2021 BIC ETFs All Value

RPV, AVUV, EFV, AVDV, AVEM

2021 BIC ETFs All Small Value

AVUV, AVDV, AVEM

Morningstar X-Ray Styleboxes

Price/Book 1.33 1.13 1.12 1.09 1.09 1.04 0.88 0.90

Avg. Co. Size $10.69B $9.41B $6.45B $7.84B $6.99B $8.47B $7.49B $2.58B

Expense Ratio

0.11% 0.37%+ ~1% Mgt

0.28% 0.26% 0.20% 0.30% 0.33% 0.30%

Yield 2.69% 2.09% 2.81% 2.11% 1.81% 2.34% 2.02% 1.21%

Holdings (Companies)

>12,500 >6,000 >8,900 >8,000 ~2,000 ~4100 >6,500 ~4,000

All data as of 10/30/2020 sourced from Morningstar X-Rays, and etfrc.com

Best-in-Class Alternative Recommendations

US Large Cap Blend Avantis U.S. Equity (AVUS)

Vanguard S&P 500 (VOO), Vanguard Total US Market (VTI), iShares Core S&P 500 (IVV), SPDR Large Cap (SPLG), Schwab Large-Cap (SCHX)

US Large Cap Value Invesco S&P 500 Pure Value (RPV)

Vanguard Russell 1000 Value Index (VONV), iShares Core US Value (IUSV), Schwab U.S. Large-Cap Value (SCHV), S&P 500 Value (SPYV)

US Small Cap Blend iShares Core S&P Small-Cap (IJR)

Vanguard S&P Small-Cap 600 Index (VIOO), Russell Micro-Cap (IWC), Schwab U.S. Small-Cap (SCHA), SPDR Small Cap (SPSM)

US Small Cap Value Avantis U.S. Small Cap Value(AVUV)

Vanguard S&P Small-Cap 600 Value (VIOV), SPDR Small Cap Value (SLYV), iShares S&P; SmCp 600 Value (IJS), Invesco S&P SmallCap 600 Pure Value ETF (RZV)

US REIT Vanguard Real Estate Index (VNQ)

Fidelity MSCI Real Estate (FREL), iShares U.S. REIT (USRT), Schwab U.S. REIT (SCHH)

Int’l Large Cap Blend Avantis International Equity (AVDE)

Vanguard FTSE Developed Markets (VEA), iShares Core MSCI EAFE (IEFA), SPDR World Ex-US (SPDW), Schwab Intl Equity (SCHF)

Int’l Large Cap Value iShares MSCI EAFE Value (EFV)

Vanguard International High Dividend (VYMI), Fidelity International Value Factor ETF (FIVA), iShares MSCI EAFE Value (EFV),

SPDR S&P Intl Dividend (DWX)

Int’l Small Cap Blend Schwab Fundamental International Small Company Index (FNDC)

Vanguard FTSE All-World ex-US Small-Cap Index (VSS), iShares MSCI EAFE SmCap (SCZ), SPDR S&P Intl. Small Cap (GWX),

Schwab Intl Sm-Cp Equity (SCHC)

Int’l Small Cap Value Avantis International Small Cap Value (AVDV)

WisdomTree Intl. S. Cap Div (DLS)

Emerging Markets Avantis Emerging Markets Equity (AVEM)

Vanguard FTSE Emerging Markets (VWO), iShares Core MSCI EmMkts. (IEMG),SPDR Emerging Markets (SPEM), Schwab Emerging Mkt Eq (SCHE),

WisdomTree Emerging Markets SmCp Div ETF (DGS in tax-deferred)

Em. Mkts. Small Cap --- iShares MSCI Em. Mkts. Sm.-Cap (EEMS)

Em. Mkts. Value --- SPDR Emerging Mkts. S. Cap (EWX)

Int’l REITs --- Vanguard Global ex-US Real Estate (VNQI), iShares FTSE Real Estate ex-US (IFGL),

Short-Term Bonds Vanguard Short-Term Government Bond (VGSH)

iShares Barclays S-T Treasury (SHY), SPDR Short Term Treasury (SPTS), Schwab S-T U.S. Treasury (SCHO)

Int.-Term Bonds Vanguard Intermediate-Term Government Bond (VGIT)

iShares Barclays 7-10 Yr Treasury (IEF), SPDR Inter. Term Treasury (SPTI), Schwab I-T U.S. Treasury (SCHR)

Infl.-Prot. Bonds Vanguard Short-Term Infl. Prot. Securities (VTIP)

iShares Barclays 0-5 TIPS (STIP), Schwab U.S. TIPS (SCHP)

How Big of A Difference?

Question #1

Michael says: Hey there, I won’t lie, I’m really excited to see the results of the new ETF screenings. Here is my question ahead of your call next week:

“With these new recommendations, should you sell legacy positions (barring no tax consequences, i.e in an IRA) and swap into the new ETFs, or let the legacy positions ride and simply funnel new money into the updated list moving forward?”

Thanks and please keep fighting the good fight!

Michael

Question #2

Jake says: Team, I have been using a taxable account at m1 finance for the past 6 months and it has been great.

My questions is with the update in the best in class etfs should I transfer my money from the old best in class etfs to the new etfs and create a taxable event or keep my money in the old best in class etfs and start a new account for the new etfs and add money in that account going forward? I am in my 30’s and don’t plan on using the money for 20-30 years if that is helpful.

Thanks, Jake

Question #3

Russell in Mississippi writes:

With the intention to invest for the “long” term, is there a possibility that changing the funds every two years to the latest BIC recommendations will have some short term negative consequences to the long term returns? Can you discuss?

Question #4

Greg says: Dear Paul -- First I would like to thank you for all your help you give . I am very grateful to have discovered your newsletter and teachings. I have been reading your were talking millions book and have started a fund for my grandchild who is 1 years old. I have started with a small cap value fund SLYV.

Would you suggest I add additional etfs or maybe add additional small cap funds?

I also have gave your book to my son and am trying to help his family invest According to some of your teachings.

Once again thank you so much for you giving so much of your knowledge to help people.

Sincerely, Gregg

Question #5

Juan writes:

A little more than 1 year of history doesn't sound like much. Wouldn't something like 10 years be a more reasonable minimum time for a fund before it can be trusted? I thought in stock market timelines, relying on 1, 2 or even 5 years of performance history is not recommended.

How does the Bid/Ask spread for these new funds compare to other funds in the BIC list, or with similar Vanguard ETFs? I'd be concerned that such a new fund would need some more time to have enough trading volume to lower that bid/ask spread.

Average Bid-Ask Spreads from www.etf.com

VTI → AVUS: 0.01% → 0.13%

SLYV → AVUV: 0.09% → 0.17%

VEA → AVDE: 0.02% → 0.13%

DLS → AVDV: 0.11% → 0.12%

DGS → AVEM: 0.12% → 0.12%

Question #6

Tom says:First, I see your new mutual fund recommendations. When will the new ETF recommendations come out (i.e., the ones by fund family)?Second, I'm 68 and moving to a formal written investment program patterned on the UB&H. I've listened to many of Paul's podcasts and he often really pounds the table for index funds and low expense ratios, particularly at Vanguard. Chris Pedersen's new recommendations appear to be moving more and more to actively managed funds (or at least beta funds) with higher expense recommendations (e.g., Avantis). Would Paul and Chris please discuss this and try to reconcile these divergent views? Many thanks.

Question #7

Jim asks: The new recommendations include a number of ETFs. - many of these new ETF have relatively low volume.

With the change in recommendations and M1 trading primarily once a day won’t there be a bit of a volume spike that can perhaps cause a higher than typical price to be paid?

If one has existing pies of one or more Merriman pies do these new recommendations to the Merriman pies get extended into portfolios using the old ones - or does the account holder have to go in and change the components within the pies inside their personal account?

If one were to go into their Merriman started pie and put in a zero percent allocation for the etfs no longer in the recommendations AND puts in the new ETFs with their respective percentages AND does not rebalance, will it retain without selling the old funds and put all new cash into the new allocations - ie the newly recommended funds. ( effectively stranding the old funds until one wishes to sell)?

Several of the new ETFs seem to have larger companies within them yet after years of listening to Paul it seems strange that we are going to a bit larger companies after hearing many times that the smaller seemed to perform better over time. response?

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