Lot of posts here but rather than reply to other people I'm going to try to stay on topic.
Funds like AVUV are active funds. Their goal isn't to follow an index; rather, it's to hold a handpicked (or metric-based-picked) portfolio of stocks that are small and considered "value-y." It also holds a decent number of stocks (764) but much different funds than VBR (only 1/3rd of stocks overlap). The same is true for DFSV (1017 stocks, but also only 31% overlap with VBR). DFA and Avantis use different formulas/criteria, so AVUV and DFSV also don't overlap much (39% of holdings) and have different sector makeups.
Because Avantis and DFA aren't trying to replicate an index, they can choose different stocks, and here, choose smaller/more value-y stocks. AVUV's P/E is 10.9 and P/B is 1.17; DFSV's is 10.5 and 1.04, respectively.
You can also perform a factor regression on these funds. Portfoliovisualizer is a handy tool for this. As the page explains, "The multiple linear regression indicates how well the returns of the given assets or a portfolio are explained by the risk factor exposures." Here is an example (https://www.portfoliovisualizer.com/fac ... 9BZZZNtb2Z).
It's complicated, but basically this looks at to what extent a fund is exposed to a factor premium, and whether or not the exposure is statistically significant. Let's say "value" gives a 3% return premium (hypothetical); a fund with 100% exposure to this premium (assuming the premium is there) would be expected to return 3% more than one with 0% exposure, and a fund with 50% exposure would be expected to return 1.5% more than one with 0% exposure. Etc.
We can see that AVUV and DFSV have stronger exposures to every factor (other than investment, which is another topic) than VBR. So a simple way of thinking of this is "AVUV and DFSV are smaller and more value-tilted in their exposures than VBR is." That means they should perform better when the premium is returning well. On the flip side, when SCV is underperforming, these funds may do WORSE than VTI, or even VBR (they haven't done worse than VBR, for a variety of reasons). There is a ton (and I mean a ton) of info on this on the RationalReminder forum.
So, if the ER is higher, does that matter if the return is also higher? I'd argue no - AVUV has massively outperformed VBR net ER - but that's your call. All I'll say about ER is that you shouldn't worry too much about it, especially if you're holding in taxable, because the tax cost is much more important than the ER. That depends on your tax bracket, however.
To give you an example of "ER isn't everything," here's a comparison of three funds, two of which you've probably heard of: https://testfol.io/?s=8YGahNnXlWs. The third, QLENX, is a pretty complex fund but has a 60/40 US/INT equity exposure, which is why I included VT. These returns are net expense ratio, and QLENX's return is pretty good, right? That's after its 1.56% ER. You could exclude QLENX from your portfolio specifically because of it's ER, but historically that might not have been the right move. There are other examples of this (managed futures funds come to mind). This isn't to say that ER isn't important (and I am by no means telling you to hold QLENX,) but it should be far from a top criterion in picking a fund.
You should be able to buy AVUV in Vanguard, but if you only wanted to hold Vanguard funds, I would recommend VIOV (Vanguard S&P Small-Cap 600 Value ETF) over VBR; it's overall got stronger factor loads, including a profitability load. If you listen to Risk Parity Radio, VIOV is the recommended SCV fund historically, though AVUV has taken its place in newer sample portfolios.
Hope that helps. One final note, if you are choosing between funds, you should always try to determine how well they fit in a portfolio, not one-on-one. For example, treasury funds don't look great compared to total bond or corporate bond funds, but the reason people invest in them is because portfolios containing treasury funds do better than portfolios containing total or corporate bond funds. Etc. Applies to all types of funds. Just food for thought.
This is a good question, i.e. how should you choose such a fund? Well, VBR is an index fund, that tracks an index (CRSP US Small Cap Value Index). As a result, it holds a certain number of funds (842 stocks) and its goal is to replicate the index. It has certain metrics, e.g. a P/E of 13.04, a P/B of 1.73, a morningstar factor profile that I'm not going to type out but is freely available, etc.To clarify what you said in #2. There is positive SCV premium, but I can't see it with VBR? And I should be investing in DFA duns instead? But they have ER, which I want to avoid, even if their expected return is high. How about AVUV, is it DFA as well? AVUV has high ER, too. I remember making a selection for SCV funds and I selected VBR, and AVUV was one of the choices, but I don't think I could buy that in Vanguard. Any suggestions on SCV fund that has low ER?
Funds like AVUV are active funds. Their goal isn't to follow an index; rather, it's to hold a handpicked (or metric-based-picked) portfolio of stocks that are small and considered "value-y." It also holds a decent number of stocks (764) but much different funds than VBR (only 1/3rd of stocks overlap). The same is true for DFSV (1017 stocks, but also only 31% overlap with VBR). DFA and Avantis use different formulas/criteria, so AVUV and DFSV also don't overlap much (39% of holdings) and have different sector makeups.
Because Avantis and DFA aren't trying to replicate an index, they can choose different stocks, and here, choose smaller/more value-y stocks. AVUV's P/E is 10.9 and P/B is 1.17; DFSV's is 10.5 and 1.04, respectively.
You can also perform a factor regression on these funds. Portfoliovisualizer is a handy tool for this. As the page explains, "The multiple linear regression indicates how well the returns of the given assets or a portfolio are explained by the risk factor exposures." Here is an example (https://www.portfoliovisualizer.com/fac ... 9BZZZNtb2Z).
It's complicated, but basically this looks at to what extent a fund is exposed to a factor premium, and whether or not the exposure is statistically significant. Let's say "value" gives a 3% return premium (hypothetical); a fund with 100% exposure to this premium (assuming the premium is there) would be expected to return 3% more than one with 0% exposure, and a fund with 50% exposure would be expected to return 1.5% more than one with 0% exposure. Etc.
We can see that AVUV and DFSV have stronger exposures to every factor (other than investment, which is another topic) than VBR. So a simple way of thinking of this is "AVUV and DFSV are smaller and more value-tilted in their exposures than VBR is." That means they should perform better when the premium is returning well. On the flip side, when SCV is underperforming, these funds may do WORSE than VTI, or even VBR (they haven't done worse than VBR, for a variety of reasons). There is a ton (and I mean a ton) of info on this on the RationalReminder forum.
So, if the ER is higher, does that matter if the return is also higher? I'd argue no - AVUV has massively outperformed VBR net ER - but that's your call. All I'll say about ER is that you shouldn't worry too much about it, especially if you're holding in taxable, because the tax cost is much more important than the ER. That depends on your tax bracket, however.
To give you an example of "ER isn't everything," here's a comparison of three funds, two of which you've probably heard of: https://testfol.io/?s=8YGahNnXlWs. The third, QLENX, is a pretty complex fund but has a 60/40 US/INT equity exposure, which is why I included VT. These returns are net expense ratio, and QLENX's return is pretty good, right? That's after its 1.56% ER. You could exclude QLENX from your portfolio specifically because of it's ER, but historically that might not have been the right move. There are other examples of this (managed futures funds come to mind). This isn't to say that ER isn't important (and I am by no means telling you to hold QLENX,) but it should be far from a top criterion in picking a fund.
You should be able to buy AVUV in Vanguard, but if you only wanted to hold Vanguard funds, I would recommend VIOV (Vanguard S&P Small-Cap 600 Value ETF) over VBR; it's overall got stronger factor loads, including a profitability load. If you listen to Risk Parity Radio, VIOV is the recommended SCV fund historically, though AVUV has taken its place in newer sample portfolios.
Hope that helps. One final note, if you are choosing between funds, you should always try to determine how well they fit in a portfolio, not one-on-one. For example, treasury funds don't look great compared to total bond or corporate bond funds, but the reason people invest in them is because portfolios containing treasury funds do better than portfolios containing total or corporate bond funds. Etc. Applies to all types of funds. Just food for thought.
Statistics: Posted by breakfastinbed — Sun Nov 09, 2025 10:03 pm — Replies 65 — Views 4105