Implementation had begun
Pursuant to my last post, I’ve sold out of VEQT/VXC/VCN and deployed the first tranche of my portfolio into CAGX.
Although I have known about factor investing for a number of years now, I’ve done a thorough literature review of the latest academic and empirical evidence as part of my due diligence, for a final evaluation before pulling the trigger.
Based on the evidence, there’s a pretty solid case to be made for moderate factor tilts toward Avantis’ strategy of cash based operating profitablity, adjusted book value and size, especially integrating them in a multi-factor manner. One could reasonably expect:
1. Factor premia of 50-100 basis points before fees and other costs, which is meaningful.
2. Factor diversification/reliability of returns as each factor has different correlations with each other and market beta.
3. Good middle ground of tilting away from richly valued/overconcentrated AI megacaps and AI ecosystem stocks to cheaper/more profitable/smaller stocks, without actually omitting the AI winners completely. Kind of like have your cake but eat half of it.
There are downsides obviously, such as factor premia not showing up for extended periods of time, factor premia decay/disappearance, and tracking error. However the fund fees are low enough compared to Vanguard/Blackrock/BMO total market funds that this bet seems worth taking - the MER/FER spread is about 12 basis points give or take.
