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re: VTI vs VOO
Posted on 11/23/24 at 11:44 am to LSUtiger89
Posted on 11/23/24 at 11:44 am to LSUtiger89
Alpha is a measure of excess return as compared to an index.
An indexed product theoretically should have negative alpha due expense ratios. If it’s a good product, tracking error should be minimal. Looking solely at alpha in an indexed vehicle doesn’t tell much of a story, usually.
VOO is about as good as you’re going to get in an S&P tracking vehicle. It’s not designed for positive alpha.
An indexed product theoretically should have negative alpha due expense ratios. If it’s a good product, tracking error should be minimal. Looking solely at alpha in an indexed vehicle doesn’t tell much of a story, usually.
VOO is about as good as you’re going to get in an S&P tracking vehicle. It’s not designed for positive alpha.
1
Posted on 11/23/24 at 1:31 pm to danilo
VOO. QQQM if you don't want as much diversity
Posted on 11/23/24 at 3:00 pm to LSUcam7
Yes Alpha is the return against the index. It’s the rate of risk against the market and what return is performed by that risk. Not not a % to % return. So no it’s not supposed to have negative alpha. Your understanding of Alpha is incomplete. It’s the amount of correlated risk and that return against the index. You do understand that a fund can have a huge positive return and still perform below the index right? It’s the amount of risk compared against the index and because of that outperform the index itself.
And that’s important because you can perform slightly below the index and still outperform the index if the risk is less with smaller deviation meaning for less downside. When there is less downside there is greater upside if at a smaller return. If the market goes down 40% you have to get 67% just to get back. But with less risk and SD let’s say you only capture 80% if downside. So that means the fund goes down 32% and only needs 47% return to get back. So it only has to capture 71% of the upside to outperform the market and the returns. Thats why the Beta and Risk are important to pay attention. To that no one talks about.
But it should be minimum for these indexes. I agree VOO is much better.
But take a look at SPMO. Much better. It takes a 5-10% less risk than VOO, but outperforms VOO by quite a bit.
But VTI. It takes on more risk than the index benchmark but a lower return. As far as indexes go. It’s not a good one. No way you try to spin it. Because even if you disregard to risk adjusted, it still underperforms the indexes more than just by the expense ratio. You can try to spin it any way you want.
And that’s important because you can perform slightly below the index and still outperform the index if the risk is less with smaller deviation meaning for less downside. When there is less downside there is greater upside if at a smaller return. If the market goes down 40% you have to get 67% just to get back. But with less risk and SD let’s say you only capture 80% if downside. So that means the fund goes down 32% and only needs 47% return to get back. So it only has to capture 71% of the upside to outperform the market and the returns. Thats why the Beta and Risk are important to pay attention. To that no one talks about.
But it should be minimum for these indexes. I agree VOO is much better.
But take a look at SPMO. Much better. It takes a 5-10% less risk than VOO, but outperforms VOO by quite a bit.
But VTI. It takes on more risk than the index benchmark but a lower return. As far as indexes go. It’s not a good one. No way you try to spin it. Because even if you disregard to risk adjusted, it still underperforms the indexes more than just by the expense ratio. You can try to spin it any way you want.
This post was edited on 11/23/24 at 3:14 pm
Posted on 11/23/24 at 3:10 pm to AUCE05
SPMO
Posted on 11/23/24 at 10:14 pm to LSUtiger89
quote:
So no it’s not supposed to have negative alpha
You’re wrong here. Though the goal isn’t to build a product to have negative alpha, in effect that’s highly likely what happens in an ultra-low tracking error ETF.
SPMO isn’t indexed to the S&P. You’re talking apples to oranges here.
quote:
But VTI. It takes on more risk than the index benchmark but a lower return.
Because small cap stocks have underperformed. Yet if small caps are leaders, VTI beats VOO. And had on a very long term basis.
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