Asset allocation question

Dry Socks

Recycles dryer sheets
Sep 29, 2005
I have a question about asset allocation and value vs growth. I thought it would be easy to put together a balanced value/growth portfolio using indexes:


1. US equities
50% Vanguard Value Index: VTV
50% Vanguard Growth Index: VUG

Morningstar says the Value/Blend/Growth ratios are: 28:31:24.
That's close to 50/50.

2. International equities
50% Ishares EAFE Value Index: EFV
50% Ishares EAFE Growth Index: EFG

Morningstar says the Value/Blend/Growth ratios are: 36:30:22
That's not even close to 50/50 !
To make Morningstar say it's balanced, I'd need 70% EFG and 30% EFV

I guess it could be differences between the definition of value/growth between MSCI and Morningstar. Or, maybe it's an ishares tracking error ? Anyone know or care to comment ?


PS - I know there's no small cap in those allocations. I'm just trying to get a handle on the big stuff first.
I think the problem lies in the fact that Vanguard, ishares and Morningstar all have different definitions for Growth, Value and Blend.
Even if you construct an portfolio which is equal for V, G & B it might not mean much because some indices are more "valuey" than others. You might want to first work on picking/understanding the "right/correct" index that suits you.

This is how morningstar computes growth/core/value:

Also, altruist has a nice area where they compare the different options in each asset class:

They explain how some options are more "value-ey" vs other options, etc. Definitely worth a look.

Personally, I do an off the cuff analysis on morningstar under the portfolio tab on each fund by comparing the Price/prospective earnings ratio and Price/book. A low price/book would tell me that it is more value-ey than a comparative fund.

This is complicated.
Didn't Vanguard have a problem a few years ago where their value index got crushed during the collapse of growth stocks ? I think they were using P/B to determine if a stock was a value stock.

Maybe I'll split the difference. Start with an equal weight of the etf's then adjust them 1/2 way towards what Morningstar says is balanced. For international equities, that would be 60% EFG and 40% EFV.
See if this link works:

Comparing Vanguard Growth fund vs Vanguard Value fund vs SP500.

It definitely would have hurt talking to your friends at the mid of 2000, they were up a TON more than you would have been in the value fund. But comparatively, the down was a lot more painful on the growth side.

I think most stock funds in general got pummeled from '01-'02.
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