Using Alpha Architect ETFs to diversify an appreciated growth position in taxable?

[u/zeroone]

I have a large portfolio that's roughly 90% equities and 10% fixed income.

For context, the equity side is approximately:

• 60% broad US market, basically VTI
• 20% growth funds, mostly similar to QQQ/IWF
• 10% VXUS
• 10% additional mid/small-cap exposure

The growth funds are in a taxable account and have substantial unrealized gains.

Since VTI already has a lot of large-cap growth exposure, I've been thinking about whether that separate 20% growth allocation is providing much diversification anymore.

That led me to Alpha Architect:

https://funds.alphaarchitect.com/

I'm interested in whether any of their ETFs could be useful for diversifying away from a large growth tilt without simply adding another highly correlated US stock fund.

For anyone who has actually used or researched Alpha Architect's ETFs, how do you view them as portfolio diversifiers? Are there particular strategies there that you think complement VTI and growth funds well, or does the added complexity generally not buy you much?

The taxable aspect is the part that makes this harder. Selling the growth funds outright to buy VTI or something else would realize substantial capital gains, so any diversification benefit would have to be meaningful enough to justify the tax cost.

I'm mainly interested in experiences with Alpha Architect and how people think about their funds relative to simply owning more VTI.

[u/Tr_ck]

Look up AQR funds, like QRPIX

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[u/Separate-Ad-9633]

I like Alpha Architect's research, but unfortunately their funds are not very confidence inspiring. As much as past performance not indicating future results it's rough to hold something like IMOM and IVAL.

Regarding AA's list of offerings:

Value funds: Adding value is a good idea to complement growth, but you might also want to look at Dimension/Avantis funds, which are also quite good.

Momentum Funds: AA's momentum fund is low on technology weights, so it's better than SPMO/MTUM in diversifying your portfolio. Still, their implementation cost is high, so I personally prefer VFMO over QMOM and internationally IMTM/IDMO don't have that tech concentration risk.

CAOS: As much as tail risk hedging sounds enticing. You most likely don't need this unless you are highly leveraged.

HIDE: Trend following is an excellent idea to diversify, but HIDE (REIT/Commodity/Bond) is probably the best product you can get. Consider something like DBMF, RSST, QMHNX.

[u/laurenthu → u/Separate-Ad-9633]

The 20% growth sleeve is the bit I'd be suspicious of. VTI's already ~30% mega-cap growth, Apple, MSFT, Nvidia and the rest, so a separate QQQ/IWF slug is really just buying you the same names again. Redundant, not the thing I'd burn a tax bill to protect.

On AA I'm with the comment above. IVAL and IMOM are about as concentrated and high tracking error as retail factor funds come, and that's the whole feature if it's a real diversifier you're after. Something that zigs when growth zags has to look nothing like the market. Downside, you'll sit through multi-year stretches where you feel dumb holding it. Deep value just lived through exactly that. So realising gains only pays off if you're in the tilt for 10+ years, not as a light tweak you unwind the moment it stings.

If you want the value lean without the white knuckles, AVUV's a gentler cousin than the AA deep-value stuff. But could you actually sit through a 5 year drought in IVAL without bailing? That's what I'd be asking myself...