Large Value tilt?

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Cruncher
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Large Value tilt?

Post by Cruncher »

Bogleheads,

What are your thoughts on tilting large cap?

Currently my two Domestic LC funds I have VIIIX (S&P 500 index; er 0.02%) & SCHV (DJ Large Cap Value Total Stock Market; er 0.13%).

Essentially, everything I've ever read regarding value tilting relates to small caps. Does anyone do this for the large cap asset class?

Thanks for your thoughts,
Cruncher

PS I could pose this question for the mid cap market as well, but will just see the responses re LC.
rkhusky
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Re: Large Value tilt?

Post by rkhusky »

People tilt to small value because small and value have separately provided higher returns in the past, with associated higher risk.
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Aptenodytes
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Re: Large Value tilt?

Post by Aptenodytes »

My understanding of the research is that there's a rationale for value and for small value, and but not large value or mid value.
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empb
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Re: Large Value tilt?

Post by empb »

You can tilt large value if you want. It does, however, result in a negative loading to the small premium (i.e., less risk, less expected return). Of course, nothing wrong with that necessarily.
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tludwig23
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Re: Large Value tilt?

Post by tludwig23 »

The value factor and the small factor are independent. The is no interaction term in the Fama and French model. SCV funds are a convenient way to exposure yourself to both risk factors, but the value premium exists across all BtM levels.
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stan1
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Re: Large Value tilt?

Post by stan1 »

Another way of looking at it, if it helps:
Compare the Top 10 Holdings in Total Stock Market with the Top 10 Holdings in Value Index.
Hint: It's the same companies. You would be increasing company risk (and depending upon market capitalizations -- sector risk).

Value Index Top 10
1 Exxon Mobil Corp
2 AT&T Inc
3 General Electric Co
4 Chevron Corp
5 Johnson & Johnson
6 Pfizer Inc
7 Procter & Gamble Co/The
8 Wells Fargo & Co
9 JPMorgan Chase & Co
10 Merck & Co Inc
TSM Top 10
1 Apple Inc
2 Exxon Mobil Corp
3 AT&T Inc
4 Microsoft Corp
5 General Electric Co
6 Chevron Corp
7 International Business Machines Corp
8 Johnson & Johnson
9 Pfizer Inc
10 Procter & Gamble Co/The
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larryswedroe
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Re: Large Value tilt?

Post by larryswedroe »

few thoughts

first if you own large and large value you have overlap as large owns large value, so correlations are pretty high
second, the value premium is larger in small than in large.
Bottom line is SV is much better diversifier of large than LV and the premium is much larger
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Angst
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Re: Large Value tilt?

Post by Angst »

Another way to look at it is to consider DFA's US Vector Equity Portfolio fund and its style boxes. I've used it as a starting point and then tilt slightly further to more small caps and more value within small caps. You can see that DFA believes in tilting all caps to value, as well as to small caps in general.

Here is what it's currently at, per M*:

Image


And this is Vanguard's Total Stock Market Index fund:

Image
Khanmots
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Re: Large Value tilt?

Post by Khanmots »

tludwig23 wrote:The value factor and the small factor are independent. The is no interaction term in the Fama and French model. SCV funds are a convenient way to exposure yourself to both risk factors, but the value premium exists across all BtM levels.
This.
larryswedroe wrote:second, the value premium is larger in small than in large.
Also this.
empb wrote:You can tilt large value if you want. It does, however, result in a negative loading to the small premium (i.e., less risk, less expected return). Of course, nothing wrong with that necessarily.
Only if you're also tilting large. For instance if I had a large-value index in my 401k I could move some of my current S&P500 holdings to that large-value index and increase my value loading without adjusting my size loading. I've toyed with using the SDBA in order to accomplish this, but I don't think it'll be worth the fees to do so until I've accumulated a bit more.
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Re: Large Value tilt?

Post by Valuethinker »

Aptenodytes wrote:My understanding of the research is that there's a rationale for value and for small value, and but not large value or mid value.
No. There is a value premium and there is a small cap premium. There are separate.

There is a large cap value premium it's just not as large, nor as diversifying, as a small cap value premium.

Note that the risk of value appears to show up in severe downturns, like 2008. A lot of the 'value' indices pre that were loaded heavily with low PE, low Price to Book financials-- which then collapsed.
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Aptenodytes
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Re: Large Value tilt?

Post by Aptenodytes »

Valuethinker wrote:
Aptenodytes wrote:My understanding of the research is that there's a rationale for value and for small value, and but not large value or mid value.
No. There is a value premium and there is a small cap premium. There are separate.

There is a large cap value premium it's just not as large, nor as diversifying, as a small cap value premium.

Note that the risk of value appears to show up in severe downturns, like 2008. A lot of the 'value' indices pre that were loaded heavily with low PE, low Price to Book financials-- which then collapsed.
For me these things make sense in relative terms. Does large value have higher expected return than value.? I I would be comparing my large value against my value. I have always thought that value beats large value. That's why I hold value and small value, seeking a value holding tilted toward small.
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Re: Large Value tilt?

Post by tludwig23 »

larryswedroe wrote:few thoughts

...second, the value premium is larger in small than in large...Larry
This is not the case in the original F&F dataset, but it could be that data collected since that time has shown this to be the case. Do you have a specific reference showing this value/size interaction?
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Khanmots
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Re: Large Value tilt?

Post by Khanmots »

Aptenodytes wrote:For me these things make sense in relative terms. Does large value have higher expected return than value.? I I would be comparing my large value against my value. I have always thought that value beats large value. That's why I hold value and small value, seeking a value holding tilted toward small.
Small has higher expected returns than mid which in turn has higher expected returns than large.
Value has higher expected returns than growth.

Large-value has had higher expected returns than large-growth.
Mid-value has had higher expected returns than mid-growth or large-value.
Small-value has had higher expected returns than small-growth or mid-value.

So the question to you is why are you comparing large-value against whatever you're calling "value"? (mid-value?) You should decide on the degree of each tilt individually. How much size tilt do you want. How much value tilt do you want. If you want to keep say 50% of equities as large-cap then comparing large-value to mid-value doesn't help you decide how much of that 50% large you want large-value.

Personally I want both a size and value tilt. I'd like to see that value tilt show in large, mid, and small. I want to have a tilt away from large to both mid and small. However, I don't want to eliminate large or growth stocks entirely as 1) there do exist some correlation differences, and 2) it's nice to have a hedge in case the small and/or value risks smack me around.
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Re: Large Value tilt?

Post by rkhusky »

Khanmots wrote:
Aptenodytes wrote:For me these things make sense in relative terms. Does large value have higher expected return than value.? I I would be comparing my large value against my value. I have always thought that value beats large value. That's why I hold value and small value, seeking a value holding tilted toward small.
Small has higher expected returns than mid which in turn has higher expected returns than large.
Value has higher expected returns than growth.

Large-value has had higher expected returns than large-growth.
Mid-value has had higher expected returns than mid-growth or large-value.
Small-value has had higher expected returns than small-growth or mid-value.

So the question to you is why are you comparing large-value against whatever you're calling "value"? (mid-value?) You should decide on the degree of each tilt individually. How much size tilt do you want. How much value tilt do you want. If you want to keep say 50% of equities as large-cap then comparing large-value to mid-value doesn't help you decide how much of that 50% large you want large-value.

Personally I want both a size and value tilt. I'd like to see that value tilt show in large, mid, and small. I want to have a tilt away from large to both mid and small. However, I don't want to eliminate large or growth stocks entirely as 1) there do exist some correlation differences, and 2) it's nice to have a hedge in case the small and/or value risks smack me around.
Higher expected returns with higher risk of losing more money (if you maintain the same stock/bond ratio).
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Re: Large Value tilt?

Post by Khanmots »

rkhusky wrote:Higher expected returns with higher risk of losing more money (if you maintain the same stock/bond ratio).
Yes, risk and return do tend to go hand-in-hand (although there is uncompensated risk)
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Re: Large Value tilt?

Post by pkcrafter »

Cruncher wrote:Bogleheads,

What are your thoughts on tilting large cap?

Currently my two Domestic LC funds I have VIIIX (S&P 500 index; er 0.02%) & SCHV (DJ Large Cap Value Total Stock Market; er 0.13%).

Essentially, everything I've ever read regarding value tilting relates to small caps. Does anyone do this for the large cap asset class?

Thanks for your thoughts,
Cruncher

PS I could pose this question for the mid cap market as well, but will just see the responses re LC.
One more point on large value. The large value loading factor is based on higher risk, distressed, companies. The companies in SCHV are not distressed, they are very stable, so there really is no value loading factor. The overlap with the S&P 500 is very high so there is also no diversification when holding both. SCHV is not comparable to total market because there is no small. You can hold SCHV in place of the S&P 500 and you will receive a higher dividend, but there will be times when SCHV underperforms as it is now.

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Aptenodytes
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Re: Large Value tilt?

Post by Aptenodytes »

Khanmots wrote:
Aptenodytes wrote:For me these things make sense in relative terms. Does large value have higher expected return than value.? I I would be comparing my large value against my value. I have always thought that value beats large value. That's why I hold value and small value, seeking a value holding tilted toward small.
So the question to you is why are you comparing large-value against whatever you're calling "value"? (mid-value?) You should decide on the degree of each tilt individually. How much size tilt do you want. How much value tilt do you want. If you want to keep say 50% of equities as large-cap then comparing large-value to mid-value doesn't help you decide how much of that 50% large you want large-value.
I have modest abilities in this area and think that the uncertainties increase as the tilts get increasingly precise. So within the pro-tilt universe I prefer to keep things simple. Therefore, because I believe in the value premium, I have funds in a value index fund that, among firms that meet the value criteria, is invested according to market cap. It has large, mid, small in market-cap proportions. I also think that there's a small premium, so I want a small tilt on top of that. Therefore I also invest in small value. Once I get to that point I think I've reached the point of diminishing returns in my ability to get a reliable premium out of the value universe.
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Re: Large Value tilt?

Post by Khanmots »

Aptenodytes wrote:I have modest abilities in this area and think that the uncertainties increase as the tilts get increasingly precise. So within the pro-tilt universe I prefer to keep things simple. Therefore, because I believe in the value premium, I have funds in a value index fund that, among firms that meet the value criteria, is invested according to market cap. It has large, mid, small in market-cap proportions. I also think that there's a small premium, so I want a small tilt on top of that. Therefore I also invest in small value. Once I get to that point I think I've reached the point of diminishing returns in my ability to get a reliable premium out of the value universe.
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Re: Large Value tilt?

Post by empb »

Khanmots wrote:
empb wrote:You can tilt large value if you want. It does, however, result in a negative loading to the small premium (i.e., less risk, less expected return). Of course, nothing wrong with that necessarily.
Only if you're also tilting large. For instance if I had a large-value index in my 401k I could move some of my current S&P500 holdings to that large-value index and increase my value loading without adjusting my size loading. I've toyed with using the SDBA in order to accomplish this, but I don't think it'll be worth the fees to do so until I've accumulated a bit more.
Not entirely what you're getting at here and don't think we're in disagreement. Obviously, if you're already 'tilting large' by holding, in your example, the S&P 500, then LV (probably) won't make a difference to SmB. My point was, starting from a neutral TSM position, switching to LV is a tilt away from the SmB premium and towards HmL.
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Cruncher
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Re: Large Value tilt?

Post by Cruncher »

Thanks folks, this is the dialogue I was looking for.

Big picture: SCHV is part of my LC allocation, so it does not take away from another asset class, nor is overlap an issue (if I decided to remove my "LCV Asset Class", SCHV would be completely replaced with VIIIX anyway).

Interesting how DFA tilts across the market cap spectrum, I'll have to research that a little further.
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Re: Large Value tilt?

Post by SpringMan »

As a fan of the Wellesley Income fund, 12% of our net worth, 100% of wife's tIRA, portfolio xray shows a value tilt and Vanguard's analysis tool gives a caution message with respect to value. This gives us little very little heartburn. Of course there will be times where growth out performs value.
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Re: Large Value tilt?

Post by Default User BR »

Cruncher wrote:What are your thoughts on tilting large cap?
I do, but that's because the portfolio is set up based on research I did at the time. If starting from scratch now, Trev H's proposed four-fund (LCB, SCV, ILV, ISB) approach would be intriguing.


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Re: Large Value tilt?

Post by Outer Marker »

I recently decided to throw in the towel on large value tilt, and go with lower cost S&P 500. As the poster above noted, the top ten companies largely overlap in slightly different ratios. I could not justify the extra cost and complexity for holding basically the same stocks. Further, if you look at the 10 year returns of $10K for S&P 500 vs. Vanguard Value Index, they are within a few hundred bucks. This strikes me as a distinction without a difference.
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Re: Large Value tilt?

Post by baw703916 »

Also, large value tends to be the least tax-efficient asset class, due to the dividend yield.

Yields for Vanguard Index Funds

TSM Index 2.10%

(Large) Growth Index 1.38%
Large Cap Index 2.14%
(Large) Value Index 2.87%

Mid Growth Index 0.48%
Mid Cap Index 1.48%
Mid Value Index 2.43%

Small Growth Index 0.30%
Small Cap Index 1.39%
Small Value Index 2.48%
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Re: Large Value tilt?

Post by tludwig23 »

Outer Marker wrote:I recently decided to throw in the towel on large value tilt, and go with lower cost S&P 500. As the poster above noted, the top ten companies largely overlap in slightly different ratios. I could not justify the extra cost and complexity for holding basically the same stocks. Further, if you look at the 10 year returns of $10K for S&P 500 vs. Vanguard Value Index, they are within a few hundred bucks. This strikes me as a distinction without a difference.
The problem (as pointed out indirectly) with Vanguard LCV is that it isn't very valuey. Look at a more valuey fund like RPV and you'll see bigger differences. That being said, I still don't think it is worth the hassle. I just own 10% of equities in Vanguard SCV and call it a day.
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Re: Large Value tilt?

Post by pascalwager »

My DFA equity portfolio is 63% LV (US and int'l) and 100% tilted except for a small amount of EM.
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Re: Large Value tilt?

Post by JRA »

It appears as if the Vanguard Value Index Fund is capable of only minimally capturing the value premium. I don't want to steer the discussion in a different direction, but this appears also to be the case with the MSCI EAFE Value Index that can be accessed in an ETF like EFV. It appears to be dominated by large companies that simply constitute one half of a large cap growth portfolio, the MSCI EAFE Index. Do the domestic and international EAFE large cap value funds display similar characteristics in their minimal ability to capture the FF value premium?
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Re: Large Value tilt?

Post by Jerry_lee »

You add large value, small, or small value to "tilt" the market towards size and price dimensions (or use exclusively size and price allocations). So in effect, your desired exposure to small cap and value stocks should drive what vehicles you use. When you regress common domestic index series (Russell, MSCI, etc.) on the FF 3 factors, you notice two things:

1. different asset classes give you different exposure to the factors
2. within an index family, the 3F alpha of each index is pretty much the same, so any combination of indexes (within a family) with the same factor weights should have the same expected returns

So, for example, you might want to tilt your US portfolio so that it loads about 0.2 on size and 0.2 on value, which could be done either through an allocation to the Russell 3000, Russell 1000 Value, and Russell 2000, or Russell 3000 and Russell 2000 Value. Both have similar expected premiums in excess of the market.

What trips people up I guess is that LV indexes don't tend to load as heavily on the value factor as SV indexes, and they also have negative size exposure. But once you account for this, each deliver their expected return based on factor exposure reasonably well. We are all discussing Vanguard for the most part, so when I look at the MSCI 750 Value and the MSCI 1750 Value, the former has a -0.2 exposure to size and a +0.4 exposure to value. The later has a +0.4 exposure to size and a +0.7 exposure to value. But the 3F alphas are 0.00 and -0.04 per month (neither is significant), so you aren't seeing any major return "drag" relative to their factor sensitivities.

Finally, over any period -- even 10 or 20 years -- the value premium may show up more in large, medium, or small...it might be perfectly linear...or it could be identical across market caps*. This (along with an index's overall exposure to the value factor) will impact the actual results of the index. But this is mostly noise and one should expect returns to be similar across cap space and indexes to do their job. All you should focus on is plan design and consistency (rebalancing, avoiding market timing, etc.). But you do want to capture the desired risk/return dimensions as consistently as possible, which means (for value) holding large and medium as well as small for the periods when the value effect is larger in big companies than small companies, as has been the case in most of the world (using DFA indexes) since 1994 - 6/2012:

US Large Value = +8.4%
US Small Value = +13.0%
Int'l Large Value = +7.8%
Int'l Small Value = +8.2%
EM Large Value = +11.4%
EM Small Value = +8.7%
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Cruncher
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Re: Large Value tilt?

Post by Cruncher »

Brian,

I set up my current portfolio allocations based on research I did years ago, prolly close to my join date on this forum. But during my annual Investment Policy Statement review this year, I asked myself why I was splitting up my LC into LCB & LCV (seeing as this topic was not talked about much, at least not as much as SCV tilting; think Taylor mentioned in the past how he likes MCV). I know it's only been a few years, but the two funds (VIIIX & SCHV) have been very close in performance (I got into SCHV the week it started - think late '09). Not to get into the weeds, but it would make managing the accounts simpler to just drop the SCHV allocation and stick with VIIIX.

My hunch on the LCV companies: they are selected because of their lower PE or PB ratios. Sometimes this relates to a company that had had a few bad quarters, or it could indicate a company close to the mature stage of their business (how much larger can XOM get, or MSFT, ...). The great growth prospects of a Large company (that may have had a few bad quarters going into a turnaround) IMO are less than a small company (though the small company naturally has a higher chance of failing all together - which leads to the higher risk premium for the SCV companies). Dunno just a layman's hunch.

Jerry-Lee, I'm going to have to re-read your post again. Thank you for the time writing it. I think it was David Swenson who wrote to avoid indexes based on the Russell. Don't remember the exact reason, but think it had to do with how / when the Russell indexes rebalance their companies. There are some inefficiencies based on this, maybe too much buying and selling of the companies or large institutions able to capitalize on the future selling / buying of said companies as they cross the Russell boundaries.

Thanks again,

Cruncher
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Taylor Larimore
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Mid-Cap Value Category ?

Post by Taylor Larimore »

Cruncher wrote:
think Taylor mentioned in the past how he likes MCV.
I'm not smart enough to forecast which sub-asset class will turn out to be the winner. That's one reason I like The Three Fund Portfolio.

Best wishes
Taylor
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Re: Large Value tilt?

Post by Jerry_lee »

Cruncher wrote:Brian,

I set up my current portfolio allocations based on research I did years ago, prolly close to my join date on this forum. But during my annual Investment Policy Statement review this year, I asked myself why I was splitting up my LC into LCB & LCV (seeing as this topic was not talked about much, at least not as much as SCV tilting; think Taylor mentioned in the past how he likes MCV). I know it's only been a few years, but the two funds (VIIIX & SCHV) have been very close in performance (I got into SCHV the week it started - think late '09). Not to get into the weeds, but it would make managing the accounts simpler to just drop the SCHV allocation and stick with VIIIX.

My hunch on the LCV companies: they are selected because of their lower PE or PB ratios. Sometimes this relates to a company that had had a few bad quarters, or it could indicate a company close to the mature stage of their business (how much larger can XOM get, or MSFT, ...). The great growth prospects of a Large company (that may have had a few bad quarters going into a turnaround) IMO are less than a small company (though the small company naturally has a higher chance of failing all together - which leads to the higher risk premium for the SCV companies). Dunno just a layman's hunch.

Jerry-Lee, I'm going to have to re-read your post again. Thank you for the time writing it. I think it was David Swenson who wrote to avoid indexes based on the Russell. Don't remember the exact reason, but think it had to do with how / when the Russell indexes rebalance their companies. There are some inefficiencies based on this, maybe too much buying and selling of the companies or large institutions able to capitalize on the future selling / buying of said companies as they cross the Russell boundaries.

Thanks again,

Cruncher
Sure thing. Swensen (and others) dislike the Russell indexes because they butcher (the already flawed) reconstitution process announcing to the world well in advance what stocks they will buy and sell (they don't actually say it, but anyone can do the math based on simple market cap sorts of 0-1000 and 1001-2000 ranges).

I haven't followed it that closely, but to my knowledge some effort was being made to manage the transition of stocks from large to small. But if you own Russell mid and Russell small, then the drag from negative reconstitution on small will be a gain to reconstitution on mid, so it sort of cancels out. And Russell large, despite having a low value loading, is just fine.
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Re: Large Value tilt?

Post by abuss368 »

Jack Bogle had a small but interesting write up in his book "The Little Book of Common Sense Investing".

You can tilt to large and small, but if you invest in the Total Stock Market fund for the long term, there is no need to add the complexity and headaches.

Keep investing simple.

Best.
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Cruncher
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Re: Large Value tilt?

Post by Cruncher »

Oops, sorry Taylor! Didn't mean to put words into your mouth :D

Have a great day.
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Taylor Larimore
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Mel's beloved Mid-Cap stocks

Post by Taylor Larimore »

HI Cruncher:

You were probably thinking of "Mel's beloved Mid-Cap stocks."

I consider it an honor to be confused with Mel.

Best wishes
Taylor
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Re: Large Value tilt?

Post by Jerry_lee »

abuss368 wrote:Jack Bogle had a small but interesting write up in his book "The Little Book of Common Sense Investing".

You can tilt to large and small, but if you invest in the Total Stock Market fund for the long term, there is no need to add the complexity and headaches.

Keep investing simple.

Best.
There are no meaningful complexities or headaches with adding an additional fund or two for US companies. That is a complete straw man that really needs to be eliminated from our vocabulary.

Lets not forget, Bogle's affinity for the fewest funds possible means he actually exludes non-US stocks from his portfolio, something we hopefully can all agree is not wise. But he also holds actively managed funds...No doubt the apparent contradiction between his words and his actions has caused more than one investor to wonder-- is it "do as I say?", or "do as I do?"
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Re: Large Value tilt?

Post by abuss368 »

Jerry_lee wrote:
But he also holds actively managed funds...No doubt the apparent contradiction between his words and his actions has caused more than one investor to wonder-- is it "do as I say?", or "do as I do?"

Hi Jerry_lee,

This is not properly explained. Mr. Bogle has noted many times, in his books and articles, that he holds active funds because that was all that existed 50 - 60 years ago. Mr. Bogle created the first index fund in 1976 I believe that later morphed into today's Vanguard Index 500 fund. As a result, Mr. Bogle is "locked" into these active funds with gains. It would make no sense for him to sell and face a nice tax bill.

Finally, he has also noted that these few funds( i.e. Wellington, Windsor, Wellesley, Explorer, etc.) hold a near and dear place in his heart based on his life story.

It is my opinion, that on a forum titled and dedicated to "Investing Advice Inspired By Jack Bogle", that we could be a little more respectful of such a legend in the mutual fund world that has made his life crusade to give ordinary investors their fair share.

Kind Regards.
John C. Bogle: “Simplicity is the master key to financial success."
JRA
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Re: Large Value tilt?

Post by JRA »

Finally, over any period -- even 10 or 20 years -- the value premium may show up more in large, medium, or small...it might be perfectly linear...or it could be identical across market caps*. This (along with an index's overall exposure to the value factor) will impact the actual results of the index. But this is mostly noise and one should expect returns to be similar across cap space and indexes to do their job. All you should focus on is plan design and consistency (rebalancing, avoiding market timing, etc.).
Jerry Lee,

Thanks again for your post; the above comment seems to outline a prudent course of action since it correctly distinguishes between the value and the size factors and advocates taking advantage of both. I have invested in large cap value at Vanguard for years, but have tried to increase the factor loading on the large caps by splitting my allocation of large value between the MSCI 750 value (Vanguard Value Index) and the MSCI US Midcap Value Index (Vanguard Midcap Value). This is hardly scientific, but it appears to track closer to the DFA large cap value than the MSCI 750 Value index since it lessens the negative impact of the megacaps by reducing the size load and raising the value load. It doubles the number of midcaps, but it appears to diversify the LCB fund better. I allocate 50% of my value focused investments to this combination and the other 50% to the Vanguard Small Cap Value Fund. I enjoy reading your posts and continue to learn a great deal from them. I also have EFV, but I don't really thinking I am going to reap much of the value loading reward from this index since I lack the same versatility in the mid and small areas that I have in domestic funds.

JRA
Jerry_lee
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Re: Large Value tilt?

Post by Jerry_lee »

abuss368 wrote:
Jerry_lee wrote:
But he also holds actively managed funds...No doubt the apparent contradiction between his words and his actions has caused more than one investor to wonder-- is it "do as I say?", or "do as I do?"

Hi Jerry_lee,

This is not properly explained. Mr. Bogle has noted many times, in his books and articles, that he holds active funds because that was all that existed 50 - 60 years ago. Mr. Bogle created the first index fund in 1976 I believe that later morphed into today's Vanguard Index 500 fund. As a result, Mr. Bogle is "locked" into these active funds with gains. It would make no sense for him to sell and face a nice tax bill.

Finally, he has also noted that these few funds( i.e. Wellington, Windsor, Wellesley, Explorer, etc.) hold a near and dear place in his heart based on his life story.

It is my opinion, that on a forum titled and dedicated to "Investing Advice Inspired By Jack Bogle", that we could be a little more respectful of such a legend in the mutual fund world that has made his life crusade to give ordinary investors their fair share.

Kind Regards.
abuss368,

Thank you for the background on why Bogle owns active funds. Of course, that doesn't change the fact that he does, and my only point was the apparent contradiction between his advice and his actions. I guess if I am going to point out one fact, I should point out the other, so point taken.

Bogle did not, of course, start the "first index fund". That honor goes to Mac McQuown with help from several famous academics (Bill Sharpe, Eugene Fama, etc.), see here: http://www.crsp.com/crsp/press_releases ... x-fund.pdf

It seems to me, if we are disclosing everything, then we should disclose everything. Including: Bogle didn't start the first index fund.

As for "respect", I don't think I have disrespected anyone? I am simply pointing out apparent (to me) contradictions and actions. Some may be more well informed than I and are able to parse the differences. But lets make sure we are allowing posters to put forth their views without attacks claiming disrespect. We can agree to disagree.

And, there is still that glaring issue about Bogle not owning any international stocks, which seems to be a bit harder to sweep under the rug. But I will leave it to Bogleheads to sort that out.
The most disciplined investor in the world.
Default User BR
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Re: Large Value tilt?

Post by Default User BR »

abuss368 wrote:Jack Bogle had a small but interesting write up in his book "The Little Book of Common Sense Investing".

You can tilt to large and small, but if you invest in the Total Stock Market fund for the long term, there is no need to add the complexity and headaches.
As usual, you seem to imply that there will be no difference in return for the two strategies. This is very likely incorrect.

The headaches for this "complexity" are not really of any significance.


Brian
Jerry_lee
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Re: Large Value tilt?

Post by Jerry_lee »

JRA wrote:
Finally, over any period -- even 10 or 20 years -- the value premium may show up more in large, medium, or small...it might be perfectly linear...or it could be identical across market caps*. This (along with an index's overall exposure to the value factor) will impact the actual results of the index. But this is mostly noise and one should expect returns to be similar across cap space and indexes to do their job. All you should focus on is plan design and consistency (rebalancing, avoiding market timing, etc.).
Jerry Lee,

Thanks again for your post; the above comment seems to outline a prudent course of action since it correctly distinguishes between the value and the size factors and advocates taking advantage of both. I have invested in large cap value at Vanguard for years, but have tried to increase the factor loading on the large caps by splitting my allocation of large value between the MSCI 750 value (Vanguard Value Index) and the MSCI US Midcap Value Index (Vanguard Midcap Value). This is hardly scientific, but it appears to track closer to the DFA large cap value than the MSCI 750 Value index since it lessens the negative impact of the megacaps by reducing the size load and raising the value load. It doubles the number of midcaps, but it appears to diversify the LCB fund better. I allocate 50% of my value focused investments to this combination and the other 50% to the Vanguard Small Cap Value Fund. I enjoy reading your posts and continue to learn a great deal from them. I also have EFV, but I don't really thinking I am going to reap much of the value loading reward from this index since I lack the same versatility in the mid and small areas that I have in domestic funds.

JRA
Thanks, you are right that deep value options overseas are tough to come by. But over time, it is as much about your portfolio's value tilt as your regional value tilt. So you can take a larger dose of value in US stocks and a lower dose Internationally (with EAFE Value) and still capture some of the diversification benefits.

A portfolio I am reminded of that pulls this off nicely is one developed by former poster Robert T. For a 100% equity portfolio (50/50 US and Foreign, 0.2 size and 0.4 value), it was (roughly, from memory):

32% US mid value
12% US small value
6% US micro cap
32% EAFE value
12% MSCI EM
6% EAFE small
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gkaplan
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Re: Large Value tilt?

Post by gkaplan »

abuss368 wrote:It is my opinion, that on a forum titled and dedicated to "Investing Advice Inspired By Jack Bogle", that we could be a little more respectful of such a legend....
There's a difference between being respectful and prostrating oneself.
Gordon
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abuss368
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Re: Large Value tilt?

Post by abuss368 »

Jerry_lee wrote:
Lets not forget, Bogle's affinity for the fewest funds possible means he actually exludes non-US stocks from his portfolio, something we hopefully can all agree is not wise. But he also holds actively managed funds...No doubt the apparent contradiction between his words and his actions has caused more than one investor to wonder-- is it "do as I say?", or "do as I do?"

Hi Jerry Lee,

Perhaps my initial response was a little to sharp and defensive.

In relation to Mr. Bogle's thoughts on international investing, it appears that many folks cling to every word when he discusses the subject. To my knowledge, Mr. Bogle has never said he is against international investing. He has stated that he did not think is was necessary. There is a difference.

He has further noted that approximately 50% of the revenues of US companies are now from international operations.

In his excellent book "The Little Book of Common Sense Investing" he stated that for anyone who wanted to invest internationally, and there are some valid reasons for doing so, that the best way was to, no surprise, own a low cost Total Market Index fund. He then recommended a 20% of equity allocation.

Regards.
John C. Bogle: “Simplicity is the master key to financial success."
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abuss368
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Re: Large Value tilt?

Post by abuss368 »

Default User BR wrote:
abuss368 wrote:Jack Bogle had a small but interesting write up in his book "The Little Book of Common Sense Investing".

You can tilt to large and small, but if you invest in the Total Stock Market fund for the long term, there is no need to add the complexity and headaches.
As usual, you seem to imply that there will be no difference in return for the two strategies. This is very likely incorrect.

The headaches for this "complexity" are not really of any significance.


Brian
Hi Default User BR,

Total Market investing has been called the efficient frontier of investing. Taylor Larimore has provided and excellent link to research that discusses this. I recommend that anyone take some time and read this.

Mr. Bogle and David Swensen, who know more about investing than anyone will in their lifetime, have also discussed this matter in depth in their many excellent books, articles, and video interviews available on line. The way I look at it, anyone who can create a company like Vanguard, and another individual who has grown the Yale endowment from just under $1 BILLION to over $20 BILLION, are so successful and knowledgable, that no one else can even come close.

Warren Buffett has stated many times that investors would be best off owning a Total Market Index fund that is low cost.

I understand the slice and dice/tilt folks have a hard time acccepting this, and that is ok. Eventually they will see the many benefits of total market investing.

The experts at Vanguard design nearly all of their fund of funds (i.e. Life Strategy and Target Retirement series) with the Total Stock, Total International, and Total Bond (i.e. the later funds near the target retirement date include Inflation Bonds and a Money Market). Their research on their website also point to the overwhelming facts.

We all think we are smarter than the next guy. We have a "leg up" on the competition. We just "know" more. In some respects it is human nature. Me? I choose to follow the lead of Jack Bogle, David Swensen, and Warren Buffett. I just listen to them.

More funds result more headaches, more rebalancing issues, more concerns for heirs, more administration, more tax considerations, more paperwork, etc. with no benefits.

Another benefit, and one that another forum member "craigr" also highlighted a week or two ago. It is incredible at my firm during tax season how we compare and contrast the Total Market folks and the Slice and Dice crowd with their many funds. We review investment statements, returns, tax implications, and the actual tax return. For the Slice and Dice folks, the trading, rebalancing, fees, etc. all add up and detract from returns. These clients pay much more in tax, have more concerns, and the overall return is that much less. Not to mention we charge them more to record all the activity. We meet with the clients, review the results and tax return, point this out, with most clients admitting a more simple portfolio is that much more effective. For our Total Market Index clients, they pay so much less in tax, less fees, minimal rebalancing, their spouses are so thankful for the simplicity and are more confident should something happen to their spouse. Every year the results note how the Total Market folks just lead the race year in and year out. It stinks for the slice and dice folks and some have a hard time accepting it. Can it really be this easy? Can I stop pretending to do all this "extra".

I would try a simple Total Market portfolio such as the Three Fund as noted by Taylor Larimore and Vanguard or even the Core-4 as recommended by Rick Ferri. Who knows, you might like it. If after some time, add a fund or two if you want. You might do better, but you can do a lot worse.

Let us know your thoughts and concerns. There are many knowledgable folks on the forum that can explain in further detail.

Hopefully that explains things a little better.

Kind regards.
John C. Bogle: “Simplicity is the master key to financial success."
Default User BR
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Re: Large Value tilt?

Post by Default User BR »

abuss368 wrote:He has further noted that approximately 50% of the revenues of US companies are now from international operations.
No one has shown any evidence that this will protect US investors.

What percentage of Japanese revenues were from international operations in the 80s? What happened to the Nikkei Index in the 90s? What did European and US indexes do in the same period? Do you think Japanese investors needed diversification or did the international operations protect them?


Brian
williamg
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Re: Large Value tilt?

Post by williamg »

In our late 60's and large value tilt is the only tilting we still do. We evenly split half of portfolio between Wellington and Wellesley with the rest of equity in total market indices. This also allows a split in indexed and actively managed.
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Aptenodytes
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Re: Large Value tilt?

Post by Aptenodytes »

williamg wrote:In our late 60's and large value tilt is the only tilting we still do. We evenly split half of portfolio between Wellington and Wellesley with the rest of equity in total market indices. This also allows a split in indexed and actively managed.
I'm curious what you see as the benefit from tilting toward large value instead of across-the-board value. Under-weighting mid and small caps within the value tilt would seem to lower returns.
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Re: Large Value tilt?

Post by tetractys »

Within large caps, it's probably worth holding some in large value, if only to loose some of, what might be called, S&P bias. This would increase value loading somewhat; but would not lower small loading. But why not just increase the holding of small value? That's an open question really, without definitive argument or conclusion. -- Tet
Trev H
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Re: Large Value tilt?

Post by Trev H »

Total Stock Market Index

X-Ray
24-23-24
06-06-07
03-03-03

Dominated by large - the tiny fraction of small/value have very little effect on the cap weighted market.
The return and stdev are basically the same as Large Cap Market.

Coffeehouse (simple S&D portfolio) holds the us equities like this...

25% Each
US Large Market
US Large Value
US Small Market
US Small Value

20-14-08
08-07-05
16-14-08

That does accomplish a nice shift to value in large and small - and a significant shift to small.

You can accomplish similar tilts (with almost identical returns and stdev) with only two funds (which is my choice).

50% Each
US Large Market (My choice is Large Cap Index)
US Small Value (Small Value Index)

14-13-14
08-07-04
21-16-04

That combo puts a little more punch direct in the SV category - and not really any tilt on the large side.
Large Market and Small Value low correlations - a good thing to have in the mix.

PS = Just speaking of US equities above.

Trev H
williamg
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Re: Large Value tilt?

Post by williamg »

Aptenodytes wrote:
williamg wrote:In our late 60's and large value tilt is the only tilting we still do. We evenly split half of portfolio between Wellington and Wellesley with the rest of equity in total market indices. This also allows a split in indexed and actively managed.
I'm curious what you see as the benefit from tilting toward large value instead of across-the-board value. Under-weighting mid and small caps within the value tilt would seem to lower returns.
Well actually it isn't just to get the large value tilt. Since we are retired we are making withdrawals and take all dividends for our funds rather than reinvesting. As well as a value tilt feel we get:
-enhanced dividend yield,
-active management,
-active management in automatic rebalancing of balanced funds.
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Aptenodytes
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Re: Large Value tilt?

Post by Aptenodytes »

Trev H wrote:Total Stock Market Index

X-Ray
24-23-24
06-06-07
03-03-03

Dominated by large - the tiny fraction of small/value have very little effect on the cap weighted market.
The return and stdev are basically the same as Large Cap Market.

Coffeehouse (simple S&D portfolio) holds the us equities like this...

25% Each
US Large Market
US Large Value
US Small Market
US Small Value

20-14-08
08-07-05
16-14-08

That does accomplish a nice shift to value in large and small - and a significant shift to small.

You can accomplish similar tilts (with almost identical returns and stdev) with only two funds (which is my choice).

50% Each
US Large Market (My choice is Large Cap Index)
US Small Value (Small Value Index)

14-13-14
08-07-04
21-16-04

That combo puts a little more punch direct in the SV category - and not really any tilt on the large side.
Large Market and Small Value low correlations - a good thing to have in the mix.

PS = Just speaking of US equities above.

Trev H
Interesting -- my original portfolio was based in part on your summaries and explanations, so it isn't surprising that what you are saying here is consistent with my current intuition of how things work.

To clarify my confusion with other posters, however, we would agree that both your alternatives tilt AWAY from large value -- the first only a tad and the 2nd quite a bit.

I'm still having a hard time understand why someone would want to tilt TOWARD large value.
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