Small Cap Index - What % of equities?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
vv19
Posts: 1159
Joined: Thu Aug 23, 2012 8:56 am

Re: Small Cap Index - What % of equities?

Post by vv19 »

midareff wrote:
mbk734 wrote:I say go big or go home if you're going to tilt make it worthwhile. Also consider tilting to value and/or small value
25% VTI
25% VXUS
25% VBR
25% VSS
- - - Value Blend Growth
Large - -13 - 13 -12
Medium 13 - 11 - 9
Small -- 14 - 10 - 5
http://portfolio.morningstar.com/Rtport ... Entry.aspx

Similar approach used here... I slice equities evenly 6 ways between (using ETF symbols) VTI, VXUS, VSS, VBR, VNQ and VHT. Switching out VBR for the blend and either add or delete REITs and Health.
A colleague of mine does something similar but with mid-caps, not small caps.
User avatar
ofcmetz
Posts: 2465
Joined: Tue Feb 08, 2011 7:09 pm
Location: Louisiana

Re: Small Cap Index - What % of equities?

Post by ofcmetz »

About 28% of our portfolio is in the Vanguard Small Cap Index Fund. That comes out to 20% of the total portfolio.
Never underestimate the power of the force of low cost index funds.
pkcrafter
Posts: 15461
Joined: Sun Mar 04, 2007 11:19 am
Location: CA
Contact:

Re: Small Cap Index - What % of equities?

Post by pkcrafter »

ajacobs6 wrote:I did the X-Ray on Morningstar. I have a 20% tilt to small caps. Here is what it looks like with the style box:

Large - -23 - 22 -20
Medium 8 - 7 - 6
Small -- 6 - 5 - 4

Obviously I'm tilting large, but doesn't this reflect the market much better? I can't believe some experts recommend to have 50% small caps. It seems like a huge bet to me, and very anti-Bogle.
This is the total market style box

23 24 25
6 6 6
3 3 3

The TSM comparison shows you are slightly underweight large, overweight in mid by 16%, and overweight in small by 66%. However, on the portfolio level you are 15% small, which would be considered a very moderate tilt compared to someone who has 50% of his portfolio in small.
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
User avatar
Garco
Posts: 1078
Joined: Wed Jan 23, 2013 1:04 am
Location: U.S.A.

Re: Small Cap Index - What % of equities?

Post by Garco »

My total style box in my main 401k retirement fund, which includes a very growthy LC international component but also a growth oriented U.S. component. I don't (and can't) completely slice and dice within my 401k plans, but this is what I get to with what I have to work with in the MF's offered (this style box is based on investments in 5 MF's). Most of the M-S component is due to one fund, VIEIX (Vanguard Extended Market Index).

This portfolio has 31% mid-small, and 31% international. If I were to include only the U.S. funds, the portfolio would be 40% mid-small.

11 22 36

04 06 10

04 04 03
User avatar
mbk734
Posts: 460
Joined: Tue Jan 21, 2014 1:14 pm

Re: Small Cap Index - What % of equities?

Post by mbk734 »

midareff wrote: Similar approach used here... I slice equities evenly 6 ways between (using ETF symbols) VTI, VXUS, VSS, VBR, VNQ and VHT. Switching out VBR for the blend and either add or delete REITs and Health.
I used to have VNQ and VHT as well. :beer I am still not completely sold on REIT's outperforming equities long term but it does add diversity. Sector investing (VHT) is not Bogleheadish but I think the health industry is one of the most stable and fastest growing despite the healthcare mess we have. I also read somewhere that the value premium is greater than the size premium so I will stick with VBR over VB.
You can't stop the waves, but you can learn to surf
User avatar
midareff
Posts: 7711
Joined: Mon Nov 29, 2010 9:43 am
Location: Biscayne Bay, South Florida

Re: Small Cap Index - What % of equities?

Post by midareff »

mbk734 wrote:
midareff wrote: Similar approach used here... I slice equities evenly 6 ways between (using ETF symbols) VTI, VXUS, VSS, VBR, VNQ and VHT. Switching out VBR for the blend and either add or delete REITs and Health.
I used to have VNQ and VHT as well. :beer I am still not completely sold on REIT's outperforming equities long term but it does add diversity. Sector investing (VHT) is not Bogleheadish but I think the health industry is one of the most stable and fastest growing despite the healthcare mess we have. I also read somewhere that the value premium is greater than the size premium so I will stick with VBR over VB.

I agree with you and look at REIT's as another sector of the market that pays an OK dividend and doesn't perform quite the same as Total US, providing some opportunities for opportunistic rebalancing free of tax implications. I'm holding 8% of total in REIT's and last year it moved the needle a tick up, this year a tic the other way. It's in an IRA and if I could find something I liked better I might consider a change, but so far I quite pleased with my equity side.

As far as VHT (VGHAX actually) goes, as I've written before it is something I hold with conviction and actually overweight. Aging worldwide populations using more (and more) medical facilities, drugs, physician and hospital care, expansion of insured bases and continual addition of long term pharma users. EM construction of medical facilities needing new beds, test equipment, scanners, x-rays, CT's, medical equipment, etc. Breakthroughs in disease treatment with more and more medical issues becoming treatable. I could go on but you get my drift. Sure, there will be ups and downs, some may be in the wind now but that is very short term IMHO. If you want to see an equity fund that did well in the last two market drops (2000 and 2008) check this fund in M* against the S&P500 or VG's Total US. While past history is no guide for the future I'm cautiously optimistic for at least a rhyme.
Northern Flicker
Posts: 15363
Joined: Fri Apr 10, 2015 12:29 am

Re: Small Cap Index - What % of equities?

Post by Northern Flicker »

deleted
Last edited by Northern Flicker on Thu Mar 31, 2022 2:43 pm, edited 1 time in total.
Durzo
Posts: 118
Joined: Thu Aug 15, 2013 6:31 pm

Re: Small Cap Index - What % of equities?

Post by Durzo »

I have always planned on tilting when my balance is big enough so that it actually matters.

What I don't fully understand is to why tilt if one is not 100% equities. For example if someone is 10% bonds does it make sense to tilt before they reduce bonds to zero? Tilting and decreasing bonds both increase risk for a higher expected return correct? So my thought processes is that a point exists when someone who tilts and has bonds has the same risk and expected return as someone who is 100% equities and doesn't tilt. Am i forgetting to consider anything?
robert88
Posts: 366
Joined: Tue Nov 25, 2014 5:27 pm

Re: Small Cap Index - What % of equities?

Post by robert88 »

From 1991-2014, a hypothetical global fund with a load of 1 on beta and 1 on SMB would have beat a total market fund by 55 basis points on an annualized basis.
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: Small Cap Index - What % of equities?

Post by JoMoney »

Durzo wrote:I have always planned on tilting when my balance is big enough so that it actually matters.

What I don't fully understand is to why tilt if one is not 100% equities. For example if someone is 10% bonds does it make sense to tilt before they reduce bonds to zero? Tilting and decreasing bonds both increase risk for a higher expected return correct? So my thought processes is that a point exists when someone who tilts and has bonds has the same risk and expected return as someone who is 100% equities and doesn't tilt. Am i forgetting to consider anything?
You're also relying on a theory that the stock market is efficiently pricing a "risk premium" for your tilt to offer a higher expected return.
If the stock market is not efficiently pricing a "risk premium" along the lines that you're choosing to tilt towards, then it may just be adding additional risk that could be better diversified or tilted in some other direction.

Beyond that, despite any 'expected returns' someone might be calculating for their equities, high-grade bonds have near certain returns. A bond is a promise of exactly how much interest will be paid along with the return of principal over a specific time period. Despite a desire to take additional risks with their stocks, some people may wish to hold some bonds for that certainty of their return, while taking more calculated risks with what they hope their equities will return.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
Yesterdaysnews
Posts: 964
Joined: Sun Sep 14, 2014 1:25 pm
Location: Sugar Land, TX

Re: Small Cap Index - What % of equities?

Post by Yesterdaysnews »

Does anyone hold any small cap emerging market funds?
gkaplan
Posts: 7034
Joined: Sat Mar 03, 2007 7:34 pm
Location: Portland, Oregon

Re: Small Cap Index - What % of equities?

Post by gkaplan »

Yesterdaysnews wrote:Does anyone hold any small cap emerging market funds?

I hold Vanguard FTSE All-World ex-US Small-Cap Index Fund, which has a little over fifteen percent dedicated to emerging market countries.
Gordon
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: Small Cap Index - What % of equities?

Post by JoMoney »

robert88 wrote:From 1991-2014, a hypothetical global fund with a load of 1 on beta and 1 on SMB would have beat a total market fund by 55 basis points on an annualized basis.
Over the 24 year period 1/1/1991 - 12/31/2014, a hypothetical investor who held a global portfolio would have lost 49 basis points annualized to foreign tax withholdings before even considering any additional transaction costs and fund expenses.
Mornginstar Chart Link
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
garlandwhizzer
Posts: 3565
Joined: Fri Aug 06, 2010 3:42 pm

Re: Small Cap Index - What % of equities?

Post by garlandwhizzer »

Yesterdaysnews wrote:

Does anyone hold any small cap emerging market funds?
I have held both EWX and DGS in the past and now hold only DGS in order to simplify at bit. In the INTL allocation I strongly tilt to both small cap (50% SC and 50% LC) and to EM (50% EM and 50% DM). I use TISM, VSS, plus smaller amounts of VWO and DGS to achieve these allocation goals. I depart from market cap index weightings much more in INTL than in US equity where the lion's share of all my equity is in TSM. In a world where I do not see much opportunity for outsized returns going forward in traditional investments, EM and INTL SC look to me among the best alternatives if that is your goal. I believe their current valuations and future prospects provide an attractive tradeoff between risk and reward for non-risk averse investors. I do realize, however, that the market is not required to follow the path that looks attractive to me.

Garland Whizzer
User avatar
privatefarmer
Posts: 779
Joined: Mon Sep 08, 2014 2:45 pm

Re: Small Cap Index - What % of equities?

Post by privatefarmer »

I heavily tilt to small and value. I have done so bc of the data that Fama and French found. I have seen the data DFA has put out regarding the historical performance of each asset class. My question now is, can we trust this? DFA makes money by us all believing in the factors out performing. Dr. Fama is on their board for cryin' out loud. Maybe I'm a skeptic, but can we really trust the data that a private company who profits off the small/value "premium" publishes?
Topic Author
BogleBuddy12
Posts: 569
Joined: Mon May 18, 2015 4:42 pm

Re: Small Cap Index - What % of equities?

Post by BogleBuddy12 »

garlandwhizzer wrote:
Yesterdaysnews wrote:

Does anyone hold any small cap emerging market funds?
I have held both EWX and DGS in the past and now hold only DGS in order to simplify at bit. In the INTL allocation I strongly tilt to both small cap (50% SC and 50% LC) and to EM (50% EM and 50% DM). I use TISM, VSS, plus smaller amounts of VWO and DGS to achieve these allocation goals. I depart from market cap index weightings much more in INTL than in US equity where the lion's share of all my equity is in TSM. In a world where I do not see much opportunity for outsized returns going forward in traditional investments, EM and INTL SC look to me among the best alternatives if that is your goal. I believe their current valuations and future prospects provide an attractive tradeoff between risk and reward for non-risk averse investors. I do realize, however, that the market is not required to follow the path that looks attractive to me.

Garland Whizzer
How much is too much for emerging markets? I agree with you on everything and would like to steer away from the U.S.
Call_Me_Op
Posts: 9881
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Small Cap Index - What % of equities?

Post by Call_Me_Op »

Yesterdaysnews wrote:Does anyone hold any small cap emerging market funds?
Yes, I hold EEMS. There is no trading fee for this ETF through Fidelity. The only caution is that it is thinly traded (as small-cap EM stocks are) and you must be careful to use limit orders.

BTW, I tilt heavily toward small-cap, value, and EM. I hold something akin to "The Larry Portfolio" - but actually more like the Merriman model for the equities (broadly-diversified equal allocation - US/International, Developed/Emerging, Large/Small, Blend/Value).
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Topic Author
BogleBuddy12
Posts: 569
Joined: Mon May 18, 2015 4:42 pm

Re: Small Cap Index - What % of equities?

Post by BogleBuddy12 »

Call_Me_Op wrote:
Yesterdaysnews wrote:Does anyone hold any small cap emerging market funds?
Yes, I hold EEMS. There is no trading fee for this ETF through Fidelity. The only caution is that it is thinly traded (as small-cap EM stocks are) and you must be careful to use limit orders.

BTW, I tilt heavily toward small-cap, value, and EM. I hold something akin to "The Larry Portfolio" - but actually more like the Merriman model for the equities (broadly-diversified equal allocation - US/International, Developed/Emerging, Large/Small, Blend/Value).
Can you link me to the Larry portfolio?
Call_Me_Op
Posts: 9881
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Small Cap Index - What % of equities?

Post by Call_Me_Op »

ajacobs6 wrote:Can you link me to the Larry portfolio?
I think that can be arranged.

viewtopic.php?t=87569
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Topic Author
BogleBuddy12
Posts: 569
Joined: Mon May 18, 2015 4:42 pm

Re: Small Cap Index - What % of equities?

Post by BogleBuddy12 »

Call_Me_Op wrote:
ajacobs6 wrote:Can you link me to the Larry portfolio?
I think that can be arranged.

viewtopic.php?t=87569
Very interesting read. I however don't believe that small and value is a proven effective tilt. It may not continue to outperform in the future. I will take the market return from broad based indexes.
Call_Me_Op
Posts: 9881
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Small Cap Index - What % of equities?

Post by Call_Me_Op »

ajacobs6 wrote:
Call_Me_Op wrote:
ajacobs6 wrote:Can you link me to the Larry portfolio?
I think that can be arranged.

viewtopic.php?t=87569
Very interesting read. I however don't believe that small and value is a proven effective tilt. It may not continue to outperform in the future. I will take the market return from broad based indexes.
Nothing is guaranteed in investing. However, data from 1926-2014 strongly suggests that these tilts have been beneficial over reasonably long holding periods.

Are you convinced that equities will return more than bonds over the next 40 years? That is also not guaranteed, but history strongly suggests it will be the case.

Remember that small and value stocks are riskier, so there is no magic at work here - just the fundamental relationship between risk and return.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Topic Author
BogleBuddy12
Posts: 569
Joined: Mon May 18, 2015 4:42 pm

Re: Small Cap Index - What % of equities?

Post by BogleBuddy12 »

Call_Me_Op wrote:
ajacobs6 wrote:
Call_Me_Op wrote:
ajacobs6 wrote:Can you link me to the Larry portfolio?
I think that can be arranged.

viewtopic.php?t=87569
Very interesting read. I however don't believe that small and value is a proven effective tilt. It may not continue to outperform in the future. I will take the market return from broad based indexes.
Nothing is guaranteed in investing. However, data from 1926-2014 strongly suggests that these tilts have been beneficial over reasonably long holding periods.

Are you convinced that equities will return more than bonds over the next 40 years? That is also not guaranteed, but history strongly suggests it will be the case.

Remember that small and value stocks are riskier, so there is no magic at work here - just the fundamental relationship between risk and return.
Bogle and Burton Malkiel strongly discourage investing in smart-beta. and I respect their analysis on the subject. What is Larry's latest book? I would like to read it and give it a shot. But at the moment, I'm sticking with a Bogle portfolio.
User avatar
Yesterdaysnews
Posts: 964
Joined: Sun Sep 14, 2014 1:25 pm
Location: Sugar Land, TX

Re: Small Cap Index - What % of equities?

Post by Yesterdaysnews »

EM Small caps are interesting cause many of these companies are still being run by the founder or family of the founder, which means the management has major skin in the game and interests are favorably aligned.
garlandwhizzer
Posts: 3565
Joined: Fri Aug 06, 2010 3:42 pm

Re: Small Cap Index - What % of equities?

Post by garlandwhizzer »

ajacobs6 wrote:

How much is too much for emerging markets? I agree with you on everything and would like to steer away from the U.S.
In my opinion that depends on a lot of things that are highly personal: your long term goals, your need, willingness, and ability to take risk in return for expected increased return in the future, etc.. You must know yourself well in order to construct your optimal portfolio. Personally I believe that after a wonderful run by US equities relative to INTL and EM, the tide will turn and the latter are likely to outperform in the intermediate and long term future. The basis for this belief is largely valuation concerns for richly priced US equities at present along with demographic, debt, and deficit problems relative to EM for example. My equity exposure is high, 75% equity/25% bonds (always been a risk taker, no different now that I'm 68). My equity allocates 60% US/20% non-US DM/20% EM. Most recommend somewhere between 20% INTL and market weight which is upwards of 50%. I overemphasize US (60%) due to home bias and a very long list of positives in the US apart from valuations (deepest and best run equity markets, world reserve currency, rule of law, world source for innovation and technology, the place everyone flees to in international crisis, usually lower equity volatility, no currency risk in dollars, etc.,) This works for me but I suggest you find a portfolio that is the right risk/reward balance for you, a portfolio that you can stick with through thick and thin because it is guaranteed that there it will be very thin at some points in the future.

Good luck.

Garland Whizzer
Call_Me_Op
Posts: 9881
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Small Cap Index - What % of equities?

Post by Call_Me_Op »

ajacobs6 wrote:
Call_Me_Op wrote:
ajacobs6 wrote:
Call_Me_Op wrote:
ajacobs6 wrote:Can you link me to the Larry portfolio?
I think that can be arranged.

viewtopic.php?t=87569
Very interesting read. I however don't believe that small and value is a proven effective tilt. It may not continue to outperform in the future. I will take the market return from broad based indexes.
Nothing is guaranteed in investing. However, data from 1926-2014 strongly suggests that these tilts have been beneficial over reasonably long holding periods.

Are you convinced that equities will return more than bonds over the next 40 years? That is also not guaranteed, but history strongly suggests it will be the case.

Remember that small and value stocks are riskier, so there is no magic at work here - just the fundamental relationship between risk and return.
Bogle and Burton Malkiel strongly discourage investing in smart-beta. and I respect their analysis on the subject. What is Larry's latest book? I would like to read it and give it a shot. But at the moment, I'm sticking with a Bogle portfolio.
I believe you are mis-applying the term "smart beta." In any case, no person or group has a monopoly on the truth - especially when is comes to a non-science like investing. The existence of small and value premia have been shown to exist as far back as people have looked. There is no reason to believe that these basic risk factors will vanish in the future.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Post Reply