Bogleheads

[Bimmer]

Hello All,
I know there have been several posts on Microcaps, with many on this board in favor of Bridgeway's BRSIX. After tax-loss harvesting my BRSIX position into IWC, I have taken a closer look at the two holdings and am wondering if IWC is not the superior holding. Let's look at some stats from Morningstar:

BRSIX: ER = 0.67
IWC: ER = 0.60

BRSIX: Turnover Ratio = 34%
IWC: Turnover Ratio = 20%

BRSIX: Market Cap = 364 million
IWC: Market Cap = 330 million

BRSIX: PE Forward = 14.64
IWC: PE Forward = 14.74

BRSIX: Potential Capital Gains Exposure = 23.98%
IWC: Potential Capital Gains Exposure = -17.79%

BRSIX: Small Cap Growth % = 43%
IWC: Small Cap Growth % = 33%

Given that it is slightly cheaper, has much less capital gains exposure (at least at this point), has a slightly smaller market cap and is more value tilted, what benefit would there be to holding BRSIX instead?

Thanks for all you insights.
-Bimmer
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Bimmer
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[Derek Tinnin]

Don't forget that the transaction fee is lower at most brokerage firms for ETFs compared to mutual funds. Other factors come into play in addition to trading costs and the ER, like settlement period differences and how much priority you place on intra-day vs. end-of-day trading.

I edited this post to point out the differences in what they track, Russell vs. CRSP, which may explain part of the performance differences.

[fte]

i thought this was going to be a thread about the merits of selling a mutual fund to purchase a watch...

[Robert T]

.
Some other stats:

[tetractys]

[ddb]

Good analysis; looks to me like IWC is a pretty clear winner over BRSIX for the micro-cap asset class, particularly if held in a taxable account.

- DDB
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"There is a moment of sheer panic when I realize that Paul's apartment overlooks the park, and is obviously more expensive than mine. " - PB

[joshm34]

How/where did you get the stats for your post? I noticed you do a lot of little tables like that in your posts and want to be able to do that myself.

Thanks

Josh

[Bimmer]

Interesting responses.

For me, after whatever tax-loss-harvesting occurs, the plan is for this to be a long-term holding in a taxable account. As such, the issues that Derek raises are not so important to me.

Tax efficiency is very important to me, but clearly doesn't outweigh long-term outperformance of BRSIX. The question, of course, is whether it can be expected this outperformance may continue. In my 1.5 years of holding BRSIX, there have already been several small distributions - an admittedly short period of time. IWC has had almost no distributions since inception, which I did not include in my original post given it is such a new ETF.

However, given the lower turnover, lower current potential capital gains exposure, and the ETF structure, it would seem hard for BRSIX to match the tax-efficiency going forward. I'm not stating this as a fact, just looking for discussion as to why this might be incorrect or not a fair conclusion.

Thirdly, it seems so un-Bogleheadlike to eschew active management in almost every other asset class, and then espouse the active management of Montgomery as an important reason to choose BRSIX. Could Tetractys and others explain why they conclude it is the better long-term holding, with a specific focus on holding in a taxable account?

Thanks all.
-Bimmer
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Bimmer
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[AlohaJoe]

[Derek Tinnin]

[Bounca]

I'm curious what everyone thinks of PRCGX

Perrit Microcap

http://quicktake.morningstar.c....1202940087

It is never mentioned here in diehards land and I suspect it's due to the high ER. But I just wonder, if there is something more to this fund that makes it worthy versus BRSIX

[Derek Tinnin]

Cost and performance are inversely related and in a battle of markets vs. managers, markets usually win. And you can't identify good/lucky managers in advance anyway so it's a crapshoot. Stay far away from that fund.

Although performance is explained by risk factor loadings, the historic outperformance of BRSIX over PRCGX is logical because it's cheaper and the manager isn't making bets. I predict that trend will continue.

[stratton]

There's several managed microcap funds out there with some interesting attributes:

Tamarack MicroCap Value S (TMVSX) [NTF]
Median market cap $336.9 million. ER 1.23 %. 17% turnover rate. This really is a value fund.

Perritt Emerging Opportunities Fund (PREOX) [NTF]
Median market cap $87.7 million. ER 1.71 %. 34% turnover rate. True tiny microcap.

Pinnacle Value (PVFIX)
Average market cap $72.0 million. ER 1.49 %. 29% turnover rate. True tiny microcap. Low volatility probably because of the ~40+% cash. Must buy from fund company.

I'm not sure I'd recommend any of these as an entire microcap holding. They're expensive and have a low number of stocks in some of them. I have a little bit of PREOX in my "Bingo Money" 5%.

Paul

[SmallHi]

[Derek Tinnin]

good point smallhi, there is always some level of hidden cost with index funds because they prioritize low tracking error to the index, which is a much bigger deal as you move down the market cap spectrum.

Active management is certainly not the answer, though. You just need a better form of passive investing, which is what Bridgeway essentially does. DFA isn't available, so stick with Bridgeway.

[tetractys]

[SmallHi]

[tetractys]

[Robert T]

.

[stratton]

Nice post Robert. IMO this is the kind of active management we should want to see from a fund.

Paul

[Kenster1]

Bridgeway Quant Funds are also known as the 'Black Box with Heart' -- the reason is because this Quant shop donates 50% of their company profits to charity. So there's an intangible 'feel-good' aspect to it if it means anything to you.
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SURGEON GENERAL'S WARNING: Any overconfidence in your ability, willingness and need to take risk may be hazardous to your health.

[stevethefundguy]

...his Quant shop donates 50% of their company profits to charity. So there's an intangible 'feel-good' aspect to it if it means anything to you.

Maybe they should lower their ER and pass more of their profits onto fundholders, who could then decide how profits made from their investment ought best to be used/contributed to a worthy cause. That Bridgeway is acting like the government (we'll take your money and spend it for the public good, as we see it) makes IWC look much better to me.

[Kenster1]

[SmallHi]

[tfb]

[stratton]