Adding a tilt--which international fund to use?

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Topic Author
Morik
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Adding a tilt--which international fund to use?

Post by Morik »

So up to now I have held market-weight allocations.

I considered tilting when I first started but didn't want to deal with the extra complications, and didn't really understand the rationales behind it.

After more research, I have decided that I would like to tilt, and am adjusting my allocation & IPS accordingly. (And yes, I plan to keep this tilt in perpetuity.)

I chose the tilt % somewhat arbitrarily.

My current plan is:

Of my Equities
Market weight to international (47.5% right now, measuring via vanguard's total world stock index fund's % of US vs rest)
Of that, 64% to total international
36% tilted to small & value (see below though)
Domestic at market weight
64% to total market
18% to value
18% to small

I know which funds I want to use for domestic:
- Vanguard Large Cap Value, Mid cap value, and small cap value funds (6% to each is enough to get me into admiral shares)
- Vanguard small cap index (18%)

Each of those has a 0.08% ER, which is fine by me.

On the international side, however, I am less clear.
The international small cap index has an ETF with a 0.17% ER (VSS)

But for international value, it appears vanguard just has an investor shares mutual fund, VTRIX, with a 0.46% ER.
Is there a cheaper fund or ETF I could use?
This is for our Roth IRAs and my 401k at vanguard. (My 401k has a brokerage option, so availability of the fund shouldn't be an issue)
livesoft
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Re: Adding a tilt--which international fund to use?

Post by livesoft »

When looking for funds in an asset class, check out Eric Haas's web site. For instance,
http://altruistfa.com/Intllargecapvaluefunds.htm
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lack_ey
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Re: Adding a tilt--which international fund to use?

Post by lack_ey »

That above list is missing Schwab Fundamental International Large Co. Index ETF (FNDF, ER = 0.32%, $1B AUM, trades $4M daily) and the new Vanguard International High Dividend Yield ETF (VYMI, ER = 0.30%, $32M AUM in ETF format, trades $0.9M daily), which as a high yield fund is tilted value.

Also see the EM value list:
http://altruistfa.com/emergingvalue%20funds.htm
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tludwig23
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Re: Adding a tilt--which international fund to use?

Post by tludwig23 »

It seems that your portfolio is going to get rather complicated. You'll have 5 domestic equity funds, and will need at least that many international equity funds. AFAIK, there are no Total International Value funds, so you'd need (at the minimum) a Developed Markets Value Fund, and an Emerging Markets Value Fund, or you risk tilting towards or away from the Developed Market/Emerging Market part of international equities. Personally, I'd simplify the whole thing this way:

Domestic:

80% VTI
20% RZV (Guggenheim S&P SmallCap 600 Pure Value ETF) which is smaller and more valuey than VBR, so you need less of it for similar factor loads.

International:

64% VXUS
18% VSS
18% EFV (iShares MSCI EAFE Value Index Fund)
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Topic Author
Morik
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Re: Adding a tilt--which international fund to use?

Post by Morik »

VTRIX: https://personal.vanguard.com/us/funds/ ... IntExt=INT

appears to contain value stocks across both developed and emerging markerts

Though I'm not pleased with the 0.46% ER.

I don't mind having that # of funds; it isn't that much additional work compared to fewer. I want to tilt both to value & to small, not just to the intersection of them (small value).

Yeah, 5 domestic since I didn't see a fund that contained large, mid, and small cap value when looking at Vanguard's options, but maybe suggestions on here will reveal further options.

Right now I would have 3 international funds:
Total international (VTIAX)
International value (VTRIX) (would prefer to replace with lower cost alternative)
International small cap (VSS, does seem to cover both developed & emerging markets)
(Given that all 3 seem to cover emerging markets and developed markets, it seems to me there is no need for specifically EM funds unless I wanted to be overweight in EM, right? I might consider putting some additional tilt to EM. E.g., 50% total international, 14% EM, 18% Small, 18% Value.)
Last edited by Morik on Sun May 22, 2016 3:15 pm, edited 1 time in total.
Topic Author
Morik
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Re: Adding a tilt--which international fund to use?

Post by Morik »

lack_ey wrote:That above list is missing Schwab Fundamental International Large Co. Index ETF (FNDF, ER = 0.32%, $1B AUM, trades $4M daily) and the new Vanguard International High Dividend Yield ETF (VYMI, ER = 0.30%, $32M AUM in ETF format, trades $0.9M daily), which as a high yield fund is tilted value.

Also see the EM value list:
http://altruistfa.com/emergingvalue%20funds.htm
Thanks; I'll give that site a look.
Topic Author
Morik
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Re: Adding a tilt--which international fund to use?

Post by Morik »

Ok, after looking around I think I know what to do for international now.

It seems there are no mid or small cap value funds internationally, at least that I could find.
They do have large cap value. Looking in morningstar at VTRIX vs EFV (both foreign large cap value funds, both roughly the same ER), it appears EFV is further towards the value size of things, as is also mentioned on that site linked by lack_ey.

So I think:
56% total international
18% small cap (VSS)
14% emerging markets (VWO)
12% EFV (intl large cap value). If intl mid cap value becomes available, will shift half into that. if intl small cap value becomes available, will pull 6% of total international into it.

I can hold the non-vanguard ETF in my 401k's brokerage option, which I believe trades for free. I will verify that though.

I plan to execute this in a week or so; need to get the brokerage option set up first.
lack_ey
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Re: Adding a tilt--which international fund to use?

Post by lack_ey »

Morik wrote:It seems there are no mid or small cap value funds internationally, at least that I could find.
Did you not find the dividend and fundamental index funds, or do you not consider those value?

WisdomTree International MidCap Dividend Fund (DIM)
WisdomTree International SmallCap Dividend Fund (DLS)
Schwab Fundamental International Small Co. Index ETF (FNDC)
WisdomTree Emerging Markets SmallCap Dividend Fund (DGS)

They're not cheap and they don't trade heavily, but they do exist.

By the way, those are some modest tilts you're suggesting, maybe not even worth tracking and keeping up with, considering that they're liable to be largely similar a lot of the time.
Emily1980
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Re: Adding a tilt--which international fund to use?

Post by Emily1980 »

Hi Morik,

Have you seen Trev H's simplified tilted portfolio?

viewtopic.php?f=10&t=38374#p485729

He showed that you could achieve the same result by splitting your tilts in half. For example, instead of tilting small and value in both domestic and international (US Lrg Blend, US Lrg Value, US Sm Blend, US Sm Value and the same for international), you could tilt domestic one way and international the other (US Lrg Blend, US Sm Value, International Lrg Value, International Sm Blend). The 4 fund portfolio had the same long term returns as the 8 fund portfolio.

If you want to keep your VTI and VXUS which both skew large blend, then you could do your somewhat more complicated version without sweating US small blend or international small value. I've thought about small and value tilting myself, and were I to do it, it would look something like:

Domestic:

50% Large Blend Total Market (VTI)
16.7% Lrg Value (VTV)
16.7% Mid Value (VOE)
16.7% Sm Value (VBR)

International:

50% Large Blend Total Market (VXUS)
16.7% Lrg Value (EFV)
16.7% Mid/Sm Blend (SCZ)
16.7% Emerging Markets Sm Blend (EEMS)

It would be a cross between Trev H's simplified portfolio and Merriman's Ultimate, plus Emerging markets tilt. And I just use VT (Total World) Instead of VTI and VXUS. Modify to tilt to whatever degree you like. Using VSS and VWO is cheaper than my version would be, but VWO is another large blend fund while EEMS is a small blend fund.

Just a thought.
Topic Author
Morik
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Re: Adding a tilt--which international fund to use?

Post by Morik »

lack_ey:
- DIM doesn't look valuey enough for me
- DLS is a bit more valuey, but not by a ton
- FNDC is similar to DIM in valuey-ness
- DGS is quite valuey, but I'd worry that I'd have to keep an eye on it since that isn't its strategic focus. Also its pretty expensive (0.63%)

Thanks for the link Emily--I hadn't seen that.

It sounds like I could do the following, and it should be roughly equivalent to what I was going for:

Domestic:
50% total market
16.67% LCV
16.67% MCV
16.67% SCV

International:
50% total market
50% small (VSS)

Instead of

Domestic
50% total market
8.33% LCV
8.33% MCV
8.33% SCV
25% small blend

International:
58% total market
16% LCV (EFV)
(Missing mid & small value)
25% small
(Or could tweak all of those #s a bit and add a tilt to EM as well)
E.g.,
47% total market
20% EM
13% LCV (would up to 20% if SCV fund becomes available)
20% small


Overall it seems like it eliminates 2 positions (6 vs 8). Or 7 vs 9 with EM. Or did I figure this wrong? (I note that Trevor's post has both small & value still in both domestic & international... I'd prefer to keep my super cheap inst+ total market funds in my 401k... S&P 500 at 0.02%, total international at 0.07%. Note that I can cover around half of the tilt via our Roth IRAs, which only have admiral shares.)

Another thing is that all of the above tilt towards small more than is immediately obvious. E.g., in domestic the value tilt also tilts towards small (since I didn't cap-weight the percentages of large, mid, and small value to hold).
Maybe those should be cap weighted instead?

I'm also slightly bothered by using a non-vanguard fund: turns out my 401k's brokerage option does charge commission on non-vanguard ETFs/MFs.
But the vanguard equivalent of EFV (the intl large cap value fund from ishares) is not nearly as valuey.
Looked up the fee schedule: in the 401k's brokerage option non-vanguard ETFs are $2 per trade, while non-vanguard mutual funds may be free depending on some things.
But I don't see a mutual-fund equivalent of EFV.
Luckily I front-load my 401k, so what I could do is just save up contributions (in, say, total international) for the months I frontload during, and then just do 1 purchase for $2.
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kramer
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Re: Adding a tilt--which international fund to use?

Post by kramer »

One possibility is to tilt to value mostly in your US allocation where doing so is cheaper.

As an example, I am about 40% US and 60% international. The large majority of my US allocation is in VBR (Vanguard Small cap Value). For international, I have a lot of VSS for small and then VEA and VWO for large.

I don't buy international Value funds because they are too expensive. Almost all my large stocks are international , not US.

Using VEA + VWO is a bit legacy for foreign large stocks, I think you can do better than that with new Vanguard ETF.
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Texas Radio
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Re: Adding a tilt--which international fund to use?

Post by Texas Radio »

Check out the new International Dividend Achiever and High Dividend Yield ETF's, VIGI and VYMI. These have not really caught on yet so the bid/ask spreads demand a limit order.
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Emily1980
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Re: Adding a tilt--which international fund to use?

Post by Emily1980 »

Morik wrote: Overall it seems like it eliminates 2 positions (6 vs 8). Or 7 vs 9 with EM. Or did I figure this wrong? (I note that Trevor's post has both small & value still in both domestic & international... I'd prefer to keep my super cheap inst+ total market funds in my 401k... S&P 500 at 0.02%, total international at 0.07%. Note that I can cover around half of the tilt via our Roth IRAs, which only have admiral shares.)

Another thing is that all of the above tilt towards small more than is immediately obvious. E.g., in domestic the value tilt also tilts towards small (since I didn't cap-weight the percentages of large, mid, and small value to hold).
Maybe those should be cap weighted instead?
It depends on what you want your tilt to be. Merriman's Ultimate is actually a 10-fund portfolio for the stock portion, all split exactly equally:

US LB
US LV
US SB
US SV
US REITS
INT LB
INT LV
INT SB
INT SV
EM

Because Merriman uses DFA funds, REITS and EM are separate asset classes. DFA funds don't include REITS in their regular funds, and they don't include EM in their international funds. But they tilt heavily towards small and value in their small and value funds (more so than other small and value funds) and in their portfolios as well. The 8 fund portfolio Trev H is referring to eliminates the 2 separate asset classes of REITS and EM because Vanguard includes them in their regular funds. There are three lines on his graph, one of which shows a 50/50 split between what would be VTI and VXUS (he calls it the "lumper"), and two of which are superimposed almost on top of each other because they perform the same. The 8 fund (US: LB, LV, SB, SV + INT: LB, LV, SB, SV) is historically the same, or very close, to the 4 fund (US: LB, SV + INT: LV, SB), both of which are simply split, percentage wise, directly in 8 or 4. They're not market weighted either, like the "lumper" that underperforms them both. You're considering paring it down even further, and that's up to you. As for costs, that's a tough call. I've seen people say they don't buy international value funds due to their expense in more threads than this one, and it's a perfectly respectable position to take. There are lots of solutions to this problem. Kramer isn't the only person I've seen recommend tilting to small and value in the US because that's where it's cheap. Personally I wouldn't be comfortable paring my asset classes down to that few if I were implementing tilts, but a lot of people do it and are just fine with it.

If you wanted to keep your cheap institutional large blend funds in both the US and International, you could also just tilt small and value, literally:

US:

50% Lrg Blend (VTI)
50% Sm Value (VBR, or 25/25 VOE and VBR)

INT:

50% Lrg Blend (VXUS)
50% Small Blend (VSS)

I would keep the large value positions, both domestically and internationally. But that's just me.
Last edited by Emily1980 on Mon May 23, 2016 2:51 pm, edited 2 times in total.
azanon
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Re: Adding a tilt--which international fund to use?

Post by azanon »

I use GVAL ETF for my small/mid international deep value (via Vanguard Brokerage). While it's nice and clean to have Vanguard everything, Vanguard brokerage certainly makes buying other ETFs pretty easy for a small, nominal fee.

While I was aware of, and (briefly) considered VTRIX, it didn't take me long to reject it. That 0.46% fee is pretty high for a "Giant" cap fund that mostly invests in developed markets as well as barely qualifying as value (reference to significant positions in the blend and growth area). If you're going to pay a non-index fee, make sure you're getting something special for your money.

And as far as fees go, I consider these very important as do all bogleheads, however be sure to not let the tail wag the dog here. Specifically, I think its ok to have a position or two in your portfolio that might have a higher fee in isolation as long as the weighted fees of your portfolio is low. So I do have a position in GVAL (at 0.69%), but my portfolio weighted fees are 19 basis points*. It's not a contest, and you don't have to have the lowest of all.

* Disclaimer - a good chunk of my portfolio is TSP funds at 2.9 basis points each, so that helps my average a bit :mrgreen:
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William4u
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Re: Adding a tilt--which international fund to use?

Post by William4u »

Emily1980 wrote:If you wanted to keep your cheap institutional large blend funds in both the US and International, you could also just tilt small and value, literally:

US:

50% Lrg Blend (VTI)
50% Sm Value (VBR, or 25/25 VOE and VBR)

INT:

50% Lrg Blend (VXUS)
50% Small Blend (VSS)
I would go with something like this. I might add VWO (emerging market) if you want to get a bit aggressive there.
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Morik
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Re: Adding a tilt--which international fund to use?

Post by Morik »

EDIT: Wrote this right after the post from Texas Radio, right before the posts from Emily, Azanon, and William. Will read & respond to those later as I have to run for now.
Texas Radio wrote:Check out the new International Dividend Achiever and High Dividend Yield ETF's, VIGI and VYMI. These have not really caught on yet so the bid/ask spreads demand a limit order.
VIGI looks like it leans towards growth?
VYMI looks valuey, but similar comment as I gave to the suggestion of DGS--while it appears like a reasonable match right now, I would worry that since this appears to be a side-effect rather than main property of the fund, I would need to keep a close eye on it (in case it drifts away from being valuey).
kramer wrote:One possibility is to tilt to value mostly in your US allocation where doing so is cheaper.

As an example, I am about 40% US and 60% international. The large majority of my US allocation is in VBR (Vanguard Small cap Value). For international, I have a lot of VSS for small and then VEA and VWO for large.

I don't buy international Value funds because they are too expensive. Almost all my large stocks are international , not US.

Using VEA + VWO is a bit legacy for foreign large stocks, I think you can do better than that with new Vanguard ETF.
I think my prior example does that--tilts to value in US, and small in international:

Domestic:
50% total market
16.67% LCV
16.67% MCV
16.67% SCV

International:
40% total market
40% small (VSS)
20% Emerging Markets (Or just ditch the EM tilt--total market & small already pick up some EM)

This would be doable purely with vanguard funds.

I think that is probably a good approach, IF in theory the returns & risks would be similar to tilting both small & value in both (vs small in one, value in the other).
I know the link to Trevor's post shows some empirical evidence of this, but my guess is it isn't as well diversified.
E.g., I could gain additional return by diversifying some of my value from being all "domestic value" to being a split of domestic & international value.
And the same for the small cap funds.
(Maybe the circumstances around where that diversity would pay off just didn't materialize in the period Trevor's analysis covered.)
However, there are costs to doing this (higher ERs, more portfolio complexity).

Calculating total ER (i'll use admiral shares ERs, even though I have institutional plus in the 401k. Its not going to be a huge difference and it makes the calculation much easier since I don't have to consider what is in my IRAs vs 401k):

Code: Select all

As a % of total equities. (All listed as ETFs, but I'd likely use the mutual funds. Irrelevant to ER since I'd use admiral.)

Simplified:
 52.5% Domestic equities
   26.25% Total Market (VTI, 0.05% ER)
   8.67% Large cap value (VTV, 0.08% ER)
   8.67% Mid cap value (VOE, 0.08% ER)
   8.67% Small cap value (VBR, 0.08% ER)
 47.5% International equities
   23.75% Total market (VTIAX, 0.12% ER. ETF VXUS has 0.01% higher ER)
   23.75% Small cap (VSS, 0.17% ER)
   
 Total ER: ~=0.10
 
Complete:
 52.5% Domestic Equities
  26.25% Total Market (VTI, 0.05)
  4.375% LCV (VTV, 0.08)
  4.375% MCV (VOE, 0.08)
  4.375% SCV (VBR, 0.08)
  13.125% Small blend (VB, 0.08)
 47.5% International
  23.75% Total market (VTIAX, 0.12)
  11.875% Small cap (VSS, 0.17)
  11.875% LCV (VYMI, 0.3)

 Total ER: ~=0.12
 
 (And note that I have 0.07% total international market, and (0.02% S&P 500 + 0.05% extended market ~= 0.026 ER for total US market in my 401k, can can likely hold all of the total market funds in my 401k, so would realize a few more BPs saving there.)
So not much cost difference... and if I use VYMI instead of EFV I don't have to worry about commissions in my vanguard account (plus its cheaper ER-wise).

I find it interesting that so many high-dividend-yield funds are very valuey. I don't want to derail into why that is, but I'm curious if that is a persistent pattern. If it isn't I guess I can look for new funds if the pattern ceases. E.g., could swap to VTRIX even though its 50% more expensive and despite being billed as a value fund, is less valuey than the dividend fund VYMI...
VYMI does contain some emerging market stocks.

I'm currently leaning towards the "Complete" one above.

Still waffling on tilting to EM. My guess is that it would be fine to tilt to it or not tilt to it (with a higher risk & return if I do tilt to it).
I will most definitely NOT continue waffling once I decide. I.e., I will either tilt to it and stay tilted to it forever (well, as long as I have equities, barring any crazy new research/other similar things that may change overall allocations), or I will not tilt to it and stay that way.
I will decide by the time I implement the above.
If I do tilt it, any recommendations for how much?
My initial thought is even with the small & value tilt. I.e., 25% total international, 25% emerging markets, 25% intl small cap, 25% intl value
Topic Author
Morik
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Re: Adding a tilt--which international fund to use?

Post by Morik »

William4u wrote:
Emily1980 wrote:If you wanted to keep your cheap institutional large blend funds in both the US and International, you could also just tilt small and value, literally:

US:

50% Lrg Blend (VTI)
50% Sm Value (VBR, or 25/25 VOE and VBR)

INT:

50% Lrg Blend (VXUS)
50% Small Blend (VSS)
I would go with something like this. I might add VWO (emerging market) if you want to get a bit aggressive there.
I prefer tilting all of small, and all of value; while small value is the intersection of them, I don't want to lose out on extra the diversification across market caps and valuations that I get from all of value, plus all of small.
(The tilt I'm considering double weights small cap value already, since I pick it up in both my value fund & my small fund)
azanon wrote:I use GVAL ETF for my small/mid international deep value (via Vanguard Brokerage). While it's nice and clean to have Vanguard everything, Vanguard brokerage certainly makes buying other ETFs pretty easy for a small, nominal fee.

While I was aware of, and (briefly) considered VTRIX, it didn't take me long to reject it. That 0.46% fee is pretty high for a "Giant" cap fund that mostly invests in developed markets as well as barely qualifying as value (reference to significant positions in the blend and growth area). If you're going to pay a non-index fee, make sure you're getting something special for your money.

And as far as fees go, I consider these very important as do all bogleheads, however be sure to not let the tail wag the dog here. Specifically, I think its ok to have a position or two in your portfolio that might have a higher fee in isolation as long as the weighted fees of your portfolio is low. So I do have a position in GVAL (at 0.69%), but my portfolio weighted fees are 19 basis points*. It's not a contest, and you don't have to have the lowest of all.

* Disclaimer - a good chunk of my portfolio is TSP funds at 2.9 basis points each, so that helps my average a bit :mrgreen:
Yeah, I have a bit about expense tail wagging the allocation dog in my IPS. I choose my desired asset allocation in a vacuum basically, and then figure out how to implement it. If the only things available are expensive, I may reconsider, but generally I just try to find the best thing I can to fit the desired allocation.

GVAL does look valuey and certainly smaller than VYMI. That expense is a bit high though--I don't know that I'm willing to pay 69 basis points for it.
I can tilt large cap value in international relatively cheap (30 basis points); I think that is good enough for now. (Even that is a bit high for me, but I'll live.)

I wonder if there is a way to select portions of the M* style box that I want, and view all funds that are centered in those areas?
E.g., search M* for all funds that fall near the "deep value" section.

Emily1980 wrote:
Morik wrote: Overall it seems like it eliminates 2 positions (6 vs 8). Or 7 vs 9 with EM. Or did I figure this wrong? (I note that Trevor's post has both small & value still in both domestic & international... I'd prefer to keep my super cheap inst+ total market funds in my 401k... S&P 500 at 0.02%, total international at 0.07%. Note that I can cover around half of the tilt via our Roth IRAs, which only have admiral shares.)

Another thing is that all of the above tilt towards small more than is immediately obvious. E.g., in domestic the value tilt also tilts towards small (since I didn't cap-weight the percentages of large, mid, and small value to hold).
Maybe those should be cap weighted instead?
It depends on what you want your tilt to be. Merriman's Ultimate is actually a 10-fund portfolio for the stock portion, all split exactly equally:

US LB
US LV
US SB
US SV
US REITS
INT LB
INT LV
INT SB
INT SV
EM

Because Merriman uses DFA funds, REITS and EM are separate asset classes. DFA funds don't include REITS in their regular funds, and they don't include EM in their international funds. But they tilt heavily towards small and value in their small and value funds (more so than other small and value funds) and in their portfolios as well. The 8 fund portfolio Trev H is referring to eliminates the 2 separate asset classes of REITS and EM because Vanguard includes them in their regular funds. There are three lines on his graph, one of which shows a 50/50 split between what would be VTI and VXUS (he calls it the "lumper"), and two of which are superimposed almost on top of each other because they perform the same. The 8 fund (US: LB, LV, SB, SV + INT: LB, LV, SB, SV) is historically the same, or very close, to the 4 fund (US: LB, SV + INT: LV, SB), both of which are simply split, percentage wise, directly in 8 or 4. They're not market weighted either, like the "lumper" that underperforms them both. You're considering paring it down even further, and that's up to you. As for costs, that's a tough call. I've seen people say they don't buy international value funds due to their expense in more threads than this one, and it's a perfectly respectable position to take. There are lots of solutions to this problem. Kramer isn't the only person I've seen recommend tilting to small and value in the US because that's where it's cheap. Personally I wouldn't be comfortable paring my asset classes down to that few if I were implementing tilts, but a lot of people do it and are just fine with it.

If you wanted to keep your cheap institutional large blend funds in both the US and International, you could also just tilt small and value, literally:

US:

50% Lrg Blend (VTI)
50% Sm Value (VBR, or 25/25 VOE and VBR)

INT:

50% Lrg Blend (VXUS)
50% Small Blend (VSS)

I would keep the large value positions, both domestically and internationally. But that's just me.
Yeah I saw the graph & posts and realize that the non-lump ones being compared are none of them weighted by market cap.
I have a separate allocation to real estate.

My whole portfolio is going to look something like this:

High level: 90% high risk, 10% low risk (super aggressive, will scale back when I'm older, 34 now, but I recently had some salary explosions over the past few years and so my current savings are rather insignificant; via contributions alone I will double our retirement savings over the next 4-5 years (while we started saving for retirement ~11 years ago). So we are ok being aggressive here--our future capital acts somewhat like a bond.

Broken down:

Code: Select all

90% High Risk
 70% Equities
  36.75% Domestic
    18.375% Total US Market
    3.0625% LCV
    3.0625% MCV
    3.0625% SCV
    9.1875% Small Blend
  33.25% International
    12.47% Total International Market
    4.16% Emerging Markets (decided I don't want too much of this at the expense of total market)
    8.3125% Large Cap Value (will split up if I find low-cost mid or small cap value)
    8.3125% Small Blend
 10% Real Estate
   ~10% TIAA Real Estate Account
   ~0% VNQ (used to fill towards the 10% target if insufficient funds in the TIAA account to reach 10%)
 10% Consumer Debt (lending club)
10% Low Risk
 ~10% TIAA traditional
 ~0% BND (used to fill towards the 10% target if insufficient funds in the TIAA account to reach 10%
azanon
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Re: Adding a tilt--which international fund to use?

Post by azanon »

Morik wrote:Yeah, I have a bit about expense tail wagging the allocation dog in my IPS. I choose my desired asset allocation in a vacuum basically, and then figure out how to implement it. If the only things available are expensive, I may reconsider, but generally I just try to find the best thing I can to fit the desired allocation.

GVAL does look valuey and certainly smaller than VYMI. That expense is a bit high though--I don't know that I'm willing to pay 69 basis points for it.
I can tilt large cap value in international relatively cheap (30 basis points); I think that is good enough for now. (Even that is a bit high for me, but I'll live.)

I wonder if there is a way to select portions of the M* style box that I want, and view all funds that are centered in those areas?
E.g., search M* for all funds that fall near the "deep value" section.
Well, again, 30 basis points (for VYMI) is about what a giant cap, (its actually giant, vs. large in Morningstar) cheap, non-index international fund is supposed to cost. That is not comparable to GVAL. Generally speaking, mid and small cap are more expensive for a number of reasons, but I think it's relatively intuitive to deduce that it's not as complicated to research and buy giant company stocks as smaller ones.

But if you're comparing those two, it'd be just as important to evaluate the strategy. Me personally, I'm not very impressed by a value fund that simply hones in on high dividend yielding stocks. GVAL is, in my opinion, far more cutting edge in terms of how it is identifying value and not just by the companies themselves, but also by buying stocks in countries who's markets themselves are devalued. It's as deep value as I could find anywhere.

If you want to try Vanguard's screener, check here: https://personal.vanguard.com/us/FundsM ... h?FROM=VAN
you can set it to international, then select Foreign small/mid value, and All Fund families. I set the Expense ratio to less than 1.0% I did my own bit of personal research into the 9 that came up and though GVAL isn't the cheapest of the 9, it's close enough, and I prefer its strategy. But as you can see by the list, if you want int small/mid value, expect to pay at least 0.49% for it.

Again, focus on overall portfolio costs - in other words, how would the weighted cost of your portfolio change with one choice vs. another. I think insisting that all of the sub components of a portfolio have to be dirt cheap can ultimately cause you to end up missing out on an asset class or two, just to save a few basis points in your portfolio. Tail wags the dog, in other words. It is well documented that some portfolio asset classes are more expensive than others. They cost what they cost.
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Morik
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Re: Adding a tilt--which international fund to use?

Post by Morik »

azanon wrote:If you want to try Vanguard's screener, check here: https://personal.vanguard.com/us/FundsM ... h?FROM=VAN
Thanks for the link, will give that a look.
azanon wrote:
Morik wrote:Yeah, I have a bit about expense tail wagging the allocation dog in my IPS. I choose my desired asset allocation in a vacuum basically, and then figure out how to implement it. If the only things available are expensive, I may reconsider, but generally I just try to find the best thing I can to fit the desired allocation.

GVAL does look valuey and certainly smaller than VYMI. That expense is a bit high though--I don't know that I'm willing to pay 69 basis points for it.
I can tilt large cap value in international relatively cheap (30 basis points); I think that is good enough for now. (Even that is a bit high for me, but I'll live.)

I wonder if there is a way to select portions of the M* style box that I want, and view all funds that are centered in those areas?
E.g., search M* for all funds that fall near the "deep value" section.
Well, again, 30 basis points is about what a giant cap, (its actually giant, vs. large in Morningstar) cheap, non-index international fund is supposed to cost. Generally speaking, mid and small cap are more expensive for a number of reasons, but I think it's relatively intuitive to deduce that it's not as complicated to research and buy large company stocks as smaller ones.

But if you're comparing those two, it'd be just as important to evaluate the strategy. Me personally, I'm not very impressed by a value fund that simply hones in on high dividend yielding stocks. GVAL is, in my opinion, far more cutting edge in terms of how it is identifying value and not just by the companies themselves, but also by buying stocks in countries who's markets themselves are devalued. It's as deep value as I could find anywhere.

Again, focus on overall portfolio costs. I think insisting that all of the sub components of a portfolio have to be dirt cheap can ultimately cause you to end up missing out on an asset class or two, just to save a few basis points in your portfolio. Tail wags the dog, in other words. It is well documented that some portfolio asset classes are more expensive than others. They cost what they cost.
Fair point.
My concern is that at some point the expense becomes high enough to counter-balance the gains from being in that asset class.
E.g., even on 1/10,000,000th of my portfolio, I wouldn't want a 5% fee fund; there is little chance that would add positive expected return to my portfolio.

E.g., if I think mixing in intl small cap value might add ~0.3% in additional expected return (I don't--I just made that number up), then I certainly would not do so if the only funds cost at least 0.3% in fees.
I am not very optimistic that adding GVAL at .69% cost would result in more than .69% in additional expected return.
That said, I don't really have a strong sense of how much additional return to expect from such tilts; maybe I should be expecting an additional 2% in expected returns, in which case a .69% fund would be just fine.

I do have concerns about the strategy of VYMI (and various other dividend-seeking funds that happen to have materialized valuey funds as well)--as I said it seems like I'd need to keep a close eye on it.
Last edited by Morik on Mon May 23, 2016 9:35 pm, edited 1 time in total.
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Re: Adding a tilt--which international fund to use?

Post by azanon »

Morik wrote:Fair point.
My concern is that at some point the expense becomes high enough to counter-balance the gains from being in that asset class.
E.g., even on 1/10,000,000th of my portfolio, I wouldn't want a 5% fee fund; there is little chance that would add positive expected return to my portfolio.

E.g., if I think mixing in intl small cap value might add ~0.3% in additional expected return (I don't--I just made that number up), then I certainly would not do so if the only funds cost at least 0.3% in fees.
I am not very optimistic that adding GVAL at .69% cost would result in more than .69% in additional expected return.
That said, I don't really have a strong sense of how much additional return to expect from such tilts; maybe I should be expecting an additional 2% in expected returns, in which case a .69% fund would be just fine.
Mebane Faber's backtesting in his book Global Value ( http://www.amazon.com/Global-Value-Bubb ... obal+value ) was showing about an extra 3% with the strategy. Even vanilla Value tilting I though gets you well over a full 1% over a long period of time. But you'd have to be willing to be patient for that to show itself. It uses a CAPE based strategy, so don't go with that choice without at least giving the strategy a decade. GVAL is the type of fund and strategy to perform really bad when its out of favor (like it has been since launch), but could show ridiculous performance when things turn around.

As for the volatility, I've gotten to where I don't mind it so much. If you're a dedicated rebalancer, over time that can work to your advantage.
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Re: Adding a tilt--which international fund to use?

Post by Morik »

azanon wrote:
Morik wrote:Fair point.
My concern is that at some point the expense becomes high enough to counter-balance the gains from being in that asset class.
E.g., even on 1/10,000,000th of my portfolio, I wouldn't want a 5% fee fund; there is little chance that would add positive expected return to my portfolio.

E.g., if I think mixing in intl small cap value might add ~0.3% in additional expected return (I don't--I just made that number up), then I certainly would not do so if the only funds cost at least 0.3% in fees.
I am not very optimistic that adding GVAL at .69% cost would result in more than .69% in additional expected return.
That said, I don't really have a strong sense of how much additional return to expect from such tilts; maybe I should be expecting an additional 2% in expected returns, in which case a .69% fund would be just fine.
Mebane Faber's backtesting in his book Global Value ( http://www.amazon.com/Global-Value-Bubb ... obal+value ) was showing about an extra 3% with the strategy. Even vanilla Value tilting I though gets you well over a full 1% over a long period of time. But you'd have to be willing to be patient for that to show itself. It uses a CAPE based strategy, so don't go with that choice without at least giving the strategy a decade. GVAL is the type of fund and strategy to perform really bad when its out of favor (like it has been since launch), but could show ridiculous performance when things turn around.
Interesting--thanks for the info.
azanon wrote:As for the volatility, I've gotten to where I don't mind it so much. If you're a dedicated rebalancer, over time that can work to your advantage.
I have no problem with volatility--I have a good while til I need to worry about actually using any of this money.

I don't tend to read too many prospectuses--is GVAL abnormal in that its prospectus says it will invest at least 80% of its money in the underlying index? (I was expecting something like 95%)
A quick glance through the prospectus for VSS did not have anything similar.
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Re: Adding a tilt--which international fund to use?

Post by azanon »

Morik wrote:I don't tend to read too many prospectuses--is GVAL abnormal in that its prospectus says it will invest at least 80% of its money in the underlying index? (I was expecting something like 95%)
A quick glance through the prospectus for VSS did not have anything similar.
I've talked with Meb about this briefly (email exchanges). Generally speaking, the fund will be fully invested (with 1-3% cash just in transition state, etc). However, I believe there is a built in filter where if there are no choices that aren't below a maximum CAPE value (like 18 or so), then the fund can go to cash equivalents as a defensive mechanism. Meb told me that for any foreseeable time in the future, that situation just wont apply since so much of the world's stock is cheap (the US is one of the few exceptions). So maybe that explains it.

Oh, and that reminds me; the fund technically isn't international per se, meaning the fund actually could buy the US, were US stock to make the bottom 10 list in terms of CAPE. So it's technically as the name implies, a global fund, not international. It just isn't buying the US at the moment. But that won't happen either unless the S&P 500 goes well under 1K. :mrgreen:

But you can think of that book I linked earlier as a GVAL super prospectus. He doesn't explicitly say its for that ETF, but it's all but implied. The book makes the case for the investing strategy in layman's terms and also with research.
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Re: Adding a tilt--which international fund to use?

Post by Morik »

azanon wrote:
Morik wrote:I don't tend to read too many prospectuses--is GVAL abnormal in that its prospectus says it will invest at least 80% of its money in the underlying index? (I was expecting something like 95%)
A quick glance through the prospectus for VSS did not have anything similar.
I've talked with Meb about this briefly (email exchanges). Generally speaking, the fund will be fully invested (with 1-3% cash just in transition state, etc). However, I believe there is a built in filter where if there are no choices that aren't below a maximum CAPE value (like 18 or so), then the fund can go to cash equivalents as a defensive mechanism. Meb told me that for any foreseeable time in the future, that situation just wont apply since so much of the world's stock is cheap (the US is one of the few exceptions). So maybe that explains it.

Oh, and that reminds me; the fund technically isn't international per se, meaning the fund actually could buy the US, were US stock to make the bottom 10 list in terms of CAPE. So it's technically as the name implies, a global fund, not international. It just isn't buying the US at the moment. But that won't happen either unless the S&P 500 goes well under 1K. :mrgreen:

But you can think of that book I linked earlier as a GVAL super prospectus. He doesn't explicitly say its for that ETF, but it's all but implied. The book makes the case for the investing strategy in layman's terms and also with research.
Thanks for the info.

Yeah I did see that it wasn't international per se.

Do you use GVAL for all of your international value? It does appear to cover a wide range of market caps.

It still feels a little icky to me to pay 0.69 though... I wonder if I will continually question whether it is really bringing in more than 0.5% extra as compared to investing in the 0.12 total international market.
Or compared to IVLU, which is also only 0.3 and large cap value. (Found that through the vanguard fund screener)

As you said though, small cap is more expensive to analyze and maintain.
I guess what I'm really asking/discussing is whether it is worth it in expected return to also include the small/mid value index.
I realize we can't compute forward-looking expected returns, but I'm curious about:

Domestic at 52.5% of all equities.
50% Total US market (0.02)
25% US value (across all caps) (0.08)
25% US small blend (0.08)

International at 47.5% of all equities.
37.5% Total international (0.07)
12.5% Emerging markets (0.15)
25% Intl Large cap value (0.30)
25% Intl small cap blend (0.17)

Total ER: 0.1034375 (.525*(.02*.5+.08*.5)+.475*(.07*.375+.15*.125+.3*.25+.17*.25))

vs

Domestic at 52.5% of all equities.
50% Total US market (0.02)
25% US value (across all caps) (0.08)
25% US small blend (0.08)

International at 47.5% of all equities.
37.5% Total international (0.07)
12.5% Emerging markets (0.15)
8% Intl Large cap value (0.30)
17% Intl small/mid cap value (0.69)
25% Intl small cap blend (0.17)

Total ER: 0.13493 (.525*(.02*.5+.08*.5)+.475*(.07*.375+.15*.125+.3*.08+.69*.17+.17*.25))

vs (If I use GVAL as both small/mid-cap & large cap; it seems to hold a wide range of market caps)

Domestic at 52.5% of all equities.
50% Total US market (0.02)
25% US value (across all caps) (0.08)
25% US small blend (0.08)

International at 47.5% of all equities.
37.5% Total international (0.07)
12.5% Emerging markets (0.15)
25% Intl small/mid cap value (0.69)
25% Intl small cap blend (0.17)

Total ER: 0.14975


I'm guessing azanon, that you would use the 2nd or 3rd one before the 1st one, and expect that the extra expense is more than made up for by capturing additional value premium?

I suppose adding ~3-5 basis points in expense to my overall portfolio isn't so crazy (2nd one above).


Another way GVAL could start buying in the US is if foreign becomes bloated over some period of time, while the US doesn't grow much, yeah?
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Re: Adding a tilt--which international fund to use?

Post by tludwig23 »

Morik wrote:VTRIX: https://personal.vanguard.com/us/funds/ ... IntExt=INT

appears to contain value stocks across both developed and emerging markerts

Though I'm not pleased with the 0.46% ER.
Good point. I hadn't considered it because it is not an index fund. But likely it is a closet index fund in any case.
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Re: Adding a tilt--which international fund to use?

Post by azanon »

Morik wrote:Do you use GVAL for all of your international value? It does appear to cover a wide range of market caps.
Yes, that's actually the way I view the fund. It just represents all of the int value for me, but I actually don't mind the fact that it's more mid/small cap in practice. I use it to tilt my base positions in International Developed large cap (TSP I fund) and International small (VSS). (I'm a federal employee so I'm forced to incorporate TSP funds to some extent).
Morik wrote:It still feels a little icky to me to pay 0.69 though... I wonder if I will continually question whether it is really bringing in more than 0.5% extra as compared to investing in the 0.12 total international market.
Or compared to IVLU, which is also only 0.3 and large cap value. (Found that through the vanguard fund screener)
In theory and from a return's only perspective, it should easily make up that difference. Again, the ETF is loading on both "small" and value" factors combined. That combination long term should good for at least 2%, if not 3% return premium (albeit, at a higher risk(standard deviation)). And, again, I personally think CAPE ratio is the most proven way to measure value.
Morik wrote:As you said though, small cap is more expensive to analyze and maintain.
I guess what I'm really asking/discussing is whether it is worth it in expected return to also include the small/mid value index.
I realize we can't compute forward-looking expected returns, but I'm curious about:

Domestic at 52.5% of all equities.
50% Total US market (0.02)
25% US value (across all caps) (0.08)
25% US small blend (0.08)

International at 47.5% of all equities.
37.5% Total international (0.07)
12.5% Emerging markets (0.15)
25% Intl Large cap value (0.30)
25% Intl small cap blend (0.17)

Total ER: 0.1034375 (.525*(.02*.5+.08*.5)+.475*(.07*.375+.15*.125+.3*.25+.17*.25))

vs

Domestic at 52.5% of all equities.
50% Total US market (0.02)
25% US value (across all caps) (0.08)
25% US small blend (0.08)

International at 47.5% of all equities.
37.5% Total international (0.07)
12.5% Emerging markets (0.15)
8% Intl Large cap value (0.30)
17% Intl small/mid cap value (0.69)
25% Intl small cap blend (0.17)

Total ER: 0.13493 (.525*(.02*.5+.08*.5)+.475*(.07*.375+.15*.125+.3*.08+.69*.17+.17*.25))

vs (If I use GVAL as both small/mid-cap & large cap; it seems to hold a wide range of market caps)

Domestic at 52.5% of all equities.
50% Total US market (0.02)
25% US value (across all caps) (0.08)
25% US small blend (0.08)

International at 47.5% of all equities.
37.5% Total international (0.07)
12.5% Emerging markets (0.15)
25% Intl small/mid cap value (0.69)
25% Intl small cap blend (0.17)

Total ER: 0.14975


I'm guessing azanon, that you would use the 2nd or 3rd one before the 1st one, and expect that the extra expense is more than made up for by capturing additional value premium?

I suppose adding ~3-5 basis points in expense to my overall portfolio isn't so crazy (2nd one above).
Yes, I'd opt for the 3rd choice, and I'm glad you calculated the weighted change of the portfolio ER. So from not having GVAL at all to about a 12% position in GVAL you added 5 basis points. That's the way I would view the costs, and then I would make a judgment call whether that change is worth it. For me, that would be worth the cost. 15 basis point portfolio is still dirt cheap and right in line with a dirt cheap VG lifestrategy fund.
Another way GVAL could start buying in the US is if foreign becomes bloated over some period of time, while the US doesn't grow much, yeah?
Right. It's a mechanically active index fund that's going to be constantly searching for the country and stock with the most blood in the street, and then buying it.
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Re: Adding a tilt--which international fund to use?

Post by SeeMoe »

Keep it simple with just the Vanguard total international stock index fund at 40% of the stock folio.
Again, keep it simple in the bond portion of the folio with 30% in the total international bond fund.
Rebalance often to...
SeeMoe.. :dollar
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Re: Adding a tilt--which international fund to use?

Post by Morik »

SeeMoe wrote:Keep it simple with just the Vanguard total international stock index fund at 40% of the stock folio.
Again, keep it simple in the bond portion of the folio with 30% in the total international bond fund.
Rebalance often to...
SeeMoe.. :dollar
1) I prefer to market weight my international.

2) I prefer not to have 30% bonds; I want a highly aggressive portfolio right now.

3) I don't rebalance often; I rebalance when things drift by a certain %, and in general just tweak my contributions ~1/year to aim me back towards desired allocation.

4) I have been on a very simple portfolio for several years now, and decided I want to attempt to capture some of the size & value risk premiums. The "keep it simple as a 3-fund" advice doesn't accomplish my goal :).
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Re: Adding a tilt--which international fund to use?

Post by SeeMoe »

Morik wrote:
SeeMoe wrote:Keep it simple with just the Vanguard total international stock index fund at 40% of the stock folio.
Again, keep it simple in the bond portion of the folio with 30% in the total international bond fund.
Rebalance often to...
SeeMoe.. :dollar
1) I prefer to market weight my international.

2) I prefer not to have 30% bonds; I want a highly aggressive portfolio right now.

3) I don't rebalance often; I rebalance when things drift by a certain %, and in general just tweak my contributions ~1/year to aim me back towards desired allocation.

4) I have been on a very simple portfolio for several years now, and decided I want to attempt to capture some of the size & value risk premiums. The "keep it simple as a 3-fund" advice doesn't accomplish my goal :).
Over three decades of investing tells me to keep it simple. Especially after an ephipeny B grade thought had me slicing and dicing and making a mess of a simple, efficient folio. Plus the experts like the above scenario today as well..
SeeMoe.. :mrgreen:
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
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Re: Adding a tilt--which international fund to use?

Post by azanon »

I'm with Bernstein on the Keeping it simple vs. slice and dicers. It's a personality thing, not a right vs. wrong thing. The very popular three fund portfolio here, for instance, is more than good enough to get the job done, and I'd consider it a worthy opponent vs. my portfolio. Do I think I can beat it in a risk-adjusted return contest? Yup. But if I do, it won't be by a landslide.
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Two things experts say

Post by Taylor Larimore »

"So up to now I have held market-weight allocations. I considered tilting when I first started but didn't want to deal with the extra complications, and didn't really understand the rationales behind it."
Morik:

It is dangerous to think that you know more than the market. You may be right, but you are more likely to be wrong.

The enemy of a good plan is the dream of a perfect plan -- Jack Bogle

"There seems to be some perverse human characteristic that likes to make easy things difficult." -- Warren Buffett

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Adding a tilt--which international fund to use?

Post by azanon »

The small and value premium is known to everyone that has studied this research. It has nothing to do with knowing more than the market. Riskier investments generally have, or tend to have, a higher expected return. If one prefers just the risk, and associated return, of the market as a collective whole, then you don't tilt.

And no one's saying this plan is perfect either. Is the expected return higher? Absolutely it is. But no one said it's perfect.
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Re: Adding a tilt--which international fund to use?

Post by Morik »

SeeMoe wrote:
Morik wrote:
SeeMoe wrote:Keep it simple with just the Vanguard total international stock index fund at 40% of the stock folio.
Again, keep it simple in the bond portion of the folio with 30% in the total international bond fund.
Rebalance often to...
SeeMoe.. :dollar
1) I prefer to market weight my international.

2) I prefer not to have 30% bonds; I want a highly aggressive portfolio right now.

3) I don't rebalance often; I rebalance when things drift by a certain %, and in general just tweak my contributions ~1/year to aim me back towards desired allocation.

4) I have been on a very simple portfolio for several years now, and decided I want to attempt to capture some of the size & value risk premiums. The "keep it simple as a 3-fund" advice doesn't accomplish my goal :).
Over three decades of investing tells me to keep it simple. Especially after an ephipeny B grade thought had me slicing and dicing and making a mess of a simple, efficient folio. Plus the experts like the above scenario today as well..
SeeMoe.. :mrgreen:
If you don't mind me asking, how long did you slice & dice for, and what brought you to stop? It isn't clear to me if you mean you stopped because it became a mess to manage, or for some other reason.
Taylor Larimore wrote:
"So up to now I have held market-weight allocations. I considered tilting when I first started but didn't want to deal with the extra complications, and didn't really understand the rationales behind it."
Morik:

It is dangerous to think that you know more than the market. You may be right, but you are more likely to be wrong.

The enemy of a good plan is the dream of a perfect plan -- Jack Bogle

"There seems to be some perverse human characteristic that likes to make easy things difficult." -- Warren Buffett

Best wishes.
Taylor
I don't think I know more than the market; are you saying the slicer & dicer rationale of "I can take on more risk and increase my return over that of the broad market by tilting towards riskier asset classes" is the slicer & dicer thinking they know more than the market?

Basically my thought process is:
- My gross annual income now is almost the size of my retirement portfolio (maybe 70% of it). This has been a relatively recent development. This increases my ability to take risk with the assets I already have.
- I have a while to go til I think about retirement. I'm 34.
- Both me & my spouse are ok with wild volatility (as far as we know, at least :-D). I won't be panic selling anything, and I will be keeping the tilt long-term. I understand that short-term tilting is a bad idea--I won't be swapping back and forth.
- If things go poorly, we have enough income that it doesn't matter much right now.
- If things go well, can potentially retire earlier or with more discretionary income.
- Even with 0% real growth, I can fund my retirement adequately if I work til 60-65.
- That means my need to take risk is small, but I would say my ability to do so is large. If it doesn't work out and the extra risk loses us actual money, we should still be ok. If it pays off we can travel more and do more things in retirement than we may have otherwise.


I don't think the more complex portfolio will be much worse to manage--I already made the changes in my tracking spreadsheet and know how much to buy/sell to rebalance into this new allocation; just a few extra positions to type stuff into per year. Maybe 15 minutes of extra work per year after I have it set up (which is almost done).
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"The Best Diversifier has Been the Simplest"

Post by Taylor Larimore »

"I can take on more risk and increase my return over that of the broad market by tilting towards riskier asset classes"
In my opinion, the most "efficient" way to increase expected return (with more risk) is to increase our stock allocation.

The Best Diversifier Has Been the Simplest

Best wishes.
Taylor
Last edited by Taylor Larimore on Sat May 28, 2016 1:18 pm, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: "The Best Diversifier has Been the Simplest"

Post by Morik »

Taylor Larimore wrote:
"I can take on more risk and increase my return over that of the broad market by tilting towards riskier asset classes"
In my opinion, the most "efficient" way to increase expected return (with more risk) is to increase our stock/fixed-income allocation.

The Best Diversifier Has Been the Simplest

Best wishes.
Taylor
I already have 90% of my portfolio in high risk things such as equities, consumer debt, and real estate (via TREA).
I don't want to get out of TRAD (the 10% low risk portion of our portfolio).
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Re: Adding a tilt--which international fund to use?

Post by SeeMoe »

Morik wrote:
SeeMoe wrote:
Morik wrote:
SeeMoe wrote:Keep it simple with just the Vanguard total international stock index fund at 40% of the stock folio.
Again, keep it simple in the bond portion of the folio with 30% in the total international bond fund.
Rebalance often to...
SeeMoe.. :dollar
1) I prefer to market weight my international.

2) I prefer not to have 30% bonds; I want a highly aggressive portfolio right now.

3) I don't rebalance often; I rebalance when things drift by a certain %, and in general just tweak my contributions ~1/year to aim me back towards desired allocation.

4) I have been on a very simple portfolio for several years now, and decided I want to attempt to capture some of the size & value risk premiums. The "keep it simple as a 3-fund" advice doesn't accomplish my goal :).
Over three decades of investing tells me to keep it simple. Especially after an ephipeny B grade thought had me slicing and dicing and making a mess of a simple, efficient folio. Plus the experts like the above scenario today as well..
SeeMoe.. :mrgreen:
If you don't mind me asking, how long did you slice & dice for, and what brought you to stop? It isn't clear to me if you mean you stopped because it became a mess to manage, or for some other reason.
Taylor Larimore wrote:
"So up to now I have held market-weight allocations. I considered tilting when I first started but didn't want to deal with the extra complications, and didn't really understand the rationales behind it."
Morik:

It is dangerous to think that you know more than the market. You may be right, but you are more likely to be wrong.

The enemy of a good plan is the dream of a perfect plan -- Jack Bogle

"There seems to be some perverse human characteristic that likes to make easy things difficult." -- Warren Buffett

Best wishes.
Taylor
I don't think I know more than the market; are you saying the slicer & dicer rationale of "I can take on more risk and increase my return over that of the broad market by tilting towards riskier asset classes" is the slicer & dicer thinking they know more than the market?

Basically my thought process is:
- My gross annual income now is almost the size of my retirement portfolio (maybe 70% of it). This has been a relatively recent development. This increases my ability to take risk with the assets I already have.
- I have a while to go til I think about retirement. I'm 34.
- Both me & my spouse are ok with wild volatility (as far as we know, at least :-D). I won't be panic selling anything, and I will be keeping the tilt long-term. I understand that short-term tilting is a bad idea--I won't be swapping back and forth.
- If things go poorly, we have enough income that it doesn't matter much right now.
- If things go well, can potentially retire earlier or with more discretionary income.
- Even with 0% real growth, I can fund my retirement adequately if I work til 60-65.
- That means my need to take risk is small, but I would say my ability to do so is large. If it doesn't work out and the extra risk loses us actual money, we should still be ok. If it pays off we can travel more and do more things in retirement than we may have otherwise.


I don't think the more complex portfolio will be much worse to manage--I already made the changes in my tracking spreadsheet and know how much to buy/sell to rebalance into this new allocation; just a few extra positions to type stuff into per year. Maybe 15 minutes of extra work per year after I have it set up (which is almost done).
Fair Q. I went the whole route from a stock broker and individual stocks to sector funds and so on mostly based on hunches like a gambler who " just knows" that he has an unexplainable ability, gift, to pick the right combination of numbers. Then , after a real hard --s kicking in the markets, I finally found the Vanguard office one day in Center City Philly. Then Bogle books on investing. Then in 2001 I had another ephipeny to actually spend a few bucks on a one time Vanguard advisor analysis. Received a how-to booklet that was a revelation per how screwed up our folios were and began slowly implementing the advisors recommendations right into "9-11" a month later. Kept buying when the markets reopened when most were panic selling and our folios have prospered significantly ever since. (NOTE: Studies show that most 1x folio advice is not followed, or at least not to the letter!)
SeeMoe.. :moneybag
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Re: Adding a tilt--which international fund to use?

Post by grabiner »

Vanguard now has International High Dividend Yield Index, also available as an ETF, at 0.30% expenses. This is a reasonable value option, although it is more expensive than other Vanguard funds.

I might consider it if the expenses go down in the future, but for now, I don't bother to tilt my international stocks to value; I hold VSS to overweight small-caps.
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Re: Adding a tilt--which international fund to use?

Post by abuss368 »

Hi Morik,

It can be dangerous to think you may know more than the market. Once investors tilt away from the market the result can be very good or bad. In my opinion Total International Stock Index Fund is an excellent and low cost way to own the international markets. This fund also includes emerging markets. In full disclosure, we also include the Vanguard International REIT/Real Estate fund.

At the end of the day, the correct investment portfolio is the one that works for you.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Adding a tilt--which international fund to use?

Post by Morik »

SeeMoe wrote:Fair Q. I went the whole route from a stock broker and individual stocks to sector funds and so on mostly based on hunches like a gambler who " just knows" that he has an unexplainable ability, gift, to pick the right combination of numbers. Then , after a real hard --s kicking in the markets, I finally found the Vanguard office one day in Center City Philly. Then Bogle books on investing. Then in 2001 I had another ephipeny to actually spend a few bucks on a one time Vanguard advisor analysis. Received a how-to booklet that was a revelation per how screwed up our folios were and began slowly implementing the advisors recommendations right into "9-11" a month later. Kept buying when the markets reopened when most were panic selling and our folios have prospered significantly ever since. (NOTE: Studies show that most 1x folio advice is not followed, or at least not to the letter!)
SeeMoe.. :moneybag
Thanks for sharing. I see my situation as a little different: I did have an advisor at one point, and he did have me in MPT, efficient-frontier portfolios. Basically they tried to guess (using "advanced models") which asset classes would be most lucrative going forward, and tilt to them.
It was a well diversified, low-cost portfolio (mostly vanguard funds), but there was a 1% wrap fee.
I ended up simplifying away from commodities, wood/logging stocks, etc, and going to the 3-fund with market-weighted international, plus TIAA real estate account.

Then I added a 10% consumer debt position--I believe this will provide good high-risk high-return diversification to the equity portfolio. Its intended as high risk, not as low risk fixed income/bonds, and replaces some of the equities.

And now I want to pick up some of the value & size premium that research has identified as a persistent premium, and that thinking about in my head makes sense as well; value stocks, for whatever reason, are the companies that are a bit out of favor in the market, which can capture returns due to short-term irrationalities, etc. Small companies are inherently more risky and small caps are much more volatile; the market should price small caps such that that extra risk is compensated by greater chances for a better return. (So I don't think I know more than the market--I think the market knows that the accurate price for them is to capture the additional expected return vs less risky alternatives.)
grabiner wrote:Vanguard now has International High Dividend Yield Index, also available as an ETF, at 0.30% expenses. This is a reasonable value option, although it is more expensive than other Vanguard funds.

I might consider it if the expenses go down in the future, but for now, I don't bother to tilt my international stocks to value; I hold VSS to overweight small-caps.
That was discussed upthread (VYMI is the ETF). My conclusion was that it would be better for me (worth paying the extra cost) to also get small & mid-cap exposure, and to not have to worry about what happens if the set of high dividend yield stocks diverges from the set of value stocks.
And looking at the style chart in morningstar, VYMI has a bit more exposure to growth stocks as well; my guess is the higher factor load (both value & size-wise) from GVAL would make up for the extra cost.
abuss368 wrote:Hi Morik,

It can be dangerous to think you may know more than the market. Once investors tilt away from the market the result can be very good or bad.
I don't see the connection between what I've proposed doing and the several posters who imply I think I know more than the market--can you explain?
Do you say that any tilt away from market weights is thinking you know more than the market?
Don't we do that all the time (if you consider the whole investment landscape, not just equities)?
Most people don't hold the appropriate market-cap weighted proportion of stocks to bonds, do they?
Why not?--Because they want different risk/return characteristics than the average of the market.

Are you arguing that the research is incorrect/flawed, and that it does not prove the existence of a persistent value & size premium?
If not, in what way is using that research thinking I know more than the market?




Anyway, all this said, I have decided to hold of for 1 month for 2 reasons:
- I just started reading a statistics book (independently of this decision to tild)
- I have a statistics crash-course class coming up in ~1 month (also independent of this decision to tilt)

I also have a math minor & took statistics in college, but its been a while.

So anyway I want to look more closely at the research after I do those. I am sure it would have been disproven by someone by now if it isn't sound, but I want to understand more of the context, sample selection, etc to have a better understanding of what to expect. If no red flags come up for me (in integrating a deeper understanding of the research into my decision process), I'll proceed.
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Re: Adding a tilt--which international fund to use?

Post by azanon »

Morik wrote:
abuss368 wrote:Hi Morik,

It can be dangerous to think you may know more than the market. Once investors tilt away from the market the result can be very good or bad.
I don't see the connection between what I've proposed doing and the several posters who imply I think I know more than the market--can you explain?
Do you say that any tilt away from market weights is thinking you know more than the market?
Don't we do that all the time (if you consider the whole investment landscape, not just equities)?
Most people don't hold the appropriate market-cap weighted proportion of stocks to bonds, do they?
Why not?--Because they want different risk/return characteristics than the average of the market.

Are you arguing that the research is incorrect/flawed, and that it does not prove the existence of a persistent value & size premium?
If not, in what way is using that research thinking I know more than the market?




Anyway, all this said, I have decided to hold of for 1 month for 2 reasons:
- I just started reading a statistics book (independently of this decision to tild)
- I have a statistics crash-course class coming up in ~1 month (also independent of this decision to tilt)

I also have a math minor & took statistics in college, but its been a while.

So anyway I want to look more closely at the research after I do those. I am sure it would have been disproven by someone by now if it isn't sound, but I want to understand more of the context, sample selection, etc to have a better understanding of what to expect. If no red flags come up for me (in integrating a deeper understanding of the research into my decision process), I'll proceed.
Yeah, Morik, I'm professionally (calmly) offended by the implication that "I know more than the market knows" simply because I tilt value and small. What I know is research I've studied, including by very notable Bogleheads no less, than points to a repeatedly demonstrated return/risk premium for small and value. I guess my rebuttal is I don't stick my head in the sand and pretend to not know anything because I've read too much research and I cannot take that knowledge back. It's there and I either ignore it or act on it accordingly.
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Re: Adding a tilt--which international fund to use?

Post by SeeMoe »

Morik wrote:
SeeMoe wrote:Fair Q. I went the whole route from a stock broker and individual stocks to sector funds and so on mostly based on hunches like a gambler who " just knows" that he has an unexplainable ability, gift, to pick the right combination of numbers. Then , after a real hard --s kicking in the markets, I finally found the Vanguard office one day in Center City Philly. Then Bogle books on investing. Then in 2001 I had another ephipeny to actually spend a few bucks on a one time Vanguard advisor analysis. Received a how-to booklet that was a revelation per how screwed up our folios were and began slowly implementing the advisors recommendations right into "9-11" a month later. Kept buying when the markets reopened when most were panic selling and our folios have prospered significantly ever since. (NOTE: Studies show that most 1x folio advice is not followed, or at least not to the letter!)
SeeMoe.. :moneybag
Thanks for sharing. I see my situation as a little different: I did have an advisor at one point, and he did have me in MPT, efficient-frontier portfolios. Basically they tried to guess (using "advanced models") which asset classes would be most lucrative going forward, and tilt to them.
It was a well diversified, low-cost portfolio (mostly vanguard funds), but there was a 1% wrap fee.
I ended up simplifying away from commodities, wood/logging stocks, etc, and going to the 3-fund with market-weighted international, plus TIAA real estate account.

Then I added a 10% consumer debt position--I believe this will provide good high-risk high-return diversification to the equity portfolio. Its intended as high risk, not as low risk fixed income/bonds, and replaces some of the equities.

And now I want to pick up some of the value & size premium that research has identified as a persistent premium, and that thinking about in my head makes sense as well; value stocks, for whatever reason, are the companies that are a bit out of favor in the market, which can capture returns due to short-term irrationalities, etc. Small companies are inherently more risky and small caps are much more volatile; the market should price small caps such that that extra risk is compensated by greater chances for a better return. (So I don't think I know more than the market--I think the market knows that the accurate price for them is to capture the additional expected return vs less risky alternatives.)
grabiner wrote:Vanguard now has International High Dividend Yield Index, also available as an ETF, at 0.30% expenses. This is a reasonable value option, although it is more expensive than other Vanguard funds.

I might consider it if the expenses go down in the future, but for now, I don't bother to tilt my international stocks to value; I hold VSS to overweight small-caps.
That was discussed upthread (VYMI is the ETF). My conclusion was that it would be better for me (worth paying the extra cost) to also get small & mid-cap exposure, and to not have to worry about what happens if the set of high dividend yield stocks diverges from the set of value stocks.
And looking at the style chart in morningstar, VYMI has a bit more exposure to growth stocks as well; my guess is the higher factor load (both value & size-wise) from GVAL would make up for the extra cost.
abuss368 wrote:Hi Morik,

It can be dangerous to think you may know more than the market. Once investors tilt away from the market the result can be very good or bad.
I don't see the connection between what I've proposed doing and the several posters who imply I think I know more than the market--can you explain?
Do you say that any tilt away from market weights is thinking you know more than the market?
Don't we do that all the time (if you consider the whole investment landscape, not just equities)?
Most people don't hold the appropriate market-cap weighted proportion of stocks to bonds, do they?
Why not?--Because they want different risk/return characteristics than the average of the market.

Are you arguing that the research is incorrect/flawed, and that it does not prove the existence of a persistent value & size premium?
If not, in what way is using that research thinking I know more than the market?




Anyway, all this said, I have decided to hold of for 1 month for 2 reasons:
- I just started reading a statistics book (independently of this decision to tild)
- I have a statistics crash-course class coming up in ~1 month (also independent of this decision to tilt)

I also have a math minor & took statistics in college, but its been a while.

So anyway I want to look more closely at the research after I do those. I am sure it would have been disproven by someone by now if it isn't sound, but I want to understand more of the context, sample selection, etc to have a better understanding of what to expect. If no red flags come up for me (in integrating a deeper understanding of the research into my decision process), I'll proceed.
Yes, we all have our own unique investment stratigies and schemes for getting there from here one day. In a couple years or so it would be interesting to know how your investments are coming along, Morik. Best of luck..
SeeMoe.. :beer
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Re: Adding a tilt--which international fund to use?

Post by abuss368 »

Hi Morik,

In my opinion your investment portfolio is fine. I did not mean to imply that you may know more than the markets. Perhaps I should I worded it as if one if going to tilt away or in a different direction from the markets, please be aware of the possible additional risk and reward.

As I always say, the best investment portfolio is the one that works for you.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Adding a tilt--which international fund to use?

Post by Morik »

Alright, so after reading a bunch of Larry's articles and doing some thinking, I want to clean this up and simplify a bit.

My thoughts now are:

Domestic:
50% S&P 500 (US large blend, 0.02 ER in my 401k)
35% small cap value (thinking RZV, 0.35 ER, good microcap coverage but still not as deep as BRSIX)
15% Microcap blend (BRSIX, 0.73 ER)

International:
50% Total international (VXUS, foreign large blend, 0.07 ER in my 401k)
25% GVAL (deep value, covers emerging markets well too, 0.69 ER)
25% VSS (small, 0.17 ER)

Total ER (52.5% domestic, 47.5% international) would be:
.525*(.5*.02+.35*.35+.15*.73)+.475*(.5*.07+.25*.69+.25*.17) = ~0.25%

Many fewer positions, more concentrated on size & value factors.
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Re: Adding a tilt--which international fund to use?

Post by livesoft »

Nice portfolio in theory, but in practice, that GVAL has no volume and no assets for a retirement portfolio.

For instance, the reported volume on Friday May 27, 2016 was 1762 shares and the closing price was $18.77. That means about $33,000 of GVAL changed hands. Yes, I see that the 3 month average daily volume is 10 times higher, so it might not be that bad.

Nevertheless, one should think about the future. If one had a 7-figure portfolio, how much GVAL would one hold? How about a mid-7-figure portfolio? Also consider that over the next 10 to 20 years, new products will appear just like new products have appeared over the past 10-20 years.

My experience is that these low-volume things are a PITA when it comes to portfolio management and accumulation. I would not own GVAL at all. It will be interesting to see if anybody else reaches the same conclusion.
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Re: Adding a tilt--which international fund to use?

Post by William4u »

livesoft wrote:Nice portfolio in theory, but in practice, that GVAL has no volume and no assets for a retirement portfolio.

For instance, the reported volume on Friday May 27, 2016 was 1762 shares and the closing price was $18.77. That means about $33,000 of GVAL changed hands. Yes, I see that the 3 month average daily volume is 10 times higher, so it might not be that bad.

Nevertheless, one should think about the future. If one had a 7-figure portfolio, how much GVAL would one hold? How about a mid-7-figure portfolio? Also consider that over the next 10 to 20 years, new products will appear just like new products have appeared over the past 10-20 years.

My experience is that these low-volume things are a PITA when it comes to portfolio management and accumulation. I would not own GVAL at all. It will be interesting to see if anybody else reaches the same conclusion.
+1. Low volume ETFs come with problems, especially if that ETF is a niche product. Many such ETFs go under every year (read about "Shutdown Risk" below).

Being a niche product, with low volume, that ETF is more likely to come with some of the problems in the article below. They also tend to be tax inefficient.
http://www.etf.com/etf-education-center ... -etfs.html
http://www.barrons.com/articles/niche-e ... 1418444560
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Re: Adding a tilt--which international fund to use?

Post by grap0013 »

livesoft wrote: My experience is that these low-volume things are a PITA when it comes to portfolio management and accumulation. I would not own GVAL at all. It will be interesting to see if anybody else reaches the same conclusion.
I concur.

Keep this business simple. Why not just use SFILX as your sole dev. international holding? It has had lower standard deviation and much better returns than all those other funds listed in this thread.
There are no guarantees, only probabilities.
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Re: Adding a tilt--which international fund to use?

Post by lack_ey »

And these funds are liable to switch indexes on you anyway.
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Re: Adding a tilt--which international fund to use?

Post by Morik »

livesoft wrote:Nice portfolio in theory, but in practice, that GVAL has no volume and no assets for a retirement portfolio.
Can you further expand on that? Why does retirement vs non-retirement matter?
Also I understand the low volume part, but what do you mean by "no assets"?
William4u wrote: +1. Low volume ETFs come with problems, especially if that ETF is a niche product. Many such ETFs go under every year (read about "Shutdown Risk" below).

Being a niche product, with low volume, that ETF is more likely to come with some of the problems in the article below. They also tend to be tax inefficient.
http://www.etf.com/etf-education-center ... -etfs.html
http://www.barrons.com/articles/niche-e ... 1418444560
I'm not worried about tax efficiency--my retirement portfolio is entirely in tax-advantaged space. If/when it starts to bleed into taxable, I can keep inefficient assets in tax-advantaged space.

The GVAL (25% of my international which is 47.5% of my equities, which are 70% of my high risk allocation, which is 90% of my total allocation) would be 8.4% of my total portfolio, or ~$45k. (~$600k total assets, $533k tax-adjusted, I allocate everything in estimated after-tax amounts)

My thought is that if the volume starts becoming problematic for my portfolio size, I would find alternatives for that allocation. E.g., EFV (which isn't a great replacement since its large cap only).
I'm hoping by the time it starts to become problematic there may be more options in that area.

That said, I've never dealt with low volume investments before. What issues should I anticipate if I do that? My guesses:
- Absolutely need to use limit orders, may take multiple days to clear. (WIth a $2 commission, I'm not too concerned about being charged for a couple days.)
- I don't imagine rebalancing transactions will require massive volume; should I expect to have issues when I go to rebalance?
- If the fund goes under I'll need to find an alternative to invest in
- If my portfolio gets big enough (right now contributing $92k/yr to tax-advantaged space), such that the volume of my rebalancing transactions is high enough to cause (what kind?) issues, I would also find a different fund to fill this asset class.

The main concern I can think of is if I can't find a suitable fund for the space, and so some problem causes me to stop allocating to intl value. This would be concerning to me because I expect to need to hold that for a while to realize the expected return benefit; if I have to get out of it in 5 or 10 years, and it hadn't paid off yet, it will have been an overall negative for the portfolio.

That said, I imagine that the international value space will become more covered over time.
grap0013 wrote: I concur.

Keep this business simple. Why not just use SFILX as your sole dev. international holding? It has had lower standard deviation and much better returns than all those other funds listed in this thread.
I'm not sure I understand your question. SFILX seems to be more similar to VSS (which I plan to use for my allocation to intl small blend) than to GVAL--SFILX isn't value focused.

If you mean why not just drop intl value from my allocation, the answer is that I want to pick up some of the value premium from intl.

lack_ey wrote:And these funds are liable to switch indexes on you anyway.
If you are referring to earlier fund recommendations (esp. the dividend strategy ones), note that I didn't include any of those.

To clarify, I'm proposing to hold:

Code: Select all

10% Low Risk
 10% TIAA Traditional (TRAD)
90% High Risk
 10% Consumer Debt (lending club)
 10% TIAA Real Estate (TREA)
 70% Equities
  52.5% Domestic
    26.25% Large blend (VIIIX [inst. shares of VUSD], 0.02% ER)
    18.375% Small value (RZV, 0.35% ER)
    7.875% Microcap (BRSIX, 0.73% ER)
  47.5% International
    23.75% Large Blend (VTPSX [inst. shares of same thing as VXUS], 0.07% ER)
    11.875% Small Value (GVAL, 0.69% ER, I realize its not small, but seems to get me closest out of the funds I've looked at)
    11.875% Small blend (VSS, 0.08% ER)
Of those, I would be surprised if strategy/index changes came about in any of: VIIIX, VTPSX, VSS. (I mean, they may change indices, but I don't expect the core strategy to change in these vanguard funds.)
For RZV, even if it changes indices, so long as it kept its small & valuey strategy I don't see this as concerning?
I wouldn't expect BRSIX to venture far from being microcaps either...
That leaves just GVAL, which follows the index of the same name; I would be surprised if it changed which index it tracks.
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Re: Adding a tilt--which international fund to use?

Post by livesoft »

Morik wrote:
livesoft wrote:Nice portfolio in theory, but in practice, that GVAL has no volume and no assets for a retirement portfolio.
Can you further expand on that? Why does retirement vs non-retirement matter?
Also I understand the low volume part, but what do you mean by "no assets"?
I used "retirement" to mean a long-term-held portfolio and did not mean to make a distinction between retirement and taxable.

By "no assets" I meant that GVAL only has a mere 4 million shares outstanding which translates to less than $100 million. I would not want to end up owning more than 5% of the average daily volume and no more than 0.5% of the outstanding shares which would be easily possible. Yes, I realize that it is an ETF with active participants (or whatever they are called nowadays), so that new shares can be created, but note that in a restricted pool of companies and shares of the those companies outstanding I think it is not always possible to do that efficiently.

I think you will have fun with GVAL especially in your tax-advantaged accounts. Keep us informed with how it goes. At some point, you will be able to write a comment like I did based on your own experience. :)

I am satisifed with owning several thousand (and growing) shares of VSS.
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Re: Adding a tilt--which international fund to use?

Post by Morik »

livesoft wrote: I used "retirement" to mean a long-term-held portfolio and did not mean to make a distinction between retirement and taxable.

By "no assets" I meant that GVAL only has a mere 4 million shares outstanding which translates to less than $100 million. I would not want to end up owning more than 5% of the average daily volume and no more than 0.5% of the outstanding shares which would be easily possible. Yes, I realize that it is an ETF with active participants (or whatever they are called nowadays), so that new shares can be created, but note that in a restricted pool of companies and shares of the those companies outstanding I think it is not always possible to do that efficiently.

I think you will have fun with GVAL especially in your tax-advantaged accounts. Keep us informed with how it goes. At some point, you will be able to write a comment like I did based on your own experience. :)

I am satisifed with owning several thousand (and growing) shares of VSS.
What kind of problems arise if I own more than 5% of the daily volume?
If I'm holding long term why do I care if it takes a little longer to execute trades, and that I need to use limit orders?

Is automatic dividend reinvestment problematic at lower volumes?
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Re: Adding a tilt--which international fund to use?

Post by livesoft »

Morik wrote:What kind of problems arise if I own more than 5% of the daily volume?
If I'm holding long term why do I care if it takes a little longer to execute trades, and that I need to use limit orders?

Is automatic dividend reinvestment problematic at lower volumes?
Perhaps it is more behavioral. When I want to buy more shares because something has dropped 3% in one day, I want to know that I can get limit orders executed before people realize that they made a behavioral error selling at a lower price. Same thing when something goes up 3% in one day.

Automatic dividend reinvestment will be interesting for your broker. I think your broker will pay more for shares than you would if you reinvested yourself. That's because they are required to get you the shares and not required to be patient. The broker won't care about bid/ask spread.

But since you are doing this in a tax-advantaged account, I think you can experiment for yourself and report back how it goes. Maybe you will write, "livesoft, you were full of it and I've had no problems amassing a fortune in GVAL."
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