Domestic SCV? [Small Cap Value]

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Gmaloof
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Domestic SCV? [Small Cap Value]

Post by Gmaloof » Sat Sep 30, 2017 3:25 pm

Is IJS still the best option for non DFA investors to cover domestic SCV? TIA..

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whodidntante
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Re: Domestic SCV?

Post by whodidntante » Sat Sep 30, 2017 3:47 pm

It's still the one I prefer. I recently used FNDA Schwab Fundamental US Small Company ETF as a TLH partner. Both are excellent funds.

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Re: Domestic SCV?

Post by Robert T » Sat Sep 30, 2017 6:23 pm

.
The short answer – IJS is still a good choice

Long answer …

“Over the long-haul, what matters is factor exposure and expense” – Bill Bernstein

Factor exposure: Since inception iShares S&P600 Value (IJS) had very similar size and value exposure as DFA TM Targeted Value (DTMVX), with the latter have slightly higher beta exposure.
Tax efficiency: IJS had 0.3% better annual tax-efficiency than DTMVX over last 10 years
  • Tax cost ratio: 10 yrs to end June 2017
    0.33 = IJS
    0.63 = DTMVX
Expense ratio: IJS has 0.19% lower annual expense ratio than DTMVX
  • 0.25 = IJS
    0.44 = DTMVX
Alpha: We were often given the marketing spin that DFA adds (1%+) in alpha beyond factor exposure due to its superior implementation (e.g. through its block and patient trading, IPO exclusions, security lending, continuous rebalancing etc..). As below – there is no evidence of this with DTMVX.
Annualized returns:
Robert
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Re: Domestic SCV?

Post by livesoft » Sat Sep 30, 2017 8:57 pm

I also like IJS. Below is a morningstar growth-of chart for 4 small-cap value ETFs (and a bond fund to get growth of and not price) for the past 5 weeks.

Image

In those 5 weeks RZV was up 15.7% (more than then the YTD return of the S&P500 index fund, but IJS performed better than VBR and IWN. I have noticed that VBR seems more sedate compared to the others as shown in the chart, but also has mid-caps and thus a higher average market cap. RZV doesn't have enough volume for my tastes. IWN has the most volume, so I find it more useful for short-term RBD trades than the others.

At the moment I own shares of IJS and VBR.
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Re: Domestic SCV? [Small Cap Value]

Post by grabiner » Sat Sep 30, 2017 10:01 pm

Vanguard's VIOV tracks the same index at IJS, at a lower cost. There may be higher transaction costs, but as a buy-and-hold investor, you'll probably come out ahead with VIOV.

I prefer RZV (Guggenheim S&P 600 Pure Value) in a taxable account if your space is limited. RZV gives deeper exposure to small-cap and value than any other ETF, so you need less of it to get your desired exposures. And its dividend yield is so low that the combined tax and expense cost is about the same as Vanguard's VBR or VIOV.

(I don't hold small-cap value in taxable at all; I hold Vanguard Small-Cap Index in my Roth IRA, and RZV in my HSA.)
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Re: Domestic SCV? [Small Cap Value]

Post by MotoTrojan » Sat Sep 30, 2017 10:29 pm

grabiner wrote:
Sat Sep 30, 2017 10:01 pm
Vanguard's VIOV tracks the same index at IJS, at a lower cost. There may be higher transaction costs, but as a buy-and-hold investor, you'll probably come out ahead with VIOV.

I prefer RZV (Guggenheim S&P 600 Pure Value) in a taxable account if your space is limited. RZV gives deeper exposure to small-cap and value than any other ETF, so you need less of it to get your desired exposures. And its dividend yield is so low that the combined tax and expense cost is about the same as Vanguard's VBR or VIOV.

(I don't hold small-cap value in taxable at all; I hold Vanguard Small-Cap Index in my Roth IRA, and RZV in my HSA.)
I hold VIOV in both taxable and Roth. No transaction fees through VG and monthly contributions make this a winner for me.

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Re: Domestic SCV? [Small Cap Value]

Post by Grt2bOutdoors » Sun Oct 01, 2017 5:56 am

How do you keep track of which ETFs are preferable to others?
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Re: Domestic SCV? [Small Cap Value]

Post by livesoft » Sun Oct 01, 2017 6:59 am

Grt2bOutdoors wrote:
Sun Oct 01, 2017 5:56 am
How do you keep track of which ETFs are preferable to others?
1. Is it on this list: http://altruistfa.com/USsmallcapvaluefunds.htm ?

2. Does it trade with no-commission at my brokers?

3. Does it have an average volume of at least $10,000,000 per day and at least 100,000 shares a day?

4. Does it have an expense ratio of 0.25% or less?

5. Taxes matter, but one can always buy in a tax-advantaged account. Nevertheless, are the dividends at least 70% qualified?
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Re: Domestic SCV? [Small Cap Value]

Post by Small Law Survivor » Sun Oct 01, 2017 8:35 am

How does VIOV (Vanguard Small Cap 600 Value = an ETF) differ from VISVX (Vanguard Small Cap Value Index - the mutual fund)? I did look at the 15 year performance of each, and it appears that VIOV has a higher return.

I'm not very familiar with ETFs - does Vanguard sell ETFs that don't have a mutual fund counterpart? Is there a mutual fund counterpart to VIOV? I always assumed that Vanguard's ETFs were just an ETF version of the mutual fund, but I'm starting to realize that this may not be the case.

Thanks.

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Re: Domestic SCV? [Small Cap Value]

Post by grabiner » Sun Oct 01, 2017 8:35 am

Grt2bOutdoors wrote:
Sun Oct 01, 2017 5:56 am
How do you keep track of which ETFs are preferable to others?
Cost (including taxes if the ETF would be bought in a taxable account).

How well the ETF gives exposure to the factors for which it is being bought.

Trading costs, including commission and spread. I usually assume the whole spread will be lost on a buy-sell transaction. You may pay these costs more than twice, particularly the commission, as you may sell in a tax-deferred account to rebalance, or in a taxable account to harvest a loss.

This is the reason for my recommendation of VBR in tax-deferred if you have enough room, but RZV in taxable:
Getting deeper small-cap value exposure in taxable is almost free.

RZV has a higher expense ratio, but a lower tax cost, so the total cost is essentially the same as VBR (and less than IJS, which has also been recommended on this thread). In a tax-deferred account, RZV is significantly more expensive.

RZV has much lower market cap and price/book, so you get more small-cap value exposure for the same investment amount, or equal exposure for a smaller investment.

And RZV is more expensive to trade, but that is a small cost over a long holding period. If you pay a $7 commission to buy and sell, and lose the 0.19% spread, that is a total cost of $33 on a $10,000 investment. If you pay no commission on VBR, and lose the 0.10% spread, that is a total cost of $10 on a $10,000 investment, or zero cost if you hold the mutual fund class. Over a ten-year holding period, that is equivalent to an extra 0.02%-0.03% in expenses, 0.04-0.05% if you pay four commissions rather than two because you harvested a loss along the way.

Similarly, I am looking to buy IVLU: IVLU for international value exposure [iShares Edge MSCI Intl Value] I have not yet bought it because I am in the three-month period between changing my Investment Policy Statement and implementing the change. Again, in my taxable account, this is a very small extra cost for getting good exposure to international value.
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Re: Domestic SCV? [Small Cap Value]

Post by grabiner » Sun Oct 01, 2017 8:38 am

Small Law Survivor wrote:
Sun Oct 01, 2017 8:35 am
How does VIOV (Vanguard Small Cap 600 Value = an ETF) differ from VISVX (Vanguard Small Cap Value Index - the mutual fund)? I did look at the 15 year performance of each, and it appears that VIOV has a higher return.
They track different indexes, with different definitions of small-cap and value. The S&P 600 value index has a lower market cap and a stronger value exposure than the CRSP index that VBR/VISVX/VISAX uses, or the MSCI index that VBR/VISVX/VISAX used to use. Thus, when small-cap and value outperform large-cap and growth, VIOV will do better. Another way to view this is that VIOV gives you more exposure to small-cap and value for each dollar invested, so you can use it to get better exposure with limited dollars.
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Re: Domestic SCV? [Small Cap Value]

Post by Small Law Survivor » Sun Oct 01, 2017 4:11 pm

I had thought, until now, that Vanguard's ETFs were all ETF versions of it mutual funds.

Learned something new today.

Note that when you got to Vanguard's list of ETFs, VIOV is not listed.
https://investor.vanguard.com/etf/list# ... nd-returns

However, when you use Vanguard's search facility, you find it.
https://personal.vanguard.com/us/funds/ ... IntExt=INT

Wonder why that is? Am I missing something here?

[update] - sorry, I'm trying to sort this out. I see that there is a comparable mutual fund - Vanguard S&P Small Cap 600 Value Index Fund Institutional Shares (VSMVX). However, it is listed as institutional, which means (I think) that it's not available to "retail" investors like myself. Is that right?

It would be helpful to me to have a list of Vanguard mutual funds that have a parallel ETF, and vice versa.

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Re: Domestic SCV? [Small Cap Value]

Post by grabiner » Sun Oct 01, 2017 4:54 pm

Small Law Survivor wrote:
Sun Oct 01, 2017 4:11 pm
I had thought, until now, that Vanguard's ETFs were all ETF versions of it mutual funds.

Learned something new today.

Note that when you got to Vanguard's list of ETFs, VIOV is not listed.
https://investor.vanguard.com/etf/list# ... nd-returns
Go to the ETF search list, and then click on "Filter" and "Other Indexes" to see a list of those ETFs tracking S&P and Russell indexes. Vanguard prefers to hide these on the retail investors page, because most retail investors won't want to consider them (except the S&P 500, which is displayed on the main page). They are more expensive than the CRSP index ETFs.

The advisors page

https://advisors.vanguard.com/VGApp/iip ... roduct_etf

does list all the ETFs.
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Re: Domestic SCV? [Small Cap Value]

Post by Small Law Survivor » Sun Oct 01, 2017 8:23 pm

Go to the ETF search list, and then click on "Filter" and "Other Indexes" to see a list of those ETFs tracking S&P and Russell indexes. Vanguard prefers to hide these on the retail investors page, because most retail investors won't want to consider them (except the S&P 500, which is displayed on the main page). They are more expensive than the CRSP index ETFs.
Wow, had no idea this existed. Thank you!

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Re: Domestic SCV? [Small Cap Value]

Post by indexingfun » Sun Oct 01, 2017 9:46 pm

Recommendations for U.S. small value in Berkin & Swedroe’s Complete Guide to Factor Investing:

Bridgeway Omni Small Cap Value (BOSVX)
Bridgeway Omni Tax-Managed Small Cap Value (BOTSX)
DFA US Small Cap Vlue (DFSVX)
DFA Tax-Managed US Targeted Value (DTMVX)
iShares S&P Small Cap Value (IJS)
Vanguard Small Cap Value (VBR/VSIAX)
Schwab Fundamental US Small Company (FNDA)

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Re: Domestic SCV? [Small Cap Value]

Post by triceratop » Mon Oct 02, 2017 11:50 am

I tax gain harvested into IJS on 08/17 and 08/21. Market timing properly allowed me to make ~$500 while switching to my preferred SCV index now that I have commission-free access. I plan to use IJS/VIOV going forward. The factor exposures have been exceptional, and pretty much the fund does what it says it will (whether the factor premia cooperate is another question).

I have also noticed that even after expenses, IJS still performs about as well as or better than VIOV, making the higher transaction costs possibly determinative. On the other hand, I trust Vanguard not to raise ERs more. Call it a wash?
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Re: Domestic SCV?

Post by triceratop » Mon Oct 02, 2017 12:01 pm

Robert T wrote:
Sat Sep 30, 2017 6:23 pm
.
The short answer – IJS is still a good choice

Long answer …

“Over the long-haul, what matters is factor exposure and expense” – Bill Bernstein

Factor exposure: Since inception iShares S&P600 Value (IJS) had very similar size and value exposure as DFA TM Targeted Value (DTMVX), with the latter have slightly higher beta exposure.
It looks to me that despite the higher loading on Size for the DFA fund, due to higher market beta it's actually better per-unit-beta to own IJS for SCV.
So even for DFA investors, IJS may be the preferred fund. Of course, DFSVX seems to have higher loadings on size and value, especially size, but at more than double the cost. Did you not look at DFSVX due to tax efficiency? Anyway it appears tracking the S&P600 Value may be the best DIY investors can do.
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Re: Domestic SCV? [Small Cap Value]

Post by jhfenton » Mon Oct 02, 2017 12:21 pm

In tax-advantaged we own lots and lots of VSIAX (Vanguard Small Cap Value Index Admiral). At 7 bp, I'm perfectly happy to just load up on it, even if it is not as pure as some of the others.

But we own VIOV in taxable, largely because it is more tax-efficient than VSIAX.

Unless you day trade, it is more cost-effective to own (especially at Vanguard) than IJS. Average spreads on VIOV have come down very close to those for IJS.

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Re: Domestic SCV? [Small Cap Value]

Post by Grt2bOutdoors » Mon Oct 02, 2017 1:30 pm

jhfenton wrote:
Mon Oct 02, 2017 12:21 pm
In tax-advantaged we own lots and lots of VSIAX (Vanguard Small Cap Value Index Admiral). At 7 bp, I'm perfectly happy to just load up on it, even if it is not as pure as some of the others.

But we own VIOV in taxable, largely because it is more tax-efficient than VSIAX.

Unless you day trade, it is more cost-effective to own (especially at Vanguard) than IJS. Average spreads on VIOV have come down very close to those for IJS.
Are you buying at "the market" or are you "setting limit orders" when placing trades? I've never used ETF's before, funds only when it comes to investing in sector classes.
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Re: Domestic SCV? [Small Cap Value]

Post by livesoft » Mon Oct 02, 2017 1:33 pm

I usually just place a market order for VBR or IJS or IWN nowadays. I used my VBR dividend paid this morning to buy more shares. I submitted a market order and I received the low price of the bid/ask price at my broker.

That is, someone else paid the spread. In other words, I don't think one needs to worry with the ETFs that one should use about the spread. This is one of my pet peeves about information at bogleheads.org. Often provided information does not match reality and causes readers to needlessly worry and fall into the analysis/paralysis trap.
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Re: Domestic SCV? [Small Cap Value]

Post by Grt2bOutdoors » Mon Oct 02, 2017 1:36 pm

livesoft wrote:
Mon Oct 02, 2017 1:33 pm
I usually just place a market order for VBR or IJS or IWN nowadays. I used my VBR dividend paid this morning to buy more shares. I submitted a market order and I received the low price of the bid/ask price at my broker.

That is, someone else paid the spread. In other words, I don't think one needs to worry with the ETFs that one should use about the spread. This is one of my pet peeves about information at bogleheads.org. Often provided information does not match reality and causes readers to needlessly worry and fall into the analysis/paralysis trap.
One last question - do you try to buy in round $$ lots of say $5 or $10K to make 100 shares or do you buy in odd lot amounts?
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Re: Domestic SCV? [Small Cap Value]

Post by triceratop » Mon Oct 02, 2017 1:46 pm

I always buy odd lots and with limit orders around the bottom of the spread (that is, usually not a marketable limit order). Yes I am taking a slight risk due to delayed execution but I'm comfortable being a passive trader. The prices bounce around enough for all of these liquid ETFs that it seems to be worth having others pay the transaction costs (which are small anyway). Mostly I just don't want the market price to have spiked when i submit a market order.
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Re: Domestic SCV? [Small Cap Value]

Post by livesoft » Mon Oct 02, 2017 3:25 pm

Grt2bOutdoors wrote:
Mon Oct 02, 2017 1:36 pm
- do you try to buy in round $$ lots of say $5 or $10K to make 100 shares or do you buy in odd lot amounts?
In today's case, I bought less than 100 shares, so an odd lot.

But I buy round lots sometimes. Or I submit multiple orders with some round-lots and some odd-lots.

And I sometimes use limit orders. And sometimes when I submit multiple orders, I use both market orders and limit orders. And sometimes I modify limit orders already submitted. And those modifications can be for a lower limit price or a higher limit price or a change in the number of shares. And sometimes I cancel the order entirely.

And a bonus answer: In this particular account, I originally bought an odd lot of more than 200 shares (but less than 300 shares) with a market order because that number of shares almost exactly matched the amount of money I had available after selling something else. Today's purchase was not required for maintaining my asset allocation, but was just to get the total number of shares of VBR in this account to be a round lot and make things look pretty when I viewed account info online.
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Re: Domestic SCV?

Post by Robert T » Mon Oct 02, 2017 8:01 pm

triceratop wrote:
Mon Oct 02, 2017 12:01 pm
Did you not look at DFSVX due to tax efficiency?
The monthly alpha (residual after accounting for market, size, and value exposure) for DFSVX = 0.04 over the same period as the earlier analysis and is not statistically different from zero. https://www.portfoliovisualizer.com/fac ... sion=false

DFSVX had higher size and value exposure, but this only matters for those with a 100% small value portfolio wanting the factor tilt of DFSVX (and with space in tax advantaged accounts). For those wanting a lessor value and size tilted portfolio, it can also be achieved with alternatives such as IJS. And for taxable accounts:
  • According to M* - Annualized returns for past 15 years to end September 2017

    Before tax
    IJS = 11.71
    DFSVX = 12.17

    After tax
    IJS = 11.30
    DFSVX = 10.85
FWIW - I do use DFSVX, but only in 529 - given alternatives when I looked at it - but don't expect any 'implementation alpha' beyond factor exposure, and would be weary of any claims of 1%+ alpha beyond factor exposure from DFA implementation - as in the linked analysis above - there is no evidence of this for DTMVX and DFSVX.

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Re: Domestic SCV? [Small Cap Value]

Post by jhfenton » Tue Oct 03, 2017 7:46 am

Grt2bOutdoors wrote:
Mon Oct 02, 2017 1:30 pm
jhfenton wrote:
Mon Oct 02, 2017 12:21 pm
In tax-advantaged we own lots and lots of VSIAX (Vanguard Small Cap Value Index Admiral). At 7 bp, I'm perfectly happy to just load up on it, even if it is not as pure as some of the others.

But we own VIOV in taxable, largely because it is more tax-efficient than VSIAX.

Unless you day trade, it is more cost-effective to own (especially at Vanguard) than IJS. Average spreads on VIOV have come down very close to those for IJS.
Are you buying at "the market" or are you "setting limit orders" when placing trades? I've never used ETF's before, funds only when it comes to investing in sector classes.
Like triceratops, I buy odd lots of VIOV using non-marketable limit orders. I think my largest single purchase was 30 shares, but I typically buy very small odd lots (1-4 shares) with monthly or biweekly contributions to our taxable account, contributions that are split between three positions.

I own VSIAX in tax-advantaged rather than VBR, but I'd probably treat it the same way, since I'd be buying with monthly Roth IRA contributions.

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Re: Domestic SCV? [Small Cap Value]

Post by Grt2bOutdoors » Tue Oct 03, 2017 10:13 am

livesoft wrote:
Mon Oct 02, 2017 3:25 pm
Grt2bOutdoors wrote:
Mon Oct 02, 2017 1:36 pm
- do you try to buy in round $$ lots of say $5 or $10K to make 100 shares or do you buy in odd lot amounts?
In today's case, I bought less than 100 shares, so an odd lot.

But I buy round lots sometimes. Or I submit multiple orders with some round-lots and some odd-lots.

And I sometimes use limit orders. And sometimes when I submit multiple orders, I use both market orders and limit orders. And sometimes I modify limit orders already submitted. And those modifications can be for a lower limit price or a higher limit price or a change in the number of shares. And sometimes I cancel the order entirely.

And a bonus answer: In this particular account, I originally bought an odd lot of more than 200 shares (but less than 300 shares) with a market order because that number of shares almost exactly matched the amount of money I had available after selling something else. Today's purchase was not required for maintaining my asset allocation, but was just to get the total number of shares of VBR in this account to be a round lot and make things look pretty when I viewed account info online.
I fibbed, I have one last last question. Hypothetically speaking, you purchase X dollars of IJS and lo and behold market tanks taking it with it, you sell to take tax loss there and then what? if you have no extra cash in another taxable account (all other positions are in a net gain position) to swap between IJS and say IWN or VBR, what then? What I'm trying to understand is how to capture the tax loss and benefit from rebound? Do I offset losses with net gains and buy into "like-for-like" ETF there?
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Re: Domestic SCV? [Small Cap Value]

Post by livesoft » Tue Oct 03, 2017 10:21 am

If I sell IJS for a tax-loss, then that gives me the cash to immediately buy VTI or VEA or VV or VEU in my taxable account. I own VTI, VEA, VV, and VEU already in my taxable account. (As an aside, I currently do not own IJS in my taxable account, so in reality I will not be tax-loss harvesting it.)

Then in a tax-advantaged account, I can buy IWN or VBR or something else. I can get the money to buy a small-cap value fund in a tax-deferred account by selling shares of anything: bond fund shares (VCSH or AGG or BIV or BND) or by selling shares of VTI, VEA, VV, VEU. I will choose what to sell based on any number of factors.
Examples:
IJS -> VEA
VEA -> IWN

or
IJS -> VTI
BIV -> VBR

or I could in the same taxable account:
IJS -> IWN if I was comfortable holding IWN in that taxable account.

and so on.
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Re: Domestic SCV? [Small Cap Value]

Post by Gmaloof » Sun Oct 08, 2017 2:25 pm

Is it still the case that there are no good DFA alternative's for International Small Cap value both in developed and emerging markets? Thanks

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Re: Domestic SCV? [Small Cap Value]

Post by tj » Sat Jan 06, 2018 2:33 pm

Gmaloof wrote:
Sun Oct 08, 2017 2:25 pm
Is it still the case that there are no good DFA alternative's for International Small Cap value both in developed and emerging markets? Thanks
http://www.etf.com/publications/journal ... nopaging=1

This article uses 60% VWO 40% EWX as a clone for DFA Emerging Value...

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Re: Domestic SCV? [Small Cap Value]

Post by Alexa9 » Sat Jan 06, 2018 2:42 pm

tj wrote:
Sat Jan 06, 2018 2:33 pm
Gmaloof wrote:
Sun Oct 08, 2017 2:25 pm
Is it still the case that there are no good DFA alternative's for International Small Cap value both in developed and emerging markets? Thanks
http://www.etf.com/publications/journal ... nopaging=1

This article uses 60% VWO 40% EWX as a clone for DFA Emerging Value...
DLS and DGS are OK

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Re: Domestic SCV? [Small Cap Value]

Post by ThePrince » Sat Jan 06, 2018 9:43 pm

grabiner wrote:
Sat Sep 30, 2017 10:01 pm
Vanguard's VIOV tracks the same index at IJS, at a lower cost. There may be higher transaction costs, but as a buy-and-hold investor, you'll probably come out ahead with VIOV.

I prefer RZV (Guggenheim S&P 600 Pure Value) in a taxable account if your space is limited. RZV gives deeper exposure to small-cap and value than any other ETF, so you need less of it to get your desired exposures. And its dividend yield is so low that the combined tax and expense cost is about the same as Vanguard's VBR or VIOV.

(I don't hold small-cap value in taxable at all; I hold Vanguard Small-Cap Index in my Roth IRA, and RZV in my HSA.)
I am quite fond of the Guggenheim “Pure” ETFs. They have performed very well over the long term.

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Re: Domestic SCV? [Small Cap Value]

Post by Park » Wed Jan 17, 2018 12:51 am

About RZV, I think it's a reasonable choice for a tax advantaged account. But when it comes to net assets, it's not that high, and not that far off asset numbers where ETFs get shut down. In a taxable account, I'd be worried that if RZV became unpopular, you'd end up paying some taxes that you wouldn't with other ETFs.

About VIOV, it looks like it only comes in an ETF wrapper? I feel uncomfortable with Vanguard's combined mutual funds/ETFs, which includes VBR. What if one of those combined funds become unpopular? One must consider what happens if assets decline in a fund; it is unlikely that a fund will grow indefinitely. If I'm invested in an ETF, I don't pay the costs of those who leave the fund. But I'm not as certain that's true in a combined mutual fund/ETF.

Longtermgrowth
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Re: Domestic SCV? [Small Cap Value]

Post by Longtermgrowth » Thu Jan 18, 2018 4:17 am

Park wrote:
Wed Jan 17, 2018 12:51 am
About VIOV, it looks like it only comes in an ETF wrapper? I feel uncomfortable with Vanguard's combined mutual funds/ETFs, which includes VBR. What if one of those combined funds become unpopular? One must consider what happens if assets decline in a fund; it is unlikely that a fund will grow indefinitely. If I'm invested in an ETF, I don't pay the costs of those who leave the fund. But I'm not as certain that's true in a combined mutual fund/ETF.
I refreshed this thread all day hoping to see a response to this from one of the very knowledgeable posters above.
VIOV does indeed appear to only come in an ETF wrapper. Your point of possible costs from excessive outflows on the mutual fund side, if an ETF has a mutual fund equivalent, burdening the ETF holders, makes VIOV look much better than VBR; besides also having less than half the average market cap of VBR...

tj
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Re: Domestic SCV? [Small Cap Value]

Post by tj » Thu Jan 18, 2018 10:50 am

Longtermgrowth wrote:
Thu Jan 18, 2018 4:17 am
Park wrote:
Wed Jan 17, 2018 12:51 am
About VIOV, it looks like it only comes in an ETF wrapper? I feel uncomfortable with Vanguard's combined mutual funds/ETFs, which includes VBR. What if one of those combined funds become unpopular? One must consider what happens if assets decline in a fund; it is unlikely that a fund will grow indefinitely. If I'm invested in an ETF, I don't pay the costs of those who leave the fund. But I'm not as certain that's true in a combined mutual fund/ETF.
I refreshed this thread all day hoping to see a response to this from one of the very knowledgeable posters above.
VIOV does indeed appear to only come in an ETF wrapper. Your point of possible costs from excessive outflows on the mutual fund side, if an ETF has a mutual fund equivalent, burdening the ETF holders, makes VIOV look much better than VBR; besides also having less than half the average market cap of VBR...

VIOV absolutely has a mutual fund equivalent:

https://institutional.vanguard.com/VGAp ... undId=1846

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Re: Domestic SCV? [Small Cap Value]

Post by jalbert » Thu Jan 18, 2018 1:05 pm

ThePrince wrote:
Sat Jan 06, 2018 9:43 pm
grabiner wrote:
Sat Sep 30, 2017 10:01 pm
Vanguard's VIOV tracks the same index at IJS, at a lower cost. There may be higher transaction costs, but as a buy-and-hold investor, you'll probably come out ahead with VIOV.

I prefer RZV (Guggenheim S&P 600 Pure Value) in a taxable account if your space is limited. RZV gives deeper exposure to small-cap and value than any other ETF, so you need less of it to get your desired exposures. And its dividend yield is so low that the combined tax and expense cost is about the same as Vanguard's VBR or VIOV.

(I don't hold small-cap value in taxable at all; I hold Vanguard Small-Cap Index in my Roth IRA, and RZV in my HSA.)
I am quite fond of the Guggenheim “Pure” ETFs. They have performed very well over the long term.
RZV was introduced 3/1/2006. Comparing to:

DFSVX: DFA Small-cap value
DFFVX: DFA Targeted Value
IJS: ishares S&P600 value
VSIAX: Vanguard Small-Cap Value (which had a couple of index changes)

RZV took more risk and had a lower return.
Risk is not a guarantor of return.

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Re: Domestic SCV? [Small Cap Value]

Post by grabiner » Thu Jan 18, 2018 9:17 pm

Park wrote:
Wed Jan 17, 2018 12:51 am
About RZV, I think it's a reasonable choice for a tax advantaged account. But when it comes to net assets, it's not that high, and not that far off asset numbers where ETFs get shut down. In a taxable account, I'd be worried that if RZV became unpopular, you'd end up paying some taxes that you wouldn't with other ETFs.
RZV has been around long enough and fills an important enough niche that I don't think it is likely to get shut down.

And it's actually great in a taxable account; it has such a low yield that the overall cost, in expenses and taxes, is about the same as the overall cost for Vanguard's less expensive funds.

(I hold RZV in my HSA, not in my taxable account, although I might switch at some point.)
David Grabiner

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Re: Domestic SCV? [Small Cap Value]

Post by Longtermgrowth » Sun Jan 21, 2018 2:57 am

tj wrote:
Thu Jan 18, 2018 10:50 am
Longtermgrowth wrote:
Thu Jan 18, 2018 4:17 am
Park wrote:
Wed Jan 17, 2018 12:51 am
About VIOV, it looks like it only comes in an ETF wrapper? I feel uncomfortable with Vanguard's combined mutual funds/ETFs, which includes VBR. What if one of those combined funds become unpopular? One must consider what happens if assets decline in a fund; it is unlikely that a fund will grow indefinitely. If I'm invested in an ETF, I don't pay the costs of those who leave the fund. But I'm not as certain that's true in a combined mutual fund/ETF.
I refreshed this thread all day hoping to see a response to this from one of the very knowledgeable posters above.
VIOV does indeed appear to only come in an ETF wrapper. Your point of possible costs from excessive outflows on the mutual fund side, if an ETF has a mutual fund equivalent, burdening the ETF holders, makes VIOV look much better than VBR; besides also having less than half the average market cap of VBR...
VIOV absolutely has a mutual fund equivalent:

https://institutional.vanguard.com/VGAp ... undId=1846
Thanks for pointing that out. Just poking around on Vanguard's site had me thinking there wasn't. Though all the links from VIOV attempt to direct one from there to VBR. Guess I will stick with something like IJS or RZV for an alternative to the DES that I cureently hold, since I can trade any ETF commission free. I really wanted to consolidate more towards Vanguard though, hoping that customer service would get better in the future and being able to transfer funds to their brokerage =\

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Re: Domestic SCV? [Small Cap Value]

Post by Park » Sun Jan 21, 2018 12:29 pm

I don't like the ETF/MF structure that Vanguard uses. If you're a long term buy and hold investor, for whom transaction costs are not a significant issue, I don't see the advantage of it, compared to a pure ETF structure.

One advantage of an ETF over a mutual fund is the ability to increase tax efficiency using the in kind redemption process. An ETF/mutual fund wrapper can still do this, so the ETF investor might not be disadvantaged by the mutual fund investors. See the link below. However, I wonder if that tax efficiency might result in increased expenses in the hybrid structure.

http://www.etf.com/sections/features-an ... age/0/ISTB

But when a mutual fund investor sells, other mutual fund investors can end up paying the costs of that sale. That includes the expenses and the cap gains tax. But that's not true with ETFs; other ETF investors don't pay the costs.

As long as the mutual fund increases in size, it's not an issue. Also the mutual fund can use tax loss harvesting, whereas an ETF can't. And the link above would suggest that with an ETF/mutual fund structure, Vanguard might be able to deal with tax consequences of mutual fund investors selling, albeit at a possible increased cost.

Vanguard may be taking the differences in cost into account. VISVX, a Vanguard SCV mutual fund, has an expense ratio of 0.19% in the investor series. VBR, its ETF counterpart, has an expense ratio of 0.07%. However, the ETF investor has to pay commissions and bid ask spread. And Vanguard's Admiral version of the mutual fund has an expense ratio of 0.07%. So I'm not sure that Vanguard is taking that into account.

One must consider the possibility that a fund decreases in assets. And when that happens, ETF investors may end up paying costs in a hybrid ETF/mutual fund structure that they wouldn't in a pure ETF structure.

OTOH, Vanguard has the competitive advantage of being the lowest cost fund provider. Also, Vanguard has a history of treating its investors better than the average fund company. However, Vanguard keeps increasing in size. Will it eventually be forced to break up?

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Re: Domestic SCV? [Small Cap Value]

Post by Mors » Mon Jan 22, 2018 11:37 am

An interesting observation. With the AQR factors, the DFA SCV has a smaller lack of alpha compared to the iShares one, despite having a bit lower size and value loadings.

https://www.portfoliovisualizer.com/fac ... sion=false

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Re: Domestic SCV? [Small Cap Value]

Post by jalbert » Tue Jan 23, 2018 8:47 pm

With a mutual fund you only need to be concerned with liquidity of securities held by the fund. With an ETF you have to be concerned with liquidity of the ETF shares, which I believe will rarely be more liquid than the securities held by the ETF. Certainly, they can be less liquid.

Perhaps I’m wrong, but I don’t think mutual fund investors realize capital gains very often, if ever, when other investors do withdrawals. The fund selling securities to redeploy the funds in a different investment are at least the primary, if not the only source of capital gains distributions by a mutual fund.
Risk is not a guarantor of return.

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Re: Domestic SCV? [Small Cap Value]

Post by Park » Thu Jan 25, 2018 9:45 pm

jalbert wrote:
Tue Jan 23, 2018 8:47 pm
With a mutual fund you only need to be concerned with liquidity of securities held by the fund. With an ETF you have to be concerned with liquidity of the ETF shares, which I believe will rarely be more liquid than the securities held by the ETF. Certainly, they can be less liquid.

Perhaps I’m wrong, but I don’t think mutual fund investors realize capital gains very often, if ever, when other investors do withdrawals. The fund selling securities to redeploy the funds in a different investment are at least the primary, if not the only source of capital gains distributions by a mutual fund.
The liquidity of the ETF shares can be an issue resulting an premiums or discounts to NAV. However, if you're a long term investor buying popular broad market cap ETFs, it's less of an issue. And the buying and selling of ETF shares is one reason why long term ETF investors don't subsidize short term ETF investors, unlike in mutual funds.

I disagree about mutual fund investors never realizing cap gains when other investors do withdrawals. If you do some internet searching, you'll find examples. An ETF investor doesn't have to worry about cap gains due to other ETF investors withdrawing. The exception would be if the AUM become small enough to cause the ETF to be closed.

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Re: Domestic SCV? [Small Cap Value]

Post by youngpleb » Fri Jan 26, 2018 1:30 pm

tj wrote:
Thu Jan 18, 2018 10:50 am

VIOV absolutely has a mutual fund equivalent:

https://institutional.vanguard.com/VGAp ... undId=1846
Sweet, only $4,997,000 to go before I can get into that fund :mrgreen:

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Re: Domestic SCV? [Small Cap Value]

Post by Basa » Mon Jan 29, 2018 11:07 pm

Similarly, I am looking to buy IVLU: IVLU for international value exposure [iShares Edge MSCI Intl Value] I have not yet bought it because I am in the three-month period between changing my Investment Policy Statement and implementing the change. Again, in my taxable account, this is a very small extra cost for getting good exposure to international value.
[/quote]

Grabiner,

I'm curious, did you ever opt to incorporate IVLU into your taxable account?

Basa

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siamond
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Re: Domestic SCV? [Small Cap Value]

Post by siamond » Mon Jan 29, 2018 11:29 pm

An interesting total-return chart over the entire lifetime of IJS.

iShares IJS, Vanguard VBR, S&P 500

(I personally use VTIAX, the Admiral Fund equivalent of VBR, I see no reason to change)

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