Small Cap Blend vs Small Cap Value

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Boxtrap
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Small Cap Blend vs Small Cap Value

Post by Boxtrap » Mon May 07, 2018 10:12 am

In my 401k I am fortunate enough to have a few Vanguard funds on offering - enough to build a portfolio I'm happy with. Right now my equities are in VFIAX and VGTSX. I don't have Vanguard small cap value offered as an option, but I DO have Vanguard small cap blend - VSMAX. Given the fairly consistent concept that small caps outperform large caps over the long term, I'm considering moving a portion of my equity holding into VSMAX. But obviously it would be a blend of small and not strictly value.

Everywhere you turn you hear "small cap value, small cap value!" Would love to hear thoughts on what, if any, premium there actually is on the value portion of small cap investing vs just holding a blended fund. Is small cap VALUE really that much better than small cap BLEND?

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Re: Small Cap Blend vs Small Cap Value

Post by ChinchillaWhiplash » Mon May 07, 2018 10:43 am

I think SCG has been shown to not perform well. Holding them in a SCB fund might cancel out gains in SCV. Probably not worth the time to invest in the blended fund as your gains would probably be minimal, especially when you factor in the higher ER.

Jags4186
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Re: Small Cap Blend vs Small Cap Value

Post by Jags4186 » Mon May 07, 2018 10:52 am

Small cap blend historically outperforms large cap blend, small cap value historically outperforms small cap blend.

Vanguards small cap blend and value funds are both not very small. Closer to midcap funds. Midcaps have also historically outperformed large cap blend...

All this to say, if you want to tilt smaller, this fund is perfectly reasonable but you may not be getting what you’re thinking you’re getting.

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Re: Small Cap Blend vs Small Cap Value

Post by MotoTrojan » Mon May 07, 2018 11:21 am

ChinchillaWhiplash wrote:
Mon May 07, 2018 10:43 am
I think SCG has been shown to not perform well. Holding them in a SCB fund might cancel out gains in SCV. Probably not worth the time to invest in the blended fund as your gains would probably be minimal, especially when you factor in the higher ER.
This is incorrect. I personally prefer small-value though and like it to be smaller than Vanguard's, so I use VIOV which tracks the S&P600 (median cap is roughly 1/2 the size of VGs).

I will soon use Vanguard's small-value fund in my 401k for rebalancing but push to get VIOV into my Roth/Taxable to allow me to reduce it in the 401k.

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Boxtrap
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Re: Small Cap Blend vs Small Cap Value

Post by Boxtrap » Mon May 07, 2018 12:59 pm

MotoTrojan wrote:
Mon May 07, 2018 11:21 am
ChinchillaWhiplash wrote:
Mon May 07, 2018 10:43 am
I think SCG has been shown to not perform well. Holding them in a SCB fund might cancel out gains in SCV. Probably not worth the time to invest in the blended fund as your gains would probably be minimal, especially when you factor in the higher ER.
This is incorrect. I personally prefer small-value though and like it to be smaller than Vanguard's, so I use VIOV which tracks the S&P600 (median cap is roughly 1/2 the size of VGs).

I will soon use Vanguard's small-value fund in my 401k for rebalancing but push to get VIOV into my Roth/Taxable to allow me to reduce it in the 401k.
Thanks for this explanation. So if I understand you correctly, VIOV ETF is basically a more accurate cross-section of ACTUAL small value stocks, whereas VBR/VSIAX is actually more of a small/mid value?

As a corollary to that, what are the advantages and disadvantages of using an ETF versus a fund? Up until now I've strictly been a fund guy but I should probably understand the upside and downside to using ETF's. I know that's a bit of a larger question, but any basic guidance would be appreciated.

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siamond
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Re: Small Cap Blend vs Small Cap Value

Post by siamond » Mon May 07, 2018 1:06 pm

Boxtrap wrote:
Mon May 07, 2018 10:12 am
Given the fairly consistent concept that small caps outperform large caps over the long term [...]
Hm, I am afraid this is a bit of a hasty statement. First (but I'm sure this is what you meant), small-caps blend (SCB) outperformed large caps in the past, which doesn't guarantee this will repeat itself. Next and more to the point, in the US, the outperformance occurred in the 40s and in the 70s, but not otherwise. And 30+ years is a mighty long time to wait for such outperformance to appear while staying the course. In other countries, from what I've read, the 'small effect' has been quite tenuous too. So no, the 'small effect' has definitely NOT been consistent.
Boxtrap wrote:
Mon May 07, 2018 10:12 am
Everywhere you turn you hear "small cap value, small cap value!" Would love to hear thoughts on what, if any, premium there actually is on the value portion of small cap investing vs just holding a blended fund. Is small cap VALUE really that much better than small cap BLEND?
Looking at the past, in the US and other countries, small-caps value (SCV) did display quite a remarkable premium. This still would have required very strong nerves, with periods of 10+ years without any premium materializing, but this certainly happened more often and much more strongly than for small-caps.

Please check this blog article I shared with the community a few months ago, and please make a solid effort at understanding what happened in the past. Again, no guarantee this will repeat itself, but minimally, you need to convince yourself that you would have stayed the course over such history, WITHOUT the advantage of hindsight. If you're honest with yourself, you should at least be skeptical and think twice...

Disclaimer: I do tilt towards SCV, and consciously decided to NOT tilt towards SCB.

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Re: Small Cap Blend vs Small Cap Value

Post by tonyc » Mon May 07, 2018 1:10 pm

Boxtrap wrote:
Mon May 07, 2018 12:59 pm
As a corollary to that, what are the advantages and disadvantages of using an ETF versus a fund? Up until now I've strictly been a fund guy but I should probably understand the upside and downside to using ETF's. I know that's a bit of a larger question, but any basic guidance would be appreciated.
https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds

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Boxtrap
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Re: Small Cap Blend vs Small Cap Value

Post by Boxtrap » Mon May 07, 2018 1:13 pm

siamond wrote:
Mon May 07, 2018 1:06 pm
Boxtrap wrote:
Mon May 07, 2018 10:12 am
Given the fairly consistent concept that small caps outperform large caps over the long term [...]
Hm, I am afraid this is a bit of a hasty statement. First (but I'm sure this is what you meant), small-caps blend (SCB) outperformed large caps in the past, which doesn't guarantee this will repeat itself. Next and more to the point, in the US, the outperformance occurred in the 40s and in the 70s, but not otherwise. And 30+ years is a mighty long time to wait for such outperformance to appear while staying the course. In other countries, from what I've read, the 'small effect' has been quite tenuous too. So no, the 'small effect' has definitely NOT been consistent.
Boxtrap wrote:
Mon May 07, 2018 10:12 am
Everywhere you turn you hear "small cap value, small cap value!" Would love to hear thoughts on what, if any, premium there actually is on the value portion of small cap investing vs just holding a blended fund. Is small cap VALUE really that much better than small cap BLEND?
Looking at the past, in the US and other countries, small-caps value (SCV) did display quite a remarkable premium. This still would have required very strong nerves, with periods of 10+ years without any premium materializing, but this certainly happened more often and much more strongly than for small-caps.

Please check this blog article I shared with the community a few months ago, and please make a solid effort at understanding what happened in the past. Again, no guarantee this will repeat itself, but minimally, you need to convince yourself that you would have stayed the course over such history, WITHOUT the advantage of hindsight. If you're honest with yourself, you should at least be skeptical and think twice...

Disclaimer: I do tilt towards SCV, and consciously decided to NOT tilt towards SCB.
Thanks so much. I will definitely check out your blog article! And yes, you're absolutely right, what I meant to say was small caps outperformED. Past tense. :)

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Re: Small Cap Blend vs Small Cap Value

Post by Northern Flicker » Mon May 07, 2018 1:25 pm

Thanks for this explanation. So if I understand you correctly, VIOV ETF is basically a more accurate cross-section of ACTUAL small value stocks, whereas VBR/VSIAX is actually more of a small/mid value?
Yes, VBR/VSIAX is really a small/mid value fund. It would pair reasonably with an SP500 fund leaving only a small gap in the size dimension.
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Re: Small Cap Blend vs Small Cap Value

Post by pezblanco » Mon May 07, 2018 4:42 pm

Boxtrap wrote:
Mon May 07, 2018 10:12 am
In my 401k I am fortunate enough to have a few Vanguard funds on offering - enough to build a portfolio I'm happy with. Right now my equities are in VFIAX and VGTSX. I don't have Vanguard small cap value offered as an option, but I DO have Vanguard small cap blend - VSMAX. Given the fairly consistent concept that small caps outperform large caps over the long term, I'm considering moving a portion of my equity holding into VSMAX. But obviously it would be a blend of small and not strictly value.

Everywhere you turn you hear "small cap value, small cap value!" Would love to hear thoughts on what, if any, premium there actually is on the value portion of small cap investing vs just holding a blended fund. Is small cap VALUE really that much better than small cap BLEND?
I think that one should read carefully and understand about factor investing before embarking on it. I personally have a heavily tllted portfolio to SCV ... I also personally would not tilt to just small caps only and not control for any other factor. There are reasons for this. I strongly recommend Larry Swedroe's book: The Complete Guide To Factor Based Investing. He discusses the problems with the size factor and research showing how those problems can be mitigated by combining it with other factors (most notably the quality factor). I'm sure there must be other references, but this is easy to read, understand, and basically tells the story.

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Re: Small Cap Blend vs Small Cap Value

Post by Dead Man Walking » Mon May 07, 2018 6:43 pm

Boxtrap wrote:
Mon May 07, 2018 10:12 am
In my 401k I am fortunate enough to have a few Vanguard funds on offering - enough to build a portfolio I'm happy with. Right now my equities are in VFIAX and VGTSX. I don't have Vanguard small cap value offered as an option, but I DO have Vanguard small cap blend - VSMAX. Given the fairly consistent concept that small caps outperform large caps over the long term, I'm considering moving a portion of my equity holding into VSMAX. But obviously it would be a blend of small and not strictly value.

Everywhere you turn you hear "small cap value, small cap value!" Would love to hear thoughts on what, if any, premium there actually is on the value portion of small cap investing vs just holding a blended fund. Is small cap VALUE really that much better than small cap BLEND?
If I were you, I would set up a model portfolio that included all of the funds available in your 401k on the Morningstar site. You can establish a model portfolio that will show the performance of the funds for various time periods. I use 3 months, YTD, 3 years, 5 years, 10 years, and 15 years. You can also set up a view that shows how your funds have performed versus funds within their category/index. Other posters may suggest Portfolio Visualizer.

I have used the Morningstar portfolio manager to track the 15 year returns of small cap funds for a decade or more. Since I have chosen to invest at Vanguard for simplicity, my model portfolio includes all of Vanguard's small cap index funds. I include DFA US Small Cap Value I (DFSVX) and Fidelity Small Cap Discovery (FSCRX) in the model portfolio as funds to which I can compare the performance of the Vanguard small cap index funds. Over the decade of checking 15 year returns, I've noticed that whether small cap value or small cap blend is outperforming depends on whether growth or value is in favor over the period. VSMAX and the investor share class NAESX have been in the hunt. NAESX has outperformed DFSVX over all of the time periods that I check. Of course, growth has been in favor over the last decade. Vanguard's best performing small cap index fund is usually Tax-managed Small Cap Fund (VTMSX) which follows the S&P 600 index.

DMW

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Boxtrap
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Re: Small Cap Blend vs Small Cap Value

Post by Boxtrap » Tue May 08, 2018 1:49 pm

pezblanco wrote:
Mon May 07, 2018 4:42 pm
Boxtrap wrote:
Mon May 07, 2018 10:12 am
In my 401k I am fortunate enough to have a few Vanguard funds on offering - enough to build a portfolio I'm happy with. Right now my equities are in VFIAX and VGTSX. I don't have Vanguard small cap value offered as an option, but I DO have Vanguard small cap blend - VSMAX. Given the fairly consistent concept that small caps outperform large caps over the long term, I'm considering moving a portion of my equity holding into VSMAX. But obviously it would be a blend of small and not strictly value.

Everywhere you turn you hear "small cap value, small cap value!" Would love to hear thoughts on what, if any, premium there actually is on the value portion of small cap investing vs just holding a blended fund. Is small cap VALUE really that much better than small cap BLEND?
I think that one should read carefully and understand about factor investing before embarking on it. I personally have a heavily tllted portfolio to SCV ... I also personally would not tilt to just small caps only and not control for any other factor. There are reasons for this. I strongly recommend Larry Swedroe's book: The Complete Guide To Factor Based Investing. He discusses the problems with the size factor and research showing how those problems can be mitigated by combining it with other factors (most notably the quality factor). I'm sure there must be other references, but this is easy to read, understand, and basically tells the story.
Thanks for the reading recommendation!

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Re: Small Cap Blend vs Small Cap Value

Post by Boxtrap » Wed May 09, 2018 10:35 am

After some more reading of links that you guys posted and some additional reading on my own, it looks like over the long term there was a risk reduction benefit in a portfolio with an equal-amount combination of small cap value and mid cap value, versus small cap value alone. A little backtest messing around in PV seems to show the same as well. In fact, almost identical CAGR but a noticeable reduction in overall volatility. Interesting food for thought.

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Re: Small Cap Blend vs Small Cap Value

Post by travelogue » Wed Jan 02, 2019 10:56 am

In my main portfolio (TSP), I don’t have access to a SCV fund, just the S Fund (Dow Jones U.S. Completion Total Stock Market Index). The L2040 fund, e.g., currently allocates 10.84% to the S Fund (vs 35.8% to S&P 500 and 25.11% to developed international).

Would it be worth tilting to small by adding more S Fund, or is it not advisable without the value factor?

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Re: Small Cap Blend vs Small Cap Value

Post by andrew99999 » Sat May 04, 2019 2:26 am

pezblanco wrote:
Mon May 07, 2018 4:42 pm
Boxtrap wrote:
Mon May 07, 2018 10:12 am
In my 401k I am fortunate enough to have a few Vanguard funds on offering - enough to build a portfolio I'm happy with. Right now my equities are in VFIAX and VGTSX. I don't have Vanguard small cap value offered as an option, but I DO have Vanguard small cap blend - VSMAX. Given the fairly consistent concept that small caps outperform large caps over the long term, I'm considering moving a portion of my equity holding into VSMAX. But obviously it would be a blend of small and not strictly value.

Everywhere you turn you hear "small cap value, small cap value!" Would love to hear thoughts on what, if any, premium there actually is on the value portion of small cap investing vs just holding a blended fund. Is small cap VALUE really that much better than small cap BLEND?
I think that one should read carefully and understand about factor investing before embarking on it. I personally have a heavily tllted portfolio to SCV ... I also personally would not tilt to just small caps only and not control for any other factor. There are reasons for this. I strongly recommend Larry Swedroe's book: The Complete Guide To Factor Based Investing. He discusses the problems with the size factor and research showing how those problems can be mitigated by combining it with other factors (most notably the quality factor). I'm sure there must be other references, but this is easy to read, understand, and basically tells the story.
Randomly came across this old thread.
Would you mind giving a brief summary or even just a list of the problems with size factor?

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pezblanco
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Re: Small Cap Blend vs Small Cap Value

Post by pezblanco » Sat May 04, 2019 8:44 am

andrew99999 wrote:
Sat May 04, 2019 2:26 am
pezblanco wrote:
Mon May 07, 2018 4:42 pm
Boxtrap wrote:
Mon May 07, 2018 10:12 am
In my 401k I am fortunate enough to have a few Vanguard funds on offering - enough to build a portfolio I'm happy with. Right now my equities are in VFIAX and VGTSX. I don't have Vanguard small cap value offered as an option, but I DO have Vanguard small cap blend - VSMAX. Given the fairly consistent concept that small caps outperform large caps over the long term, I'm considering moving a portion of my equity holding into VSMAX. But obviously it would be a blend of small and not strictly value.

Everywhere you turn you hear "small cap value, small cap value!" Would love to hear thoughts on what, if any, premium there actually is on the value portion of small cap investing vs just holding a blended fund. Is small cap VALUE really that much better than small cap BLEND?
I think that one should read carefully and understand about factor investing before embarking on it. I personally have a heavily tllted portfolio to SCV ... I also personally would not tilt to just small caps only and not control for any other factor. There are reasons for this. I strongly recommend Larry Swedroe's book: The Complete Guide To Factor Based Investing. He discusses the problems with the size factor and research showing how those problems can be mitigated by combining it with other factors (most notably the quality factor). I'm sure there must be other references, but this is easy to read, understand, and basically tells the story.
Randomly came across this old thread.
Would you mind giving a brief summary or even just a list of the problems with size factor?
The following linked thread discussing the small premium basically sums up some of the current financial theory thought (of course there are the usual BH "contributions" with people putting up graphs from Portfolio Visualizer and/or arguing that we should all just have a 3-Fund Portfolio ... try to ignore those).... Larry Swedroe sent me a PM where he replied to recent doubts about the existence of the small premium. That PM is quoted by me in the thread .... Also read the relevant recent articles by Asness and his group which are arguing that it doesn't really exist (references are given in the thread). One of LS's arguments is that the small factor is "polluted" by Small Growth which destroy the effects of the small factor. Anyway, taken together, that is the reason I wouldn't try to load on just the small factor without trying to control or load on other factors such as quality or value.

viewtopic.php?f=10&t=276278&p=4448919#p4448919

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JoMoney
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Re: Small Cap Blend vs Small Cap Value

Post by JoMoney » Sat May 04, 2019 9:03 am

For the past 20+ years there's been very little difference in the total return between Small-Cap Value and Growth funds.
In recent years growth has had even higher returns.
MStar Chart Vanguard Small-Value vs. Growth
S&P 600 Growth/Value Indices Chart
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Re: Small Cap Blend vs Small Cap Value

Post by sbrooks32 » Sat May 04, 2019 1:54 pm

JoMoney wrote:
Sat May 04, 2019 9:03 am
For the past 20+ years there's been very little difference in the total return between Small-Cap Value and Growth funds.
In recent years growth has had even higher returns.
MStar Chart Vanguard Small-Value vs. Growth
S&P 600 Growth/Value Indices Chart
The S&P 600 (whether balanced, growth, or value) outperformed the S&P 500 over that same time period. No way to predict future returns, but I like having some small-cap (and mid-cap via S&P 400) tilt. I use IJR/IJS for small-cap exposure and IJH/IJJ for mid-cap exposure.

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siamond
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Re: Small Cap Blend vs Small Cap Value

Post by siamond » Sat May 04, 2019 2:42 pm

OP, please take a good look at the charts posted in this blog article. You will see that the historical case for SCB is indeed much weaker than for SCV. Same for MCB vs. MCV. And from the literature I've read (and some tests of mine with 1980+ Japan numbers), the same seemed to hold pretty much true in other large developed countries. The future might be different, of course, but the historical data seems pretty consistent.

I don't think a tilt of 10% or 15% to SCB will hurt you, but I doubt it will help you much...

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Re: Small Cap Blend vs Small Cap Value

Post by andrew99999 » Sun May 05, 2019 2:22 am

pezblanco wrote:
Sat May 04, 2019 8:44 am
andrew99999 wrote:
Sat May 04, 2019 2:26 am
Randomly came across this old thread.
Would you mind giving a brief summary or even just a list of the problems with size factor?
The following linked thread discussing the small premium basically sums up some of the current financial theory thought (of course there are the usual BH "contributions" with people putting up graphs from Portfolio Visualizer and/or arguing that we should all just have a 3-Fund Portfolio ... try to ignore those).... Larry Swedroe sent me a PM where he replied to recent doubts about the existence of the small premium. That PM is quoted by me in the thread .... Also read the relevant recent articles by Asness and his group which are arguing that it doesn't really exist (references are given in the thread). One of LS's arguments is that the small factor is "polluted" by Small Growth which destroy the effects of the small factor. Anyway, taken together, that is the reason I wouldn't try to load on just the small factor without trying to control or load on other factors such as quality or value.

viewtopic.php?f=10&t=276278&p=4448919#p4448919
Thanks very much for that pezblanco
siamond wrote:
Sat May 04, 2019 2:42 pm
OP, please take a good look at the charts posted in this blog article. You will see that the historical case for SCB is indeed much weaker than for SCV. Same for MCB vs. MCV. And from the literature I've read (and some tests of mine with 1980+ Japan numbers), the same seemed to hold pretty much true in other large developed countries. The future might be different, of course, but the historical data seems pretty consistent.

I don't think a tilt of 10% or 15% to SCB will hurt you, but I doubt it will help you much...
Another excellent article siamond. I had not come across it until now.

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Re: Small Cap Blend vs Small Cap Value

Post by nfldolphins89 » Thu May 28, 2020 4:06 am

siamond wrote:
Sat May 04, 2019 2:42 pm
OP, please take a good look at the charts posted in this blog article. You will see that the historical case for SCB is indeed much weaker than for SCV. Same for MCB vs. MCV. And from the literature I've read (and some tests of mine with 1980+ Japan numbers), the same seemed to hold pretty much true in other large developed countries. The future might be different, of course, but the historical data seems pretty consistent.

I don't think a tilt of 10% or 15% to SCB will hurt you, but I doubt it will help you much...
Hi. Hope you don't mind me resurrecting this old post. Just doing some research on SCV funds/asking around for advice on the forum and I stumbled across this. I'm looking to add SCV to my portfolio (~10% of equity). I have a 457 through Fidelity which offers FID SMALL CAP VALUE (FCPVX) 0.66%. However this ER seems steep to me. They also offer a small cap blend FID SM CAP IDX (FSSNX) 0.025%. So given your thoughts on SCB vs SCV, what would you do here? Worth adding the specific SCV fund with higher ER? Or better to go small cap blend with lower ER?

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Re: Small Cap Blend vs Small Cap Value

Post by nisiprius » Thu May 28, 2020 8:03 am

First, my $0.02. I am now going to make strictly personal statements. I don't overweight small-cap value myself. I don't overweight small-caps myself. If I were going to do either, I would use small-cap value and ignore small differences in expense ratio for two reasons:
  • I don't think small-cap blend is worth anything at all.
  • In adding small-cap value, if we take the writings of enthusiasts like Paul Merriman at face value, you are hoping for improvements of 1%, 1.5%, 2% annualized, in your whole portfolio. That's huge. If I really thought I could add that much, I wouldn't think twice about paying an extra 0.04%, 0.1%, even 0.3% to do it. Remember, that's just the expense for a percentage of your portfolio. If you swap 20% of your portfolio into a fund that costs 0.1% more than the fund it replaced, your average expense ratio has only increased by 0.02%.
It is more important to evaluate the value of small-cap blend and small-cap value than to fuss about the expense ratio. You have to first look into the evidence for yourself and decide whether you believe that these style categories are going to have higher risk-adjusted return than the whole market.

If they merely have higher return, i.e. "a premium," that in itself isn't a reason to invest in them. You can add a return-and-risk together to your portfolio simply by increasing your stock allocation. There has to be a reason for thinking that adding the asset is going to be better than just increasing the stock allocation.

In order to believe an asset class is worth adding, you have to believe at least one of these things:
  • it will have higher risk-adjusted return than a total stock-market fund (in which case, logically, you should simply replace that fund with the superior fund, probably reducing its allocation at the same time);
  • it will have sufficiently low correlation with stocks that your portfolio will be noticeably less volatile after you add it;
  • in Eugene Fama's formulation, you have a personal "taste for the dimensions of risk" presented by the asset. That is, even if adding small-cap value to your portfolio doesn't increase its return or reduce its volatility, nevertheless you like the way it fluctuates better you like the way the total market fluctuates.
The size factor was the first one "discovered," in 1981. Originally it was presented as a big deal. Over the years it has looked less and less convincing all the time. When you can even have articles with titles like Does the Small-Cap Premium Exist? you know that it is controversial. Factor mavens are reluctant to give up on it completely, but they acknowledge that it is less important than other factors, and, to preserve it, they tend to fall back on the idea that it is not too important in itself, but that it synergizes with other factors; for example, value is good, but small-cap value is better.

A recent presentation of this kind of idea is in an essay by Cliff Asness, The Small-Firm Effect is Real, and it's Spectacular. (He's the principal of AQR, and has a direct interest in promoting AQR mutual funds and the strategies behind them). He is fairly forthright about saying that small-caps in themselves are... more or less worthless, but he claims that they have discovered or created a new factor which they call QMJ, and that the combination--small-cap stocks with high QMJ--beats the stock market as a whole.

The point I want to make is that even if you agree with all this, you don't get the magic QMJ/small combination by buying a small-cap blend fund.

I keep making ongoing comparisons of the S&P 500 with the DFA US Micro Cap Portfolio fund. This is very relevant because it is the oldest fund that made intentional use of small-caps in the factor sense. It was introduced almost immediately after the 1981 publication of the paper by one Rolf Banz that brought the "small firm effect" to the attention of the investment world. It digs down deeper into small caps than the Vanguard small-cap index fund. It has handily outperformed both Morningstar's small-cap category average and the most commonly used small-cap index, the Russell 2000; so, it is about as good as you should ever expect to see in small-caps.

For several years after inception, it outperformed the S&P 500. It then underperformed for 17 years. It then began outperforming, made up the lost ground and a bit more, but recently lost it again..

Blue: Small-caps (DFSCX, DFA US Micro Cap Portfolio)
Orange: S&P 500 index fund (VFINX, Vanguard 500 Index)

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Last edited by nisiprius on Thu May 28, 2020 10:07 am, edited 3 times in total.
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Re: Small Cap Blend vs Small Cap Value

Post by deltaneutral83 » Thu May 28, 2020 8:26 am

Jags4186 wrote:
Mon May 07, 2018 10:52 am
Small cap blend historically outperforms large cap blend, small cap value historically outperforms small cap blend.

Vanguards small cap blend and value funds are both not very small. Closer to midcap funds. Midcaps have also historically outperformed large cap blend...

All this to say, if you want to tilt smaller, this fund is perfectly reasonable but you may not be getting what you’re thinking you’re getting.
I don't understand why the public perception is that VBR is Vanguard's SCV (I guess because it was created first) as opposed to VIOV. The former has plenty of mid cap as mentioned. VIOV is much more small and value oriented than VBR.

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JoMoney
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Re: Small Cap Blend vs Small Cap Value

Post by JoMoney » Thu May 28, 2020 8:55 am

deltaneutral83 wrote:
Thu May 28, 2020 8:26 am
Jags4186 wrote:
Mon May 07, 2018 10:52 am
Small cap blend historically outperforms large cap blend, small cap value historically outperforms small cap blend.

Vanguards small cap blend and value funds are both not very small. Closer to midcap funds. Midcaps have also historically outperformed large cap blend...

All this to say, if you want to tilt smaller, this fund is perfectly reasonable but you may not be getting what you’re thinking you’re getting.
I don't understand why the public perception is that VBR is Vanguard's SCV (I guess because it was created first) as opposed to VIOV. The former has plenty of mid cap as mentioned. VIOV is much more small and value oriented than VBR.
You're replying to a two year old post, FWIW though, VBR is the larger fund, it's literally named "Vanguard Small-Cap Value", VBR is available to personal investors as a mutual fund instead of ETF, and if you go to Vanguard's site looking at VIOV they try to steer you to VBR
Image
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Jags4186
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Re: Small Cap Blend vs Small Cap Value

Post by Jags4186 » Thu May 28, 2020 9:25 am

deltaneutral83 wrote:
Thu May 28, 2020 8:26 am
Jags4186 wrote:
Mon May 07, 2018 10:52 am
Small cap blend historically outperforms large cap blend, small cap value historically outperforms small cap blend.

Vanguards small cap blend and value funds are both not very small. Closer to midcap funds. Midcaps have also historically outperformed large cap blend...

All this to say, if you want to tilt smaller, this fund is perfectly reasonable but you may not be getting what you’re thinking you’re getting.
I don't understand why the public perception is that VBR is Vanguard's SCV (I guess because it was created first) as opposed to VIOV. The former has plenty of mid cap as mentioned. VIOV is much more small and value oriented than VBR.
As JoMoney notes, the reason why the perception VBR is a small cap value fund is because it’s called “Small Cap Value Index Fund”.

whereskyle
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Re: Small Cap Blend vs Small Cap Value

Post by whereskyle » Thu May 28, 2020 9:27 am

Boxtrap wrote:
Mon May 07, 2018 10:12 am
In my 401k I am fortunate enough to have a few Vanguard funds on offering - enough to build a portfolio I'm happy with. Right now my equities are in VFIAX and VGTSX. I don't have Vanguard small cap value offered as an option, but I DO have Vanguard small cap blend - VSMAX. Given the fairly consistent concept that small caps outperform large caps over the long term, I'm considering moving a portion of my equity holding into VSMAX. But obviously it would be a blend of small and not strictly value.

Everywhere you turn you hear "small cap value, small cap value!" Would love to hear thoughts on what, if any, premium there actually is on the value portion of small cap investing vs just holding a blended fund. Is small cap VALUE really that much better than small cap BLEND?
Small cap blend is riskier than large cap blend, so you would only invest in it because you expect higher returns (although there is a greater likelihood that you will not receive them), and small cap value is riskier than small cap blend, so you would only invest in it because you expect even higher returns (although there is an even greater likelihood that you will not receive them). Small cap value is the riskiest part of the market, so people invest in it in the expectation of market-beating returns if they hold on long enough. The question is: do you want to take extra risk or a lot of extra risk? I also considered investing significant sums in VB (Vanguard Small-Cap ETF, ER .05%), thinking, hey, I'd like to have market-beating returns, but I don't want to take that much risk to achieve them. Ultimately, I remain most satisfied with the market's risk/reward profile, and that's where most of my investment dollars continue to go.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

HEDGEFUNDIE
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Re: Small Cap Blend vs Small Cap Value

Post by HEDGEFUNDIE » Thu May 28, 2020 9:36 am

nisiprius wrote:
Thu May 28, 2020 8:03 am

Image
Would recommend you post telltale charts for comparisons like this. Shows the comparative trend much clearer.

https://www.portfoliovisualizer.com/fun ... mark=VFINX

(Under “Cumulative Active Return”)

deltaneutral83
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Re: Small Cap Blend vs Small Cap Value

Post by deltaneutral83 » Thu May 28, 2020 9:40 am

Jags4186 wrote:
Thu May 28, 2020 9:25 am
As JoMoney notes, the reason why the perception VBR is a small cap value fund is because it’s called “Small Cap Value Index Fund”.
Has Vanguard given an updated reason why they continue to push VBR over VIOV for investors seeking small cap value?

HEDGEFUNDIE
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Re: Small Cap Blend vs Small Cap Value

Post by HEDGEFUNDIE » Thu May 28, 2020 9:41 am

deltaneutral83 wrote:
Thu May 28, 2020 9:40 am
Jags4186 wrote:
Thu May 28, 2020 9:25 am
As JoMoney notes, the reason why the perception VBR is a small cap value fund is because it’s called “Small Cap Value Index Fund”.
Has Vanguard given an updated reason why they continue to push VBR over VIOV for investors seeking small cap value?
Surely it’s cheaper for them to manage their own fund...

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JoMoney
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Re: Small Cap Blend vs Small Cap Value

Post by JoMoney » Thu May 28, 2020 9:46 am

HEDGEFUNDIE wrote:
Thu May 28, 2020 9:41 am
deltaneutral83 wrote:
Thu May 28, 2020 9:40 am
Jags4186 wrote:
Thu May 28, 2020 9:25 am
As JoMoney notes, the reason why the perception VBR is a small cap value fund is because it’s called “Small Cap Value Index Fund”.
Has Vanguard given an updated reason why they continue to push VBR over VIOV for investors seeking small cap value?
Surely it’s cheaper for them to manage their own fund...
They're both Vanguard 'managed' funds, they just track different indices, VBR uses a CRSP index (currently), VIOV tracks S&P index.
I don't imagine there's any alternate reason then what they state, VBR has lower cost for investors ... what they seem to lose site of, is Vanguard offers even lower cost stocks funds if that's all the consumers of a fund wanted. VBR and VIOV don't have the same loadings for risk factor investors, and there are other methodology differences for investors that might have other rationale for using such a fund.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

HEDGEFUNDIE
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Re: Small Cap Blend vs Small Cap Value

Post by HEDGEFUNDIE » Thu May 28, 2020 10:05 am

JoMoney wrote:
Thu May 28, 2020 9:46 am
HEDGEFUNDIE wrote:
Thu May 28, 2020 9:41 am
deltaneutral83 wrote:
Thu May 28, 2020 9:40 am
Jags4186 wrote:
Thu May 28, 2020 9:25 am
As JoMoney notes, the reason why the perception VBR is a small cap value fund is because it’s called “Small Cap Value Index Fund”.
Has Vanguard given an updated reason why they continue to push VBR over VIOV for investors seeking small cap value?
Surely it’s cheaper for them to manage their own fund...
They're both Vanguard 'managed' funds, they just track different indices, VBR uses a CRSP index (currently), VIOV tracks S&P index.
I don't imagine there's any alternate reason then what they state, VBR has lower cost for investors ... what they seem to lose site of, is Vanguard offers even lower cost stocks funds if that's all the consumers of a fund wanted. VBR and VIOV don't have the same loadings for risk factor investors, and there are other methodology differences for investors that might have other rationale for using such a fund.
Tracking the S&P index means paying S&P a license fee.

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JoMoney
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Re: Small Cap Blend vs Small Cap Value

Post by JoMoney » Thu May 28, 2020 10:08 am

HEDGEFUNDIE wrote:
Thu May 28, 2020 10:05 am
JoMoney wrote:
Thu May 28, 2020 9:46 am
HEDGEFUNDIE wrote:
Thu May 28, 2020 9:41 am
deltaneutral83 wrote:
Thu May 28, 2020 9:40 am
Jags4186 wrote:
Thu May 28, 2020 9:25 am
As JoMoney notes, the reason why the perception VBR is a small cap value fund is because it’s called “Small Cap Value Index Fund”.
Has Vanguard given an updated reason why they continue to push VBR over VIOV for investors seeking small cap value?
Surely it’s cheaper for them to manage their own fund...
They're both Vanguard 'managed' funds, they just track different indices, VBR uses a CRSP index (currently), VIOV tracks S&P index.
I don't imagine there's any alternate reason then what they state, VBR has lower cost for investors ... what they seem to lose site of, is Vanguard offers even lower cost stocks funds if that's all the consumers of a fund wanted. VBR and VIOV don't have the same loadings for risk factor investors, and there are other methodology differences for investors that might have other rationale for using such a fund.
Tracking the S&P index means paying S&P a license fee.
Yes, as does tracking the CRSP index as VBR does. They all have license fees, but the CRSP fee is cheaper.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Jags4186
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Re: Small Cap Blend vs Small Cap Value

Post by Jags4186 » Thu May 28, 2020 10:17 am

deltaneutral83 wrote:
Thu May 28, 2020 9:40 am
Jags4186 wrote:
Thu May 28, 2020 9:25 am
As JoMoney notes, the reason why the perception VBR is a small cap value fund is because it’s called “Small Cap Value Index Fund”.
Has Vanguard given an updated reason why they continue to push VBR over VIOV for investors seeking small cap value?
Why would they need to give a reason? There is no industry standard definition of small, mid, large, growth, value it is all just industry jargon. CRSP defines small and value as X and Vanguard chose to make an index tracking the CRSP. S&P defines small and value as Y and Vanguard likewise has a fund tracking it. They both track the same “market segment” and the CRSP version of the fund is less expensive to the investor than the S&P version.

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siamond
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Re: Small Cap Blend vs Small Cap Value

Post by siamond » Thu May 28, 2020 11:06 am

nfldolphins89 wrote:
Thu May 28, 2020 4:06 am
Hi. Hope you don't mind me resurrecting this old post. Just doing some research on SCV funds/asking around for advice on the forum and I stumbled across this. I'm looking to add SCV to my portfolio (~10% of equity). I have a 457 through Fidelity which offers FID SMALL CAP VALUE (FCPVX) 0.66%. However this ER seems steep to me. They also offer a small cap blend FID SM CAP IDX (FSSNX) 0.025%. So given your thoughts on SCB vs SCV, what would you do here? Worth adding the specific SCV fund with higher ER? Or better to go small cap blend with lower ER?
I agree with Nisiprius that Small Cap Blend funds don't appear to be worth much, if anything... Or at least, it didn't in (US) history. In a similar manner, Large Value funds do not seem to have made any significant difference. It's really the combination of Small (or Medium) and Value which provided interesting results in the past. Now is it worth a rather expensive 0.66% ER, I am not sure... Also, FCPVX doesn't appear to be a passive index fund.

Here are updated blog articles on past performance for the usual factors, using real-life index constructs (as opposed to rather distorted academic constructs which tend to use micro-caps in lieu of small-caps):

Telling Tales – 2019 update

Small and Value factors, 16 countries over 25 years

PS. I don't have direct experience with a Fidelity 457 plan, but I used to have a 401k with them. There was a 'brokerage link' mechanism allowing to invest beyond the basic fund choices being provided by the plan, albeit with a rather steep transaction fee. If you're in for the long run, it might be worth investigating such avenue.

deltaneutral83
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Re: Small Cap Blend vs Small Cap Value

Post by deltaneutral83 » Thu May 28, 2020 12:50 pm

Jags4186 wrote:
Thu May 28, 2020 10:17 am
deltaneutral83 wrote:
Thu May 28, 2020 9:40 am
Jags4186 wrote:
Thu May 28, 2020 9:25 am
As JoMoney notes, the reason why the perception VBR is a small cap value fund is because it’s called “Small Cap Value Index Fund”.
Has Vanguard given an updated reason why they continue to push VBR over VIOV for investors seeking small cap value?
Why would they need to give a reason? There is no industry standard definition of small, mid, large, growth, value it is all just industry jargon. CRSP defines small and value as X and Vanguard chose to make an index tracking the CRSP. S&P defines small and value as Y and Vanguard likewise has a fund tracking it. They both track the same “market segment” and the CRSP version of the fund is less expensive to the investor than the S&P version.
I was assuming that Vanguard knows VIOV has a much better exposure to the small and value style box than VBR, at least when put under an X ray. I thought VG would understand that investors who want as much exposure to small and value would be best served to use VIOV as far as what Vanguard offers.

Jags4186
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Re: Small Cap Blend vs Small Cap Value

Post by Jags4186 » Thu May 28, 2020 5:00 pm

deltaneutral83 wrote:
Thu May 28, 2020 12:50 pm
Jags4186 wrote:
Thu May 28, 2020 10:17 am
deltaneutral83 wrote:
Thu May 28, 2020 9:40 am
Jags4186 wrote:
Thu May 28, 2020 9:25 am
As JoMoney notes, the reason why the perception VBR is a small cap value fund is because it’s called “Small Cap Value Index Fund”.
Has Vanguard given an updated reason why they continue to push VBR over VIOV for investors seeking small cap value?
Why would they need to give a reason? There is no industry standard definition of small, mid, large, growth, value it is all just industry jargon. CRSP defines small and value as X and Vanguard chose to make an index tracking the CRSP. S&P defines small and value as Y and Vanguard likewise has a fund tracking it. They both track the same “market segment” and the CRSP version of the fund is less expensive to the investor than the S&P version.
I was assuming that Vanguard knows VIOV has a much better exposure to the small and value style box than VBR, at least when put under an X ray. I thought VG would understand that investors who want as much exposure to small and value would be best served to use VIOV as far as what Vanguard offers.
You assume the goal is to have a deeper small and value factor exposures. It isn’t. The goal is to capture a particular subset of the market. Since VBR is using the CRSP index, that fund is doing it’s best to capture what CRSP says is Small Cap Value. RZV is even smaller and more valuey than VIOV. BRUSX is even smaller and is between RZV and VIOV with it’s value loading.

nfldolphins89
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Re: Small Cap Blend vs Small Cap Value

Post by nfldolphins89 » Thu May 28, 2020 6:40 pm

Appreciate all your responses.

@siamond and @nisiprius -- thank you for the specific insight and articles you posted. Reading more into this has me more and more unsure of my idea about tilting SCV (or what the best way to do would be). And when I feel like I'm not understanding or seeing the clear path forward...I'm tempted to skip out...but I'm torn.

And it's interesting that one article mentioned that most gains were seen with SCV and MCV, which (according to xray) the majotrity of the FCPVX fund are in those two specific categories...but then the one article talks about the need to find "quality" stocks to make a difference and that "value" may not fall in that category necessarily, but then it also may need to be a large % of portfolio to make a real difference. :shock: My head was spinning after trying to make sense of all the information.

Thanks again! :sharebeer

caklim00
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Re: Small Cap Blend vs Small Cap Value

Post by caklim00 » Thu May 28, 2020 7:10 pm

nfldolphins89 wrote:
Thu May 28, 2020 6:40 pm
Appreciate all your responses.

@siamond and @nisiprius -- thank you for the specific insight and articles you posted. Reading more into this has me more and more unsure of my idea about tilting SCV (or what the best way to do would be). And when I feel like I'm not understanding or seeing the clear path forward...I'm tempted to skip out...but I'm torn.

And it's interesting that one article mentioned that most gains were seen with SCV and MCV, which (according to xray) the majotrity of the FCPVX fund are in those two specific categories...but then the one article talks about the need to find "quality" stocks to make a difference and that "value" may not fall in that category necessarily, but then it also may need to be a large % of portfolio to make a real difference. :shock: My head was spinning after trying to make sense of all the information.

Thanks again! :sharebeer
AVUV explicitly targets profitability and SLYV/VIOV implicitly does (via exclusions of non-profitable companies). Should have a consistent approach or one may get swayed. A couple of months ago there were tons of threads about jumping ship from SCV. Now we are seeing threads about SCV and whether its a good time to invest.

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