Russell 2000 Opinions

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bumski
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Russell 2000 Opinions

Post by bumski » Thu Jun 14, 2018 12:16 am

My 401K offers a Russell 2000 index fund at ER .05% and Dimensional Small Cap (DFSTX) at .37%.
Currently my asset allocation has 15% in Black Rock Russell 2000 Small Cap Index fund. I chose the 2000 fund because the ER was only .05% and I wanted an SC tilt. Morningstar places the 2000 fund as a SC growth fund (PE 17.6) and DFSTX as SC blend (PE 19.7) which I don't quite understand why the growth fund has a lower PE than the blended fund.
I was reading some concerns on this forum regarding the Russell 2000 index. Others mentioned the tracking may have recently changed possibly for the better. I would like to be enlightened so I can make a decision to stay put or move to the DFSTX at the higher ER. My preference would be an SCV fund but it's not available within my 401K. Thanks for your thoughts!
"Everything should be made as simple as possible, but not simpler" ... e=mc2 | Albert Einstein

Grt2bOutdoors
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Re: Russell 2000 Opinions

Post by Grt2bOutdoors » Thu Jun 14, 2018 6:18 am

Don’t look at p/e, what is price to book?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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JoMoney
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Re: Russell 2000 Opinions

Post by JoMoney » Thu Jun 14, 2018 7:34 am

bumski wrote:
Thu Jun 14, 2018 12:16 am
...I was reading some concerns on this forum regarding the Russell 2000 index. Others mentioned the tracking may have recently changed possibly for the better. I would like to be enlightened so I can make a decision to stay put or move to the DFSTX at the higher ER...
I believe the criticism with the Russell 2000 index wasn't a "tracking" problem, funds tracked the index fine, but an issue that the index itself had performance problems related to reconstitution of the index and trading involved when stocks entered or left the index, particularly around the 2000-2003 era. There have been changes made by the index in how stocks are added/deleted since then using things like "banding". Here's a paper that suggests the majority of that negative effect has been diminished.
https://www.institutionalinvestor.com/i ... _final.pdf

Personally, I would just skip investing in the small-cap altogether, but that's a different discussion.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

tibbitts
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Re: Russell 2000 Opinions

Post by tibbitts » Thu Jun 14, 2018 7:53 am

Split your small-cap investments equally between the two funds, unless there's a per-fund charge. I wish I'd invested in more of the funds in my retirement plan. Well okay I just wish I'd invested in the ones that turned out to perform better.

My retirement plan includes an R2000 fund option and I invest in it. But I also invest in a T Rowe Price active fund where returns went from consistently being well into the top half of its category for years to being in the bottom 20%, starting... oh, about the day I bought it. Oh well at least I have access to institutional-class share so I'm losing less than I would otherwise.

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vineviz
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Re: Russell 2000 Opinions

Post by vineviz » Thu Jun 14, 2018 8:14 am

bumski wrote:
Thu Jun 14, 2018 12:16 am
I would like to be enlightened so I can make a decision to stay put or move to the DFSTX at the higher ER. My preference would be an SCV fund but it's not available within my 401K. Thanks for your thoughts!
Short answer: the difference is probably so small you'd never notice the effect on your overall portfolio. Personally, I'd choose DFSTX.

First, although the difference in the ERs is notable the DFA fund does not have what I would consider to be such a high ER that I would avoid it (my personal rule of thumb is to exclude funds with ERs over 0.40).

Second, DFSTX definitely has much more of a value-oriented portfolio than the Russell 2000 does currently (or really ever has had).

Third, DFSTX also appears to be applying some sort of applying a quality screen (aka a positive loading on the QmJ style factor) that has historically added more than enough value to offset the higher ER.

Fourth, whatever the performance drag is that the Russell 2000 methodology has does seem to have been diminished in the past 10 years but is still noticeable in the returns.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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jhfenton
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Re: Russell 2000 Opinions

Post by jhfenton » Thu Jun 14, 2018 8:54 am

vineviz wrote:
Thu Jun 14, 2018 8:14 am
bumski wrote:
Thu Jun 14, 2018 12:16 am
I would like to be enlightened so I can make a decision to stay put or move to the DFSTX at the higher ER. My preference would be an SCV fund but it's not available within my 401K. Thanks for your thoughts!
Short answer: the difference is probably so small you'd never notice the effect on your overall portfolio. Personally, I'd choose DFSTX.

First, although the difference in the ERs is notable the DFA fund does not have what I would consider to be such a high ER that I would avoid it (my personal rule of thumb is to exclude funds with ERs over 0.40).

Second, DFSTX definitely has much more of a value-oriented portfolio than the Russell 2000 does currently (or really ever has had).

Third, DFSTX also appears to be applying some sort of applying a quality screen (aka a positive loading on the QmJ style factor) that has historically added more than enough value to offset the higher ER.

Fourth, whatever the performance drag is that the Russell 2000 methodology has does seem to have been diminished in the past 10 years but is still noticeable in the returns.
+4 I agree with all of this.

I personally split my 401(k) between DFSTX and VMVAX (Vanguard Mid-Cap Value Index Admiral at 7 bp).

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BrandonBogle
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Re: Russell 2000 Opinions

Post by BrandonBogle » Thu Jun 14, 2018 9:04 am

While I can't comment on DFSTX, my 401k offers a Russell 2000 Index Fund in addition to an S&P 500 Index Fund. Sadly, there is no Total US Stock Market fund in my 401k. Since I am a 3-fund portfolio, I use these two funds in my 401k to approximate Total US Stock Market. There is wiki entry about there here: https://www.bogleheads.org/wiki/Approxi ... ock_market

My opinion is if it is a worthwhile completion index to the S&P 500, then it is a worth candidate to use in general.

So while I will let others chime in on using the DFA fund for a SC tilt, I wouldn't be concerned about the Russell 2000 Index if you decide to stay with it.

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bumski
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Re: Russell 2000 Opinions

Post by bumski » Thu Jun 14, 2018 10:59 pm

Thanks for everyone's comments.
My 401K does not have a fund that replicates the entire stock market. I have a Black Rock Russell 1000 for large caps and so adding the Russell 2000 helps me round out my portfolio. I'll be splitting my small cap portion 50/50 between the Russell 2000 and DFSTX.

JoMoney,
You mentioned you would skip small-caps altogether. If you didn't have a 401K fund that replicates the market (only Russell 1000) would you add a small portion of Russell 2000 to better mirror the market? There is little difference in Portfolio Visualizer between SP500 and VTI.

1977 to 2018
Total Stock Market - 11.18% CAGR
S&P500 - 11.00% CAGR
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MotoTrojan
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Re: Russell 2000 Opinions

Post by MotoTrojan » Thu Jun 14, 2018 11:04 pm

Do you have a Roth? I’d use VIOV there and skip the 401k. S&P600 has the smaller median cap like the Russell (compared with Vanguards preferred CRSP) but has the S&P’s quality/earnings screen. Return has been far better as a result.

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