WMCR - Invesco Wilshire Micro-Cap ETF

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
KJVanguard
Posts: 74
Joined: Fri Oct 05, 2018 3:39 am

WMCR - Invesco Wilshire Micro-Cap ETF

Post by KJVanguard » Thu Oct 11, 2018 9:45 pm

Would you keep or sell WMCR if you owned it? (BTW, do any of you own it?) For the purpose of this discussion, assume it fits within your particular asset allocation plan, so you would not be dumping it for that reason.

Possible reason to sell: Expense ratio of a whopping 85 bps! Vanguard (and Saint Jack) has told us costs matter, and 85 points is mighty damn expensive compared to Vanguard Small Cap Value Admiral shares at only 7 basis points (so close to zero!) Sure, micro-caps should out-perform, but will they beat Vanguard's fund by 78 bps? Of course, the Vanguard fund also gives a value tilt that should theoretically add to performance, a value tilt that WMCR lacks.

I recognize that the Vanguard fund is much more Mid Cap than Small with a median market cap of a whopping $3.9 Billion. WMCR owns truly tiny stocks, with no fund that I know of offering anything as tiny. Bridgeway Ultra-Small comes close, but WMCR still wins the smallest of the small contest.

I bought WMCR last year, wanting a micro-cap fund, though I probably should have looked further to see that it's VERY illiquid with only $28M in total assets and an average trading volume of 1,795. If I sold my 1,327 shares I would be most of the trading volume that day! I assume this means that I would have to sell it using limit orders to not risk an adverse price, and that quite possibly multiple orders would be needed to get rid of all the shares.

The ETF is not liquid at all, though I read that ETF liquidity also depends on the underlying securities. Seeing how WMCR invests in the Wilshire 5,000 minus the 2,500 largest stocks, that would mean the largest stock it owns ranks 2,501st in size and with just over a thousand holdings it would have to have stocks that rank down to around 3,500th in size, so really tiny and presumably highly illiquid. I notice how WMCR frequently goes for numerous hours each day without a single trade.

I hope this question doesn't sound stupid, but what are "Acquired Fund Fees & Expenses"? I must ask because WMCR has .50% management fee and then .35% of these acquired fees & expenses for total expenses of 0.85%.

Getting rid of WMCR would simplify my portfolio and lower costs. Capital gains are a minimal issue as they only make up about 13% of my investment in the fund. Long-term I would trust Vanguard more to be tax efficient.

Any input would be appreciated. Thank you in advance.

Karl

HEDGEFUNDIE
Posts: 1225
Joined: Sun Oct 22, 2017 2:06 pm

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by HEDGEFUNDIE » Thu Oct 11, 2018 10:45 pm

Why not switch it out for IWC? IWC is cheaper, more liquid, and performed better over past 12 years.

But also, why micro caps at all? Small caps have done better with lower risk:

https://www.portfoliovisualizer.com/fun ... F11%2F2018

CRTR
Posts: 157
Joined: Sat Apr 11, 2015 1:15 pm

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by CRTR » Fri Oct 12, 2018 12:05 am

Acquired Fund Fees and Expenses - AFFE: https://www.bogleheads.org/wiki/Acquire ... d_expenses

As for holding a microcap fund, I can only speak from my personal experience. In 20+ years of contributing to my 401k/IRA, I was always able to maintain my asset allocation by directing contributions. I never had to rebalance to preserve my AA . . . . except once. In the early 2000's, BRSIX took off relative to my other investments. I had to rebalance in mid-2004 to keep things from being too out of wack. So, in my case, overweighting microcaps provided a diversification benefit.

I agree and disagree with HEDGEFUNDIE. His idea to change to IWC makes really good sense. I also really like IJR/SP600 funds and think they are a superior choice, if you had to pick just one. . . . . On the other hand, the comparison he provided to IJR missed the large, uncorrelated returns of the microcap market segment seen in the early 2000s. Here's another couple examples comparing small caps to micro cap but over a longer time horizon:
https://www.portfoliovisualizer.com/fun ... F11%2F2018
https://www.portfoliovisualizer.com/fun ... F11%2F2018

What does the above mean? NOTHING!!! Who knows what's going to happen in future? If you believe overweighting the microcap market segment will provide a diversification benefit, then definitely keep it!!! If you think the added expense and hassle aren't worth it, get rid of it. Either way, it's going to be a guess

KJVanguard
Posts: 74
Joined: Fri Oct 05, 2018 3:39 am

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by KJVanguard » Fri Oct 12, 2018 4:01 am

HEDGEFUNDIE wrote:
Thu Oct 11, 2018 10:45 pm
Why not switch it out for IWC? IWC is cheaper, more liquid, and performed better over past 12 years.

But also, why micro caps at all? Small caps have done better with lower risk:

https://www.portfoliovisualizer.com/fun ... F11%2F2018
And one can find periods where large caps have done better than small, so why own small at all? Periods (like since 1990) where US has done better than international, so why own international at all? Periods where growth has done better than value (like the last decade), so why own value at all? The same question comes up with every asset. Obviously, one hopes micro does better in the future, though that is only an expectation which may or may not materialize.

As for IWC, I have owned it a couple of times in years past. At 60 bps, it's still 53 bps higher than Vanguard Small Value Admiral. One can only hope it outperforms enough to make up for that half percentage of extra baggage.

And IWC still isn't as tiny as WMCR, so if I really wanted tiny I could stay put.

IWC is certainly more liquid, but liquidity is still a problem since I first have to get out of WMCR. Liquidity wouldn't really matter with IWC as if I switched to it, since I would plan to hold it basically forever (OK, we must limit that to my life span).

KJVanguard
Posts: 74
Joined: Fri Oct 05, 2018 3:39 am

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by KJVanguard » Fri Oct 12, 2018 4:07 am

CRTR wrote:
Fri Oct 12, 2018 12:05 am
In 20+ years of contributing to my 401k/IRA, I was always able to maintain my asset allocation by directing contributions. I never had to rebalance to preserve my AA . . . . except once.
That works great if you have a job bringing money in. I don't.

KJVanguard
Posts: 74
Joined: Fri Oct 05, 2018 3:39 am

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by KJVanguard » Fri Oct 12, 2018 5:58 am

I have looked at VIOV before, the S&P 600 value fund. I notice it has higher turnover than VBR (46% vs 19%). VIOV has a higher P/E than VBR (18.9 vs 15.8). Those would be two possible negatives to VIOV, an otherwise interesting fund. Yes, I am nit picking and I know it, but when comparing 2 fine funds, you will tend to pick at every last detail.

The future is entirely unknown, except we can be sure VIOV costs .20% while VBR is only .07%. Admittedly, a small difference, though the only certainty we have to go on.

VBR is is also more diverse with 852 stocks vs 460 for VIOV. VBR has 5.1% in the top 10, while VIOV has a slightly higher 8.1%. Yes, I admit that's more nit picking.

As I recall way back in 1998 at inception Small-Cap Value (and Growth) were based on the S&P 600. Then Vanguard switched to the CRSP indexes. Was this switch to allow for greater capacity? VBR has a median market cap of $3.9B, a size which is more mid-cap than small, but may be needed to accommodate a huge asset base of $33B. The fund that sticks to the S&P 600 value index with a median market cap less than half that size at $1.7B has assets of only a mere $442M, microscopic by Vanguard standards.

Am I the only one thinking Vanguard switched "small" to a vastly larger size to accommodate the massive asset base they wished to accumulate? And was this fair to shareholders who for many years bought a fund based on the S&P 600 only to have it changed to some CRSP index that's vastly larger? Anyone unhappy with the change could have a taxable event to get back to what they started with, what they wanted, and what they expected. Shame on Vanguard.

I still don't know which is better. As for IJR, I see that's the iShares version of the S&P 600 (no value tilt). Not sure why one tilting toward small would not also tilt to value while they are at it.

User avatar
vineviz
Posts: 2311
Joined: Tue May 15, 2018 1:55 pm

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by vineviz » Fri Oct 12, 2018 6:57 am

KJVanguard wrote:
Thu Oct 11, 2018 9:45 pm
I bought WMCR last year, wanting a micro-cap fund, though I probably should have looked further to see that it's VERY illiquid with only $28M in total assets and an average trading volume of 1,795. If I sold my 1,327 shares I would be most of the trading volume that day! I assume this means that I would have to sell it using limit orders to not risk an adverse price, and that quite possibly multiple orders would be needed to get rid of all the shares.

The ETF is not liquid at all, though I read that ETF liquidity also depends on the underlying securities. Seeing how WMCR invests in the Wilshire 5,000 minus the 2,500 largest stocks, that would mean the largest stock it owns ranks 2,501st in size and with just over a thousand holdings it would have to have stocks that rank down to around 3,500th in size, so really tiny and presumably highly illiquid. I notice how WMCR frequently goes for numerous hours each day without a single trade.
There are a few common misconceptions showing up in these two paragraphs.

Liquidity for an ETF doesn't ALSO depend on the underlying securities: liquidity depends ENTIRELY on the underlying securities. The only way your trade could impact the price of the ETF is if the amount of money you are trading is large relative to the trading volume of the underlying stocks. The stocks underlying WMCR have a combined market cap of $390 billion, so a trade of $46,000 (i.e. 1,327 shares x $35 per share) would not even register.

The frequency and volume of trading for WMCR tell you precisely nothing about either its liquidity (which is the ability to transact without price impact) or market depth (the ability to transact large numbers of shares without delay).

Even though the underlying securities of WMCR are less liquid than those of a small cap value fund (like IJS or VIOV), the difference is not enough to affect a retail investor.

There might be reasons for a typical retail investor not to own WMCR (e.g. the expense ratio is insane), but liquidity isn't one of them.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

HEDGEFUNDIE
Posts: 1225
Joined: Sun Oct 22, 2017 2:06 pm

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by HEDGEFUNDIE » Fri Oct 12, 2018 9:57 am

KJVanguard wrote:
Fri Oct 12, 2018 5:58 am
I still don't know which is better. As for IJR, I see that's the iShares version of the S&P 600 (no value tilt). Not sure why one tilting toward small would not also tilt to value while they are at it.
Because on top of betting that small will outperform non-small, it’s making another bet, that value will outperform non-value. In fact there has not been a small value premium for the past 10 years. Just compare IJR with IJS.

The small premium is definitely still around though, compare IJR with IVV.

KJVanguard
Posts: 74
Joined: Fri Oct 05, 2018 3:39 am

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by KJVanguard » Fri Oct 12, 2018 4:55 pm

vineviz wrote:
Fri Oct 12, 2018 6:57 am
There might be reasons for a typical retail investor not to own WMCR (e.g. the expense ratio is insane), but liquidity isn't one of them.
IWC was suggested as an alternative above. At 60 basis points it's only a tad less insane than 85 bps.

Perhaps Vanguard Small Cap Value Admiral at a rock bottom 7 bps is the best alternative of all. I can't control the markets, but I can control how much I pay.

User avatar
vineviz
Posts: 2311
Joined: Tue May 15, 2018 1:55 pm

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by vineviz » Fri Oct 12, 2018 5:23 pm

KJVanguard wrote:
Fri Oct 12, 2018 4:55 pm
vineviz wrote:
Fri Oct 12, 2018 6:57 am
There might be reasons for a typical retail investor not to own WMCR (e.g. the expense ratio is insane), but liquidity isn't one of them.
IWC was suggested as an alternative above. At 60 basis points it's only a tad less insane than 85 bps.

Perhaps Vanguard Small Cap Value Admiral at a rock bottom 7 bps is the best alternative of all. I can't control the markets, but I can control how much I pay.
Vanguard’s fund is SCV in name only, imho.

IJS, VIOV, or SLYV are all ETFs that are superior to Vanguard small cap value fund.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

KJVanguard
Posts: 74
Joined: Fri Oct 05, 2018 3:39 am

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by KJVanguard » Sat Oct 13, 2018 5:07 pm

vineviz wrote:
Fri Oct 12, 2018 5:23 pm
IJS, VIOV, or SLYV are all ETFs that are superior to Vanguard small cap value fund.
Yes, assuming small cap premium in the future.

User avatar
nisiprius
Advisory Board
Posts: 37063
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by nisiprius » Sat Oct 13, 2018 8:31 pm

Rick Ferri issued a warning about micro-cap funds in 2010: The Truth About Micro-Cap Index Funds. To his data, I'm going to add data for the Vanguard Small-Cap Index Fund, NAESX, and WMCR as well. I'm going to put indexes in green, actual funds in blue. Comments in parentheses are mine, not Rick's.

In theory, 2009 was a spectacular year for micro-caps.

CRSP Decile 10 Index, 81.7% (wow!)
Wilshire Micro Cap Index, 47.6%
Morningstar Small Cap Stocks 37.7% (clearly inferior to micro caps)

Vanguard Small Cap Index Fund, NAESX, 36.12%
Bridgeway Ultra-Small Company Market, BRSIX, 26.0%
iShares Russell Microcap ETF, IWC, 23.7%
First Trust Dow Jones Select MicroCap ETF, FDM, 20.0%
Invesco Wilshire Micro-Cap ETF, WMCR, 20.0%
PowerShares Zacks Micro Cap ETF, PZI, 12.1%


Do you see what happened? Even though the small-cap indexes underperformed the micro-cap index, the small-cap fund outperformed the micro-cap funds.

RIck Ferri wrote:
What is the problem with micro-cap index funds and ETFs? The problem is that there are no true micro-cap index funds or ETFs. They don't exist. They can't exist because most micro-cap stocks are not investable. Many companies in the micro-cap segment have tiny floats and no trading volume and that makes them very difficult for funds to buy. Other stocks have market prices less than $1 per share and are off-limits to fund managers due to company policy.
The moral? Perhaps one shouldn't be too quick choose the funds with the heaviest factor loads and the greatest factor purity.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
vineviz
Posts: 2311
Joined: Tue May 15, 2018 1:55 pm

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by vineviz » Sat Oct 13, 2018 8:46 pm

nisiprius wrote:
Sat Oct 13, 2018 8:31 pm
The moral? Perhaps one shouldn't be too quick choose the funds with the heaviest factor loads and the greatest factor purity.
That MIGHT be the moral, or the moral might be that one should look at ALL the factor loads.

WMCR has barely had a stronger loading on small size than IJS over their shared history.

Meanwhile it's had less exposure to the value factor (as you'd expect) and the quality factor (as you'd expect). Combine that with the poor expense ratio and you get a dud.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

User avatar
JoMoney
Posts: 6288
Joined: Tue Jul 23, 2013 5:31 am

Re: WMCR - Invesco Wilshire Micro-Cap ETF

Post by JoMoney » Sat Oct 13, 2018 9:12 pm

nisiprius wrote:
Sat Oct 13, 2018 8:31 pm
... Even though the small-cap indexes underperformed the micro-cap index, the small-cap fund outperformed the micro-cap funds...
Yowzah! :shock:
Image

Even if the fund was able to successfully track the index, I can only imagine it being an act of faith in the "Risk Premium" to show up eventually
Image
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Post Reply