FSCOX vs VSS - What am I missing?

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Indxer
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FSCOX vs VSS - What am I missing?

Post by Indxer » Mon Nov 19, 2018 11:37 am

In my 401(k) my limited options include Fidelity International Small Cap Opportunities Fund - FSCOX. Since I prefer to include a slice of small cap international its either this fund or try to rearrange other accounts and use VSS, most likely across multiple accounts and probably not achieve the weighing I'm after. Obviously VSS is much cheaper, but when I plug in performance data FSCOX beats VSS for all time frames. Other than the "past performance does not..." argument what am I missing with FSCOX if it is providing superior returns net of its higher fees?

Thoughts?

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Alexa9
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Re: FSCOX vs VSS - What am I missing?

Post by Alexa9 » Mon Nov 19, 2018 2:42 pm

1. Expense ratio is way too high 1.13% A full percent higher than VSS .13% I'm assuming it is an active fund which is why it's not preferred here. No guarantee it will continue to outperform.
2. Mostly invests in Europe (47%) and Japan (35%)
3. Classified as a mid cap growth fund
4. Dropped 58% in 2008
5. 135 holdings vs 3,623 in VSS

Indxer
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Re: FSCOX vs VSS - What am I missing?

Post by Indxer » Mon Nov 19, 2018 3:14 pm

Alexa9 wrote:
Mon Nov 19, 2018 2:42 pm
1. Expense ratio is way too high 1.13% A full percent higher than VSS .13% I'm assuming it is an active fund which is why it's not preferred here. No guarantee it will continue to outperform.
Too high for the increase returns it is providing shareholders? I get its not an index but its hard to argue over the last 10 years you would have been better served investing in the cheaper VSS. I guess if the general census is that it's not an index so that is why it's a bad choice then my question has been answered.

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Alexa9
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Re: FSCOX vs VSS - What am I missing?

Post by Alexa9 » Mon Nov 19, 2018 3:21 pm

Hindsight bias: past performance doesn't equal future performance. You can look back now and see all the funds that beat the index but it's meaningless. It's hard to tell what this fund's strategy is or maybe they just got lucky when it comes to active funds.

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jhfenton
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Re: FSCOX vs VSS - What am I missing?

Post by jhfenton » Mon Nov 19, 2018 3:29 pm

FSCOX is a very expensive developed-world small/mid active growth fund that has performed well in an environment that favored growth vs value.

VSS is an all-world small/mid index fund giving broad exposure to the entire world for 13 bp. It has more than 20% in emerging markets, which have dramatically under-performed during the last 7 years.

So to answer your question, they are not comparable funds. And I don't touch expensive active funds. It's always possible, in hindsight, to find a hot active fund.

VSS is my largest holding and favorite fund.

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G12
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Re: FSCOX vs VSS - What am I missing?

Post by G12 » Mon Nov 19, 2018 4:18 pm

Indxer wrote:
Mon Nov 19, 2018 11:37 am
In my 401(k) my limited options include Fidelity International Small Cap Opportunities Fund - FSCOX. Since I prefer to include a slice of small cap international its either this fund or try to rearrange other accounts and use VSS, most likely across multiple accounts and probably not achieve the weighing I'm after. Obviously VSS is much cheaper, but when I plug in performance data FSCOX beats VSS for all time frames. Other than the "past performance does not..." argument what am I missing with FSCOX if it is providing superior returns net of its higher fees?

Thoughts?
I have held VSS since April 2009. I find it to be "meh", how do you like that investing terminology? :shock: Nah, really, I don't find it to be a world beater or anything, and as Morningstar states, it has a higher allocation to materials and energy which makes it more volatile than competitors which has dragged on LT returns. I am not as indoctrinated as some regarding indexing in some market segments where reducing more risky companies through active management or methodology may actually improve long term results utilizing higher quality companies. If I buy or sell VSS it is at specific price points.

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jhfenton
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Re: FSCOX vs VSS - What am I missing?

Post by jhfenton » Mon Nov 19, 2018 6:19 pm

G12 wrote:
Mon Nov 19, 2018 4:18 pm
Nah, really, I don't find it to be a world beater or anything, and as Morningstar states, it has a higher allocation to materials and energy which makes it more volatile than competitors which has dragged on LT returns.
That came up in a recent thread discussing M*'s change in medal rating. It's simply not true that VSS has a higher allocation to materials and energy than comparable funds. It is very much in line with the category and with broad international funds in general.

From the other thread, Morningstar downgrades several Vanguard funds:
jhfenton wrote:
Tue Nov 13, 2018 8:37 pm
The facts:

VSS/VFVSX is 10.67% basic materials and 4.89% energy.
Schwab's international developed small cap ETF SCHC is 11.28% and 4.78%.
M*'s category benchmark is at 11.75% and 3.83%.
M* says that the category averages are 9.18% and 3.66%.
Vanguard Total International is at 8.85% and 7.23%.

I don't see any large weightings on an absolute or relative basis.
I judge an index fund based on the construction of its index and on how well it tracks it that index. VSS excels on both fronts. It has the broadest possible small-cap ex-US index, and it routinely earns back more than its expense ratio with securities lending. I expect owners will be well-rewarded over the long term.

fennewaldaj
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Re: FSCOX vs VSS - What am I missing?

Post by fennewaldaj » Mon Nov 19, 2018 10:35 pm

I have looked into the results of active in international small cap. Larry Swedroe did an article on it for adviser perspectives. It looked a bit less bad than some other categories but indexing is still better overall. My thought is active may have a bit of a pre fee edge but the fees in this category are pretty high so they can't really overcome it.

CRTR
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Re: FSCOX vs VSS - What am I missing?

Post by CRTR » Tue Nov 20, 2018 12:25 am

Here's my two cents . . . . the international small/mid cap growth funds (all active) have done very well over the past 20-30 years. (compare PRIDX to ANY diversified international fund) I've been using Vanguard International Explorer Fund (VINEX) for over 20 years for my international exposure. I would not hesitate to recommend VINEX but would hesitate to do so for FSCOX . . . here's why . . .

First, as other posters have mentioned, FSCOX is concentrated in developed markets. Skipping emerging markets helped it the past 10 years but would have hurt it prior to 2008 . . . .which explains besting VSS (too bad VSS wasn't around for 10 years longer because you probably would get a different story). A more fair comparison would be to SCZ. SCZ has beat FSCOX since inception. Second, with only ~130 holdings, it is not very diversified. Expect a wild ride. Third, the management team hasn't been around that long and you don't have a great track record. You need more than ~20 years performance to make a reasonable assessment of manager skill vs luck. Finally, it is expensive. The odds of the managers being able to overcome the ER and keep generating good returns aren't great . . . unless they know things that NO ONE else does . . .

Sorry to say, in my opinion, it's a kind of a crappy choice in the world of international small cap growth funds. On the plus side, most likely, it will provide some solid diversification as it is poorly correlated to US small caps.

If it were me, I might split the difference: buy some in my 401k but try to get my international small cap some other way . . . if possible and not too big of a hassle.

Indxer
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Re: FSCOX vs VSS - What am I missing?

Post by Indxer » Tue Nov 20, 2018 3:40 pm

CRTR wrote:
Tue Nov 20, 2018 12:25 am
Here's my two cents . . . . the international small/mid cap growth funds (all active) have done very well over the past 20-30 years. (compare PRIDX to ANY diversified international fund) I've been using Vanguard International Explorer Fund (VINEX) for over 20 years for my international exposure. I would not hesitate to recommend VINEX but would hesitate to do so for FSCOX . . . here's why . . .

First, as other posters have mentioned, FSCOX is concentrated in developed markets. Skipping emerging markets helped it the past 10 years but would have hurt it prior to 2008 . . . .which explains besting VSS (too bad VSS wasn't around for 10 years longer because you probably would get a different story). A more fair comparison would be to SCZ. SCZ has beat FSCOX since inception. Second, with only ~130 holdings, it is not very diversified. Expect a wild ride. Third, the management team hasn't been around that long and you don't have a great track record. You need more than ~20 years performance to make a reasonable assessment of manager skill vs luck. Finally, it is expensive. The odds of the managers being able to overcome the ER and keep generating good returns aren't great . . . unless they know things that NO ONE else does . . .

Sorry to say, in my opinion, it's a kind of a crappy choice in the world of international small cap growth funds. On the plus side, most likely, it will provide some solid diversification as it is poorly correlated to US small caps.

If it were me, I might split the difference: buy some in my 401k but try to get my international small cap some other way . . . if possible and not too big of a hassle.
SCZ has easily outperformed VSS so I'm not sure that would be a better comparison either. Also, I don't see SCZ beating FSCOX but admit I may be missing something with my charting and I'm not able to insert the graphic for some reason. These two things makes me more negative on VSS than I started.

Indxer
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Re: FSCOX vs VSS - What am I missing?

Post by Indxer » Tue Nov 20, 2018 3:52 pm

Comparing VSS & SCZ shows they have quite different geographical weightings. It seems like this entire small cap int is impossible to make an apples to apples comparison. I would have hoped at least the "index funds" would be easier to compare. It does seem that the EM segment explains at least some of the difference between VSS & SCZ

fennewaldaj
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Re: FSCOX vs VSS - What am I missing?

Post by fennewaldaj » Tue Nov 20, 2018 6:32 pm

Indxer wrote:
Tue Nov 20, 2018 3:52 pm
Comparing VSS & SCZ shows they have quite different geographical weightings. It seems like this entire small cap int is impossible to make an apples to apples comparison. I would have hoped at least the "index funds" would be easier to compare. It does seem that the EM segment explains at least some of the difference between VSS & SCZ
In addition to the emerging markets issue Canada has a bigger weight in the ex US small cap universe than the ex US large cap universe. So including or not including has a big impact on performance.

CRTR
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Re: FSCOX vs VSS - What am I missing?

Post by CRTR » Wed Nov 21, 2018 1:27 am

Indxer wrote:
Tue Nov 20, 2018 3:52 pm
Comparing VSS & SCZ shows they have quite different geographical weightings. It seems like this entire small cap int is impossible to make an apples to apples comparison. I would have hoped at least the "index funds" would be easier to compare. It does seem that the EM segment explains at least some of the difference between VSS & SCZ
The reason I felt SCZ was a better comparison than VSS was that both SCZ and FSCOX essentially have no exposure to emerging markets. I could have picked just about any developed market small cap fund and shown the same thing. FSCOX has had a fair bit of style drift over it's short lifetime even though it has been limited to developed markets. For this reason, you can't make apples to apples comparison because FSCOX might be an apple this year but an orange next. Since its inception, the moves the managers have made in the developing market arena have not bested passive strategies covering the same. If you want to look at other "passive" developed market, small cap etf/funds aside from SCZ, consider GWX, DLS, DISVX, SFILX, PDN . . . .they all have have larger portfolios, lower expense ratios and have outperformed FSCOX . . . .which brings me full circle back to my original statement: in my opinion, VSCOX is a kind of crappy choice for international small cap exposure. It's a drag that's all you have in your 401k.

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