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UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 12:25 pm
by hrain
Hi all,

Thanks in advance for your help.

My goal AA currently is:
40% Total US Market or SP500
15% Mid cap fund
15% Small Cap fund
30% International

Edited for Clarification: I'm currently not including bonds in my allocation (I'm 31 y/o and fairly aggressive), but plan to add bonds in as time goes on (I'm just starting to make a real income).

My plan was to keep my UC Fidelity Netbenefits 457b and wife's 403b/DCP/457b as the Small Cap portion in the UC Domestic Small Cap Equity fund. However, I was reviewing this document (https://myucretirement.com/Managed/Asse ... P%20EQ.pdf) and it looks like despite the "Investment Strategy" description (below), the Morningstar Equity Style Box indicates that the fund is largely Mid cap rather than Small Cap with the following % Market Cap:

Giant 0.00
.............................................
Large 0.24
Medium 64.44
Small 34.52
.............................................
Micro 0.79

Should I use the UC fund as my "mid cap" fund instead? Is this true of most "small cap" funds? I looked at FSSNX (https://fundresearch.fidelity.com/mutua ... /316146182) and it showed a small cap style box although I couldn't find the % market cap composition as above...

Investment Strategy
The Fund is a separate account invested in the Vanguard Small Cap Index
Fund -Institutional Plus Shares (VSCPX) managed by Vanguard. The fund
employs an indexing investment approach designed to track the
performance of the CRSP US Small Cap Index, a broadly diversied index of
stocks of small U.S. companies. The advisor attempts to replicate the target
index by investing all, or substantially all, of its assets in the stocks that
make up the index, holding each stock in approximately the same
proportion as its weighting in the index.

Thanks for your input!

Re: UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 1:08 pm
by Northern Flicker
I'm currently utilizing student loans as a "reverse/negative bond" rather than including bonds in the allocation (I'm 31 y/o and fairly aggressive), but plan to add bonds in as time goes on and loans are paid off.
Are you suggesting that having student loans is equivalent to holding bonds in your portfolio? It is not. If viewed as part of the portfolio, it would be using leverage.

If you did want to take student loan debt into account in designing your asset allocation, you would need more bonds, not less to compensate for the added risk. For instance, if you are laid off from your job when the stock market is down 55%, you still have the student loan debt hanging over your head.

Re: UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 1:44 pm
by hrain
Sorry, no. What I mean is that I don't personally see the point of having a low yield asset (such as bond) while holding debt with a higher percentage rate. I'd rather pay down the debt than pay into bonds. ex: https://earlyretirementnow.com/2016/11/ ... portfolio/

That said, I'm coming at it from a job (for both my spouse and myself) that is extremely safe. I'm an emergency medicine doctor -- even in downturns, my job becomes more and not less necessary, as people rely on the emergency department more even for primary care.

Regardless, though I do appreciate your response, that really isn't the question I'm wondering about currently -- I'm more focused at the moment on the equity allocation and finding the best options for my Small and Mid cap portions. I only included that statement because I knew people would ask about bond allocation if I only included equities. Sorry for the confusion!

Thank you!

Re: UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 1:56 pm
by pkcrafter
CRSP small cap information--

http://www.crsp.com/files/crspsc1_quart ... ne2019.pdf

VSCPX

https://investor.vanguard.com/mutual-fu ... olio/vscpx

VSCPX uses the same benchmark (CRSP) as Vanguard's widely used small cap fund--NAESX.

Approximating total stock market

https://www.bogleheads.org/wiki/Approxi ... ock_market



Paul

Re: UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 5:14 pm
by Northern Flicker
Paying down debt as an alternative to investing in bonds is fine. That does not mean you should be 100% stocks. That depends on your risk tolerance and capacity. I won’t say that having debt means you should not be 100% stocks, but I will say that all else equal, your risk capacity is less with the debt than without it.

Re: UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 5:22 pm
by rkhusky
Morningstar changed their size definitions early last year, such that many small cap funds now hold a lot of mid cap. The definitions are arbitrary. You can just adjust your AA to fit or try to find a micro cap fund, which probably holds a lot of small caps.

You shouldn’t use the name of the fund for your AA, but actually what it contains. For example, put 65% of the UC fund into mid cap and 35% into small. If you use the name or your own definition, you will have a hard time comparing to other fund families. That’s the advantage of Morningstar.

Re: UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 5:54 pm
by infotrader
You are looking at an old document. Here is the newer version:
https://www.myucretirement.com/Managed/ ... P%20EQ.pdf

Large 0.00
Medium 23.37
Small 66.30
.............................................
Micro 10.33

Over the years, UC core funds are getting worse with fewer and fewer options. Personally, I have most of my money in BrokerageLink, and only have UC Growth Co and UC REITS with UC. The former is the UC branded FDGRX, but with an ER of 0.38. I don't mind paying for its performance.

Re: UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 6:27 pm
by rkhusky
That is a huge change in AA. I wouldn’t use a fund that could change so much in 9 months. Would make it hard to maintain your own AA. Especially for a fund less than two years old.

Re: UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 8:24 pm
by grabiner
hrain wrote:
Tue Aug 13, 2019 12:25 pm
My plan was to keep my UC Fidelity Netbenefits 457b and wife's 403b/DCP/457b as the Small Cap portion in the UC Domestic Small Cap Equity fund. However, I was reviewing this document (https://myucretirement.com/Managed/Asse ... P%20EQ.pdf) and it looks like despite the "Investment Strategy" description (below), the Morningstar Equity Style Box indicates that the fund is largely Mid cap rather than Small Cap with the following % Market Cap:

Giant 0.00
.............................................
Large 0.24
Medium 64.44
Small 34.52
.............................................
Micro 0.79
Morningstar uses a smaller definition of small-caps than most other definitions. According to Morningtar, the market is 74% large-cap, 19% mid-cap, 7% small-cap. Most definitions consider small-cap to be the bottom 10% or 15% of the market, and that is the range most indexes track. Your index appears to be the bottom 15%, which is the same range as Vanguard Small-Cap Index.

Re: UC Domestic Small Cap Equity = Mid Cap not Small?

Posted: Tue Aug 13, 2019 9:07 pm
by MotoTrojan
Vanguard CRSP fund is more 50/50 in my opinion. Median market cap is about 2x Russell 2000 (meh) and S&P600 (excellent index).