After reading William Bernstein's new short book "Skating where the puck was", and after some reflection, I've (immodestly) decided that I'm one of those young investors who has the means, access, and behavioral/psychological fortitude to benefit from a long-term tilt towards small value. I plan to apply this only to my US stock holdings for now, since I have not been convinced that there is any cost-effective way for me to tilt towards SV internationally.
I currently hold a combination of Vanguard's total market (taxable) and US small-value (Roth IRA) in roughly 4:1 proportion, giving me a moderate tilt towards SV according to Morningstar's Instant Xray:
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My current portfolio Total US Market
19 19 20 24 24 25
7 7 5 6 6 7
11 8 4 3 3 3
I'd like to increase this tilt substantially in my current holdings and then continue to contribute new money to reach a tilt of around 20% in the SV box. After reading this thread
and others on Rydex's RZV ETF, I've decided that there are basically two potentially optimal ways for me to adjust my SV tilt right now: first, to reallocate my holdings to 3:1 TSM:SV, or secondly to maintain my 4:1 TSM:SV but replace my Vanguard SV holding with RZV.
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4:1 VTIAX:VSIAX 3:1 VTIAX:RZV
18 18 18 19 19 20
7 7 5 5 5 5
14 9 4 14 9 4
I'm trying to decide which is the better approach. All the research and discussions I've read indicate that the best way to capture the SV premium is to go as value-y as possible (in favor of RZV) but that it's also important to hold a widely diversified set of value stocks (seemingly in favor of VSIAX, ~1000 stocks vs. ~150).
I am aware of other issues with RZV, such as low trading volume (not a huge concern since I plan to hold for the long run), and questionable long-term tax efficiency (not a concern since I plan to hold in my Roth IRA).
Any advice on which should be the better approach to value tilting for me?