how heavily do you tilt?

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What is the value of your SV funds/ETFs divided by the value of your total equities?

< .1
22
36%
.1-.2
17
28%
.2-.3
8
13%
.3-.4
3
5%
.4-.5
5
8%
.5-.6
3
5%
.6-.7
0
No votes
.7-.8
0
No votes
> .8
3
5%
 
Total votes: 61

feh
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how heavily do you tilt?

Post by feh » Thu Apr 18, 2013 9:26 am

For those of you that believe a small-value tilt is advantageous, how have you implemented it? For the purpose of the poll, this is the percentage of your equity holdings, not total portfolio.

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SkolVikes7
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Re: how heavily do you tilt?

Post by SkolVikes7 » Thu Apr 18, 2013 9:36 am

Image

Compliments of Mr. Ferri

A link to his article, http://www.rickferri.com/blog/strategy/ ... ue-stocks/

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Random Musings
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Re: how heavily do you tilt?

Post by Random Musings » Thu Apr 18, 2013 9:44 am

I might be nice for the OP to explain what those numbers mean (and how to arrive at those values) for those who do tilt. I guarantee that many who do tilt do not know how to arrive at these values. Plus, there may be a wide discrepancy on how people tilt domestically versus internationally.

RM
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livesoft
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Re: how heavily do you tilt?

Post by livesoft » Thu Apr 18, 2013 9:45 am

VBR + VSS + DGS amount to about 45% of our equities this week.
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bottomfisher
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Re: how heavily do you tilt?

Post by bottomfisher » Thu Apr 18, 2013 9:53 am

I answered 0. I understand the Fama French data and premise. And I see that DFA is able to capture some of the premium; whether this is worth the additional advisor's fee is a different issue for me personally. If I were to tilt small value I would likely utilize Vanguard since most of my investments are there and I seek the low expense ratios. When I look at Vanguard's historical returns, it doesn't appear that their small value fund is able to capture the premium. The small cap gowth & value investor class funds were started in the same year - 1998. Small growth has a marginal lead on small value since then. 10 year returns indicate Small growth and small blend have a modest approximately 0.8 annualized better return than small value. See returns below. So since Vanguard funds have shown not to capture the premium, I've held off on tilting toward small value up to this point.

Small-Cap Growth Index VISGX Stock - Small-Cap Growth 10 yr: 12.73%. Since inception: 7.93% (05/21/1998)
Small-Cap Index NAESX Stock - Small-Cap Blend 10 yr: 12.70%. Since inception: 10.61% (10/03/1960)
Small-Cap Value Index VISVX Stock - Small-Cap Value 10 yr: 11.91%. Since inception: 7.79% (05/21/1998)

I recognize Fama French factors are 'small' and seperately 'value.' Not necessaily the combination of small and value. But is there any thoughts on my interpretation of the data from Vanguard's website? Am I missing something?

feh
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Re: how heavily do you tilt?

Post by feh » Thu Apr 18, 2013 9:53 am

Random Musings wrote: Plus, there may be a wide discrepancy on how people tilt domestically versus internationally.

RM
You've raised a followup question I have. I was trying to decide if it should be a different thread or to bring it up here. To be clear, this poll is all equities, both US and international.

For those of you that have different percentages when you break things down into US/int'l, please explain.

Specific question - if your equities are 50/50 US/int'l, is it ok if the SV component is solely US? If not, why?
Last edited by feh on Thu Apr 18, 2013 9:57 am, edited 1 time in total.

staythecourse
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Re: how heavily do you tilt?

Post by staythecourse » Thu Apr 18, 2013 9:56 am

SkolVikes7 wrote:Image

Compliments of Mr. Ferri

A link to his article, http://www.rickferri.com/blog/strategy/ ... ue-stocks/
Great graph by Mr. Ferri, but not useful. Unless one is investing at the start of one decade and cashing out at the end does it matter?? Unlike most on here I think rolling returns to be much more useful then decade by decade returns.

Good luck.
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kenyan
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Re: how heavily do you tilt?

Post by kenyan » Thu Apr 18, 2013 10:02 am

feh wrote:

Specific question - if your equities are 50/50 US/int'l, is it ok if the SV component is solely US? If not, why?
I suppose that depends upon your what you mean by "ok." That's what I do, due to specific fund availability and access. I have small tilts and value tilts, but my only "small value" fund is domestic. I suggest you peruse this thread, if you haven't already.

http://www.bogleheads.org/forum/viewtopic.php?t=38374
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livesoft
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Re: how heavily do you tilt?

Post by livesoft » Thu Apr 18, 2013 10:05 am

bottomfisher wrote: But is there any thoughts on my interpretation of the data from Vanguard's website? Am I missing something?
Perhaps. Suppose there are two investments, let's call them G and V. Suppose G goes up steadily 5% a year, but V goes up and down (is more volatile) by some amount and ends up at the same place as G with an average annual return of 5%. G would offer no rebalancing opportunities and one would not be able to buy at a lower average price. In contrast, V give one opportunities to buy at a lower than expected price and perhaps sell at a higher than expected price when rebalancing and perhaps tax-loss harvesting.

So I didn't look to see if Small-cap value and Small-cap growth offered the features of G and V, but it is something to consider. That is, having the same outcome after 10 years does not help me if I didn't buy on that date 10 years ago and did nothing since.
Last edited by livesoft on Thu Apr 18, 2013 10:09 am, edited 1 time in total.
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dbr
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Re: how heavily do you tilt?

Post by dbr » Thu Apr 18, 2013 10:08 am

You can't approach this question from a point of view that something is ok or not ok. The whole subject of tilting at all is neither absolutely ok nor not ok.

The difference between purely domestic and mixed US-OUS small cap value tilt is entering on the area of dancing on the head of a pin.

The best answer is probably that if cost and tax effective means to include international are available, then why not?

feh
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Re: how heavily do you tilt?

Post by feh » Thu Apr 18, 2013 10:16 am

dbr wrote:You can't approach this question from a point of view that something is ok or not ok. The whole subject of tilting at all is neither absolutely ok nor not ok.
Let me rephrase - would the advantage of SV tilting commonly espoused here still be observed if the SV component was US only, even though the portfolio's total equities were 50/50 US/int'l?

I ask because fund/ETF options for international SV are extremely limited.

dbr
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Re: how heavily do you tilt?

Post by dbr » Thu Apr 18, 2013 10:27 am

feh wrote:
dbr wrote:You can't approach this question from a point of view that something is ok or not ok. The whole subject of tilting at all is neither absolutely ok nor not ok.
Let me rephrase - would the advantage of SV tilting commonly espoused here still be observed if the SV component was US only, even though the portfolio's total equities were 50/50 US/int'l?

I ask because fund/ETF options for international SV are extremely limited.
I don't know why it wouldn't be in general. But, I can see how a person that wants to take a large SV tilt and has to to all of it in the half of the portfolio that in in US stocks would start to be concerned that the portion left in the US total stock market or in US large stocks might seem to almost disappear. For a smaller SV tilt, then why not? For a large tilt, then maybe it is necessary to ante-up for the bad funds in Intl. SV.

The actual answer would be to study the actual expected return and expected risk for particular examples. I do not have the numbers on that sort of thing, but maybe someone else does.

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SkolVikes7
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Re: how heavily do you tilt?

Post by SkolVikes7 » Thu Apr 18, 2013 10:31 am

staythecourse wrote:[quote="SkolVikes7
Compliments of Mr. Ferri

A link to his article, http://www.rickferri.com/blog/strategy/ ... ue-stocks/
Great graph by Mr. Ferri, but not useful. Unless one is investing at the start of one decade and cashing out at the end does it matter?? Unlike most on here I think rolling returns to be much more useful then decade by decade returns.

Good luck.[/quote]

I understand your point, however, any interpretation of data we use has to have a start and stop date right? We should not base decisions off of info that involves only the data that suits our purposes or proves our theories, but we can look at snap shots in time to help us cage our thought process. I would be interested to see evaluating performance can be done without any kind of time stamp.

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Rick Ferri
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Re: how heavily do you tilt?

Post by Rick Ferri » Thu Apr 18, 2013 10:56 am

SkolVikes7 wrote:ImageFrom Rick Ferri
staythecourse wrote:Great graph by Mr. Ferri, but not useful. Unless one is investing at the start of one decade and cashing out at the end does it matter?? Unlike most on here I think rolling returns to be much more useful then decade by decade returns.

Good luck.
To the contrary, there are several useful lessons to be learned from my graph:

1) The benefit from small-value investing is not consistent. It changes over different periods:

1981-1990 (red), small-value decreased the portfolio return over the total stock market (TSM) and increased the risk.
1991-2000 (green), small-value added slightly to TSM return and reduced portfolio risk substantially.
2001-2010 (blue),small-value increased the portfolio return substantially and reduced risk meaningfully.

2) The 2001-2010 decade was phenomenal for the strategy and not likely to be repeated any time soon.
3) It took 30 years for small-value to really benefit a portfolio like we all talk about on this forum.

In conclusion, small-value tilting has to be a life-long commitment. You must truly believe in it or else don't do it because you'll sell-out at the wrong time.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

Clive
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Re: how heavily do you tilt?

Post by Clive » Thu Apr 18, 2013 11:14 am

:beer
Last edited by Clive on Thu Apr 18, 2013 2:02 pm, edited 4 times in total.

EDN
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Re: how heavily do you tilt?

Post by EDN » Thu Apr 18, 2013 11:20 am

Rick Ferri wrote:
SkolVikes7 wrote:ImageFrom Rick Ferri
staythecourse wrote:Great graph by Mr. Ferri, but not useful. Unless one is investing at the start of one decade and cashing out at the end does it matter?? Unlike most on here I think rolling returns to be much more useful then decade by decade returns.

Good luck.
To the contrary, there are several useful lessons to be learned from my graph:

1) The benefit from small-value investing is not consistent. It changes over different periods:

1981-1990 (red), small-value decreased the portfolio return over the total stock market (TSM) and increased the risk.
1991-2000 (green), small-value added slightly to TSM return and reduced portfolio risk substantially.
2001-2010 (blue),small-value increased the portfolio return substantially and reduced risk meaningfully.

2) The 2001-2010 decade was phenomenal for the strategy and not likely to be repeated any time soon.
3) It took 30 years for small-value to really benefit a portfolio like we all talk about on this forum.

In conclusion, small-value tilting has to be a life-long commitment. You must truly believe in it or else don't do it because you'll sell-out at the wrong time.

Rick Ferri
Actually, I think the real lessons from that chart are:

it matters how and what you use to tilt

Using the S&P 500 as your core LG holding, and then adding LV and SV in something like 30/30/40 represents better diversification across the factors and is more likely to capture benefits where ever they may materialize. This can be seen from the following periodic returns:

1981-1990
CRSP 1-10 = +12.8%
30/30/40 = +14.4%

1991-2000
CRSP 1-10 = +17.3%
30/30/40 = +20.2%

2001-2010
CRSP 1-10 = +2.6%
30/30/40 = +6.8%

When small<large and value<growth, most likely the S&P 500 will outperform TSM (late 1990s). When small<large but growth<value (1980s), S&P 500 and LV will probably outperform TSM. When large<small but value<growth, SV will probably outperform TSM (size loading is higher than value loading). When large<small and growth<value, LV and SV will outperform TSM. That about covers all your bases.

Eric

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Rick Ferri
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Re: how heavily do you tilt?

Post by Rick Ferri » Thu Apr 18, 2013 11:27 am

Eric

I'm sure you can play with these numbers and come up with a hypothetical strategy of some mix using large-value, small-value, S&P 500 and whatever that shows it beat the market during the 1981-2000 period. The question in this conversation was the benefit of adding small-cap value to a total market fund, which is what I addressed.

Rick Ferri
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Re: how heavily do you tilt?

Post by Default User BR » Thu Apr 18, 2013 11:29 am

Target allocation:

Code: Select all

Domestic Equity 70.00%
Large Cap       20.00%
Large Value     10.00%
Small Cap       10.00%
Small Value     20.00%
Real Estate     10.00%
 	
International   30.00%
Large Cap        7.50%
Large Value      7.50%
Small Cap       10.00%
EM               5.00%

EDN
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Re: how heavily do you tilt?

Post by EDN » Thu Apr 18, 2013 11:32 am

Rick Ferri wrote:Eric

I'm sure you can play with these numbers and come up with a hypothetical strategy of some mix using large-value, small-value, S&P 500 and whatever that shows it beat the market during the 1981-2000 period. The question in this conversation was the benefit of adding small-cap value to a total market fund, which is what I addressed.

Rick Ferri
Not quite Rick. The OP said "small-value" as in "small" dash "value". It's called the FF "3 Factor" model because small and value are separate. So results are dependent on how you tilt and what you use to tilt. Pretty obvious stuff.

And coming up with combos that beat TSM over that period aren't any great mystery. FF HmL was + 4.6% and SmB was -1.4%, while the S&P 500 beat CRSP 1-10 by about 70bps per year. So any reasonable combination of size and value tilted portfolios where the indexes used were good enough to just deliver the returns associated with their sensitivity to the factors did the trick. Of course, using the Russell 2000 Value, which was not even close to the case, we come up with different results I guess.

Eric

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Re: how heavily do you tilt?

Post by RNJ » Thu Apr 18, 2013 12:07 pm

I'm 50/50, US/Int., within a recently downshifted 60/40 Stock/Bond allocation (I'm 45).

US: TSM and SV in a 3:2 ratio (VTI/VIOV & VSIAX).

International: EAFE, EAFE Value, Emerging Markets, and FTSE ex-US Small in a 1:1:1:2 ratio (SCHF/EFV/VWO/VSS).

In other words . . .

TSM 30%
USSV 20%

SCHF 10%
EFV 10%
VWO 10%
VSS 20%

So I guess that makes me either small and/or value tilted @ 50% of equity. Also, would one consider 10% of equities (6% of portfolio) "tilting" towards emerging markets?

The single piece I have second thoughts about is EFV with an er of .4%. SCHF er is .09%, diluting any value of a value premium by at least 31bp. If I could take a mulligan, a more reasonable alternative might be some proportion of TSM/SV and TISM/VSS.
Last edited by RNJ on Thu Apr 18, 2013 12:32 pm, edited 1 time in total.

chaz
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Re: how heavily do you tilt?

Post by chaz » Thu Apr 18, 2013 12:10 pm

No tilt - just 35/65, and happy.
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grap0013
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Re: how heavily do you tilt?

Post by grap0013 » Thu Apr 18, 2013 5:09 pm

feh wrote:
dbr wrote:You can't approach this question from a point of view that something is ok or not ok. The whole subject of tilting at all is neither absolutely ok nor not ok.
Let me rephrase - would the advantage of SV tilting commonly espoused here still be observed if the SV component was US only, even though the portfolio's total equities were 50/50 US/int'l?

I ask because fund/ETF options for international SV are extremely limited.
I tilt as much as humanly possible.

Please note even when SCV underperforms you still get good outcomes. I think the international options are decent with PDN/SFILX (developed international small cap ex-US) and DGS (EM dividend small cap). Both PDN/SFILX have been beating VEA (large developed blend ex-US) handily and DGS has been doing it to it with regards to VWO (EM large blend). All in absolute returns and even on a risk adjusted basis. Who likes more money? I do.
There are no guarantees, only probabilities.

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grabiner
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Re: how heavily do you tilt?

Post by grabiner » Thu Apr 18, 2013 5:58 pm

My US stocks are 5% LG, 5% LV, 15% SG, and 15% SV, so that's 37.5% of my US stock in SV.

I don't do the same tilt in international because there isn't a good fund available. Vanguard's Small-Cap Value Index costs only five basis points more than Total Stock market, while DLS for international small-cap value costs 33 basis points more than VSS for international small-cap blend, and would have to be held in my IRA where I do not have a brokerage account.
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BlueEars
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Re: how heavily do you tilt?

Post by BlueEars » Fri Apr 19, 2013 10:29 am

I added my MV to SV so the answer was in terms of (MV+SV)/total. Answering this way, I'm much more heavily value tilted then average.

Why leave out MV when it has pretty consistently done better then SV (MSCI index) over the last 20+ years?

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