20 yr review of Mel's Unloved Midcaps

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
Robert T
Posts: 2534
Joined: Tue Feb 27, 2007 9:40 pm
Location: 1, 0.2, 0.4, 0.5
Contact:

20 yr review of Mel's Unloved Midcaps

Post by Robert T » Thu Jul 16, 2015 5:59 am

.
SPDR S&P Midcap 400 [MDY] now has a 20 year record of performance.

Annualized returns: 6/1/1995 to 7/15/2015 - just over 20 years

12.0% = SPDR S&P Midcap 400 [MDY]
.9.2% = Vanguard Total Stock Market [VTSMX]
10.3% = DFA US Large Value [DFLVX]
12.2% = DFA US Small Value [DFSVX]

M* tells me that on an after-tax basis MDY had the highest return. MDY and VTSMX lost about 0.6% to taxes, while DFSVX lost about 1.5% to taxes.

Robert
.
Last edited by Robert T on Thu Jul 16, 2015 6:59 am, edited 1 time in total.

User avatar
JoMoney
Posts: 6148
Joined: Tue Jul 23, 2013 5:31 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by JoMoney » Thu Jul 16, 2015 6:44 am

It's interesting how well the S&P Mid-Cap index did. There was a period in the late 90's-2000's where it made a difference, and the S&P managed to somehow hit the mark a bit better than others:
Image
MStar Link
Last edited by JoMoney on Thu Jul 16, 2015 6:45 am, edited 1 time in total.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Call_Me_Op
Posts: 7045
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: 20 yr review of Mel's Unloved Midcaps

Post by Call_Me_Op » Thu Jul 16, 2015 6:44 am

Surprise! There are small and value premiums after all.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

User avatar
JoMoney
Posts: 6148
Joined: Tue Jul 23, 2013 5:31 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by JoMoney » Thu Jul 16, 2015 6:46 am

Call_Me_Op wrote:Surprise! There are small and value premiums after all.
There 'was' ...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

animule
Posts: 130
Joined: Sun Jan 06, 2008 12:29 pm

Re: 20 yr review of Mel's Unloved Midcaps

Post by animule » Thu Jul 16, 2015 7:11 am

The reason that the Vanguard Mid Cap fund did better than most in the 1999 to early 2000's period was because it tracked the S&P Mid Cap 400 index which required companies to post consecutive periods of earnings before gaining inclusion into the index.

This is the same requirement that helped the S&P Smallcap 600 fund out perform the Russell 3000 about that same time period as the earnings requirement prevented the index from investing in tech companies that had huge valuations, but no profits. Many of these companies collapsed over time. Not investing in these companies in the first place saved investors big time.

Vanguard changed the tracking index in 2003. Details below.

http://www.etf.com/publications/journal ... /1644.html

Vanguard Announces Index Change For Seven Funds

By Journal of Indexes Staff
April 01, 2003

Vanguard is switching indexes for five of its style funds as well as its mid-cap and small-cap funds. The funds will now aim to track new indexes that have been launched by Morgan Stanley Capital International (MSCI). Each fund will continue to track the same segment of the market, consistent with fund objectives, but will do so in a way that Vanguard asserts will have less turnover and more style integrity.

Making the change to the MSCI indexes are the mid-cap, small-cap, value, growth, small-cap value, small-cap growth and variable insurance (mid-cap portfolio) funds. Assets in the seven funds making the transition total nearly $20 billion. Vanguard currently has a total of $200 billion in indexed assets (of some $600 billion that it manages overall) in 40 index funds tracking 22 benchmarks from seven index providers. Vanguard said that the transition to the new MSCI benchmarks was expected to occur between April 20 and September 30, 2003.

Gus Sauter, Vanguard's Chief Investment Officer, said that Vanguard has been "very pleased" with how the new indexes were performing thus far, and noted that "It was not at all a difficult decision to formally recommend to the boards that the funds transition to the new indexes."

User avatar
nedsaid
Posts: 10508
Joined: Fri Nov 23, 2012 12:33 pm

Re: 20 yr review of Mel's Unloved Midcaps

Post by nedsaid » Thu Jul 16, 2015 7:17 am

animule wrote:The reason that the Vanguard Mid Cap fund did better than most in the 1999 to early 2000's period was because it tracked the S&P Mid Cap 400 index which required companies to post consecutive periods of earnings before gaining inclusion into the index.

This is the same requirement that helped the S&P Smallcap 600 fund out perform the Russell 3000 about that same time period as the earnings requirement prevented the index from investing in tech companies that had huge valuations, but no profits. Many of these companies collapsed over time. Not investing in these companies in the first place saved investors big time.

Vanguard changed the tracking index in 2003. Details below.

http://www.etf.com/publications/journal ... /1644.html

Vanguard Announces Index Change For Seven Funds

By Journal of Indexes Staff
April 01, 2003

Vanguard is switching indexes for five of its style funds as well as its mid-cap and small-cap funds. The funds will now aim to track new indexes that have been launched by Morgan Stanley Capital International (MSCI). Each fund will continue to track the same segment of the market, consistent with fund objectives, but will do so in a way that Vanguard asserts will have less turnover and more style integrity.

Making the change to the MSCI indexes are the mid-cap, small-cap, value, growth, small-cap value, small-cap growth and variable insurance (mid-cap portfolio) funds. Assets in the seven funds making the transition total nearly $20 billion. Vanguard currently has a total of $200 billion in indexed assets (of some $600 billion that it manages overall) in 40 index funds tracking 22 benchmarks from seven index providers. Vanguard said that the transition to the new MSCI benchmarks was expected to occur between April 20 and September 30, 2003.

Gus Sauter, Vanguard's Chief Investment Officer, said that Vanguard has been "very pleased" with how the new indexes were performing thus far, and noted that "It was not at all a difficult decision to formally recommend to the boards that the funds transition to the new indexes."
It goes to show you that if you don't like how your index is performing, just pick another index!!
A fool and his money are good for business.

Grt2bOutdoors
Posts: 19326
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: 20 yr review of Mel's Unloved Midcaps

Post by Grt2bOutdoors » Thu Jul 16, 2015 8:12 am

What a difference an extra 1% to one's portfolio can have to the ending value. Let's all pile into Midcaps, thereby erasing the equity risk premium and finding ourselves back to square one. If you think the CAPE for the S&P 500 is larger than normal, do the calculations for the S&P 400.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
tludwig23
Posts: 1664
Joined: Thu Dec 30, 2010 3:27 pm
Location: 48deg46"23"N 122deg28'21"W

Re: 20 yr review of Mel's Unloved Midcaps

Post by tludwig23 » Thu Jul 16, 2015 8:25 am

JoMoney wrote:
Call_Me_Op wrote:Surprise! There are small and value premiums after all.
There 'was' ...
There were ...
That's what I do: I drink, and I know things. --Tyrion Lannister

RNJ
Posts: 765
Joined: Mon Apr 08, 2013 9:06 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by RNJ » Thu Jul 16, 2015 8:34 am

tludwig23 wrote:
JoMoney wrote:
Call_Me_Op wrote:Surprise! There are small and value premiums after all.
There 'was' ...
There were ...
Grammatical issues aside, since inception MDY outperformed both VOE (Vanguard's Mid Value offering) as well as it's "sister" value offering, MDYV.

FillorKill
Posts: 1007
Joined: Sat Aug 06, 2011 7:01 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by FillorKill » Thu Jul 16, 2015 9:13 am

RNJ wrote: Grammatical issues aside, since inception MDY outperformed both VOE (Vanguard's Mid Value offering) as well as it's "sister" value offering, MDYV.
Comparing MDY to VG Mid Cap (VIMSX) from inception, 05/21/1998 finds that VIMSX has outperformed.

Comparing MDYV to VG Mid Cap Value (VMVIX) from inception, 08/24/2006 finds that VMVIX has outperformed.

The market cap size difference between the 400 and the VG Mid cap indexes make the comparison not overly useful - MDY is much, much smaller. And VG can't seem to stick to any one particular index either...

Keiser2015
Posts: 47
Joined: Thu Jul 16, 2015 7:46 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by Keiser2015 » Thu Jul 16, 2015 9:52 am

Do you think there will be a 20 year period when large cap or small cap beat midcaps? Has it happened in the past? Will it happen in the future?

RNJ
Posts: 765
Joined: Mon Apr 08, 2013 9:06 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by RNJ » Thu Jul 16, 2015 10:00 am

FillorKill wrote:
RNJ wrote: Grammatical issues aside, since inception MDY outperformed both VOE (Vanguard's Mid Value offering) as well as it's "sister" value offering, MDYV.
Comparing MDY to VG Mid Cap (VIMSX) from inception, 05/21/1998 finds that VIMSX has outperformed.

Comparing MDYV to VG Mid Cap Value (VMVIX) from inception, 08/24/2006 finds that VMVIX has outperformed.

The market cap size difference between the 400 and the VG Mid cap indexes make the comparison not overly useful - MDY is much, much smaller. And VG can't seem to stick to any one particular index either...
Spent way too much time trying to copy and paste an image (M* screenshot). If you look at the growth of the three aforementioned ETFs on M*, beginning with VOE's date of inception (8/1/06, I believe), MDY outperformed. With respect to the issues mentioned about VG's index, the better comparison is the the sibling fund, MDYV. Final numbers to the present (assuming initial investment of $10k):

MDY: $22,641
MDYV: $20,137
VOE: $21,186

randomguy
Posts: 6504
Joined: Wed Sep 17, 2014 9:00 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by randomguy » Thu Jul 16, 2015 12:19 pm

Keiser2015 wrote:Do you think there will be a 20 year period when large cap or small cap beat midcaps? Has it happened in the past? Will it happen in the future?
Yes:) Obviously we can't predicat the future but lets look at the past. From portfolio visualizer

1972-1981
Large 6.1%
Mid 10.4
Small 15.86%

1980-1999
Large 17.56
Mid 16.25
Small 14.12%

You can debate the definitions (what is a midcap or small cap) but there is a good chance over a short period like 20 years that any of these can outperform. Things like value and smallness have historically gotten most of the outperformance in a few 5-10 year periods. For example if you look at large value, it beats a total market over the last 40 years. But all of the outperformance was pretty much in the first 10.

User avatar
abuss368
Posts: 12977
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: 20 yr review of Mel's Unloved Midcaps

Post by abuss368 » Thu Jul 16, 2015 12:42 pm

Robert T wrote:.
SPDR S&P Midcap 400 [MDY] now has a 20 year record of performance.

Annualized returns: 6/1/1995 to 7/15/2015 - just over 20 years

12.0% = SPDR S&P Midcap 400 [MDY]
.9.2% = Vanguard Total Stock Market [VTSMX]
10.3% = DFA US Large Value [DFLVX]
12.2% = DFA US Small Value [DFSVX]

M* tells me that on an after-tax basis MDY had the highest return. MDY and VTSMX lost about 0.6% to taxes, while DFSVX lost about 1.5% to taxes.

Robert
.
Hi Robert T.,

Thank you for the 20 year history. Mel certainly loves his Midcaps over the years!

Perhaps Mel will see this thread and provide some additional perspective as to why he invested in Midcaps?

Best.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

FillorKill
Posts: 1007
Joined: Sat Aug 06, 2011 7:01 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by FillorKill » Thu Jul 16, 2015 2:58 pm

RNJ wrote:
Spent way too much time trying to copy and paste an image (M* screenshot). I don't know how to do that either but didn't bother trying - I know my technical abilities are limited

If you look at the growth of the three aforementioned ETFs on M*, beginning with VOE's date of inception (8/1/06, I believe), MDY outperformed. With respect to the issues mentioned about VG's index, the better comparison is the the sibling fund, MDYV. Final numbers to the present (assuming initial investment of $10k):

MDY: $22,641
MDYV: $20,137
VOE: $21,186
VOE is mid cap value - when compared to MDVY - based on the 400 value index, the VG product was superior as we've both now shown. If you want to compare MDY to an ETF rather than the fund (which has a much longer history) the appropriate comparison is to VO. Run a total return chart of VO to MDY from date of inception (01/26/2004) and VO is superior as the mutual fund share class was over the greater period.

Why are you mixing and matching blend (core) and value indexes when drawing comparisons? I must be missing something.

User avatar
Robert T
Posts: 2534
Joined: Tue Feb 27, 2007 9:40 pm
Location: 1, 0.2, 0.4, 0.5
Contact:

Re: 20 yr review of Mel's Unloved Midcaps

Post by Robert T » Thu Jul 16, 2015 3:22 pm

.
abuss368 wrote:Perhaps Mel will see this thread and provide some additional perspective as to why he invested in Midcaps?
Mel's earlier reasons:

  • "My contention is that midcaps do, indeed, have some of the nice return characteristics of the small-caps and large-caps, but, IMO, they eliminate two of the potential problems in those groups -- "bubbles" in the large caps and IPO-mania, such as experienced in the dot.com craze, in the small caps."

    http://socialize.morningstar.com/NewSoc ... ID=2340997

Robert
.

FillorKill
Posts: 1007
Joined: Sat Aug 06, 2011 7:01 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by FillorKill » Thu Jul 16, 2015 3:36 pm

RNJ wrote:With respect to the issues mentioned about VG's index, the better comparison is...
On a related note, based on the index du jour for the VG products, the current best comparisons for the 400 series would be the VG 'small' VB/VBR, etc. The size loading is much more similar.

User avatar
Robert T
Posts: 2534
Joined: Tue Feb 27, 2007 9:40 pm
Location: 1, 0.2, 0.4, 0.5
Contact:

Re: 20 yr review of Mel's Unloved Midcaps

Post by Robert T » Thu Jul 16, 2015 5:35 pm

.
Keiser2015 wrote:Do you think there will be a 20 year period when large cap or small cap beat midcaps? Has it happened in the past? Will it happen in the future?
Yes. Large caps beat mid-cap in 20 yr period from 1980-1999

Annualized return: 1980-1999

Ibbotson Large Growth = 18.5%
Ibbotson Mid Growth = 16.0%
--------------------------
Large Growth - Mid Growth = 2.5%

Ibbotson Large Value = 17.0%
Ibbotson Mid Value = 16.6%
--------------------------
Large Value - Mid Value = 0.4%

So perhaps the more recent period is somewhat driven be 'revision to the mean'.

Robert
.

User avatar
Kevin M
Posts: 10207
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: 20 yr review of Mel's Unloved Midcaps

Post by Kevin M » Thu Jul 16, 2015 5:45 pm

These kinds of results are highly period dependent, and can change a lot by just dropping a year or shifting the start/end dates by one year. I've looked into this a lot for Vanguard small-cap and mid-cap funds. Mid-cap did better 2000-2014, but if you start in 2001, small-cap did a little better, but they performed almost identically (I would be happy using either one to tilt to small cap in a 401k). I drilled into this once, and found that all of mid-caps outperformance for 2000-2014 was due to a couple of months in 2000--not something we can count on happening again.

I think it's a common misconception that mid-caps are mid-way between large-cap and small-cap, when in reality, they are much closer to small-cap than to large-cap, both in median market capitalizations and performance--at least for the Vanguard funds.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

User avatar
abuss368
Posts: 12977
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: 20 yr review of Mel's Unloved Midcaps

Post by abuss368 » Thu Jul 16, 2015 10:22 pm

Robert T wrote:.
abuss368 wrote:Perhaps Mel will see this thread and provide some additional perspective as to why he invested in Midcaps?
Mel's earlier reasons:

  • "My contention is that midcaps do, indeed, have some of the nice return characteristics of the small-caps and large-caps, but, IMO, they eliminate two of the potential problems in those groups -- "bubbles" in the large caps and IPO-mania, such as experienced in the dot.com craze, in the small caps."

    http://socialize.morningstar.com/NewSoc ... ID=2340997

Robert
.
Thank you Robert!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

User avatar
Mel Lindauer
Moderator
Posts: 28648
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: 20 yr review of Mel's Unloved Midcaps

Post by Mel Lindauer » Sat Oct 20, 2018 1:32 pm

abuss368 wrote:
Thu Jul 16, 2015 10:22 pm
Robert T wrote:.
abuss368 wrote:Perhaps Mel will see this thread and provide some additional perspective as to why he invested in Midcaps?
Mel's earlier reasons:

  • "My contention is that midcaps do, indeed, have some of the nice return characteristics of the small-caps and large-caps, but, IMO, they eliminate two of the potential problems in those groups -- "bubbles" in the large caps and IPO-mania, such as experienced in the dot.com craze, in the small caps."

    http://socialize.morningstar.com/NewSoc ... ID=2340997

Robert
.
Thank you Robert!
That's my reasoning, and it hasn't changed over the years since I first wrote about mid-caps in a discussion with Larry Swedroe on the old Morningstar Vanguard Diehards forum in 2000.
Best Regards - Mel | | Semper Fi

heyyou
Posts: 3175
Joined: Tue Feb 20, 2007 4:58 pm

Re: 20 yr review of Mel's Unloved Midcaps

Post by heyyou » Sat Oct 20, 2018 4:59 pm

I salute the person who has recognized what suits himself, regardless of the opinions of others.
Thank you Mel for just being who you are.

dekecarver
Posts: 297
Joined: Mon Feb 22, 2010 10:24 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by dekecarver » Sat Oct 20, 2018 6:57 pm

Thank you Mel. When I was looking at asset allocation I paid attention to your take on Midcaps way back. It made sense so I took a gamble; bought, held and added. Still chugging along for better or worse :sharebeer

ignition
Posts: 201
Joined: Sun Dec 11, 2016 11:28 am

Re: 20 yr review of Mel's Unloved Midcaps

Post by ignition » Sun Oct 21, 2018 4:40 am

Grt2bOutdoors wrote:
Thu Jul 16, 2015 8:12 am
What a difference an extra 1% to one's portfolio can have to the ending value. Let's all pile into Midcaps, thereby erasing the equity risk premium and finding ourselves back to square one. If you think the CAPE for the S&P 500 is larger than normal, do the calculations for the S&P 400.
I always find it hard to value small caps/mid caps. Is it normal that they have much higher valuations than large caps?

For example the Russell 2000 has a pe of 61 and a cape of 136 according to this link: http://siblisresearch.com/data/russell-2000-pe-yield/ :shock:

Post Reply