15% International Small-Cap vs 30% Total International

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rollsound
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15% International Small-Cap vs 30% Total International

Post by rollsound » Wed Mar 15, 2017 4:05 pm

Anyone else using solely international small-caps (e.g. VSS, VFSVX) for the international portion of their equities?
When I joined this site recently, I was dead-set on 100% VTSAX US Total Stock Market, but I've since decided to add some international.
I like how the small-caps are a little less correlated to VTSAX, and furthermore I've found with backtesting that a smaller amount of Intl small-caps even beats a larger amount of Total Intl, at least over the last 20 years.

Check out this backtest for example: http://bit.ly/2n0Yn8i

What I'm trying to accomplish is capturing the gains from the good Intl years, while still keep as much in the US TSM as possible. Thoughts?

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Re: 15% International Small-Cap vs 30% Total International

Post by kolea » Wed Mar 15, 2017 4:17 pm

The goal of international is mostly about diversification, at least for me it is. So it is more of a risk-mitigation move. Investing in SC is concentration, not diversification, so you are trading risk-mitigation for a boost in gains. I cannot tell you what to do, but I think you need to assess which is your more important goal - better diversification or better return.
Last edited by kolea on Wed Mar 15, 2017 4:18 pm, edited 1 time in total.
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Re: 15% International Small-Cap vs 30% Total International

Post by larryswedroe » Wed Mar 15, 2017 4:17 pm

rollsound
That idea is the story behind my book Reducing the Risk of Black Swans---higher expected returning asset classes allow you to hold less equity risk and more safe bonds, reducing volatility and tail risk greatly without negatively impacting expected returns

And yes the REAL benefit of international is in small which has lower correlation to US stocks than does Large (they tend to be more multinationals). But the biggest benefit is going to small value, not small, as you get the low correlation and even higher expected returns, allowing you to hold even less equity risk

You can see the evidence on returns in the table in my paper here [url]https://www.advisorperspectives.com/articles/2017/02/27/were-fama-and-french-right-about-value-and-size-an-ex-post-test
[/url]

Best wishes
Larry

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Re: 15% International Small-Cap vs 30% Total International

Post by triceratop » Wed Mar 15, 2017 4:28 pm

I don't think your backtest is a good one; US Stocks outperformed International Stocks over that period, so less international of any kind would help you. But you're right about lower correlations helping your risk-adjusted returns. Let's try a backtest that is actually more fair (Portfolio 3 here is what you did, but I think Portfolio 1 vs. 2 is the fair one)

What does this backtest tell you?
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Re: 15% International Small-Cap vs 30% Total International

Post by willthrill81 » Wed Mar 15, 2017 4:29 pm

larryswedroe wrote:But the biggest benefit is going to small value, not small, as you get the low correlation and even higher expected returns, allowing you to hold even less equity risk


Larry, can you recommend funds or ETFs that are international small cap value? I'm not aware of any, and I've looked.
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Re: 15% International Small-Cap vs 30% Total International

Post by rollsound » Wed Mar 15, 2017 4:30 pm

thanks Larry Swedroe. I agree, waiting for a intl Vanguard SCV index fund to appear...
Last edited by rollsound on Wed Mar 15, 2017 4:37 pm, edited 1 time in total.

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Re: 15% International Small-Cap vs 30% Total International

Post by rollsound » Wed Mar 15, 2017 4:33 pm

triceratop wrote:I don't think your backtest is a good one; US Stocks outperformed International Stocks over that period, so less international of any kind would help you. But you're right about lower correlations helping your risk-adjusted returns. Let's try a backtest that is actually more fair (Portfolio 3 here is what you did, but I think Portfolio 1 vs. 2 is the fair one)

What does this backtest tell you?


Intl did better than US between 2002-2008 right? if so check out this backtest, intl vs intl small cap 2002-2008: http://bit.ly/2muk9yd

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Re: 15% International Small-Cap vs 30% Total International

Post by triceratop » Wed Mar 15, 2017 4:35 pm

rollsound wrote:
triceratop wrote:I don't think your backtest is a good one; US Stocks outperformed International Stocks over that period, so less international of any kind would help you. But you're right about lower correlations helping your risk-adjusted returns. Let's try a backtest that is actually more fair (Portfolio 3 here is what you did, but I think Portfolio 1 vs. 2 is the fair one)

What does this backtest tell you?


Intl did better than US between 2002-2008 right? if so check out this backtest, intl vs intl small cap 2002-2008: http://bit.ly/2muk9yd


I'm not saying your original point isn't valid; I'm saying your backtest is a poor way to show it. My backtest I provided shows your point effectively and with sound logic as well.

And this most recent backtest is even worse -- 6 years?
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Re: 15% International Small-Cap vs 30% Total International

Post by willthrill81 » Wed Mar 15, 2017 4:37 pm

rollsound wrote:thanks Larry Swedroe. I agree, waiting for a Vanguard SCV index fund to appear...


You mean international SCV?
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Re: 15% International Small-Cap vs 30% Total International

Post by rollsound » Wed Mar 15, 2017 4:37 pm

willthrill81 wrote:
rollsound wrote:thanks Larry Swedroe. I agree, waiting for a Vanguard SCV index fund to appear...


You mean international SCV?


fixed, thanks

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Re: 15% International Small-Cap vs 30% Total International

Post by rollsound » Wed Mar 15, 2017 4:40 pm

triceratop wrote:
rollsound wrote:
triceratop wrote:I don't think your backtest is a good one; US Stocks outperformed International Stocks over that period, so less international of any kind would help you. But you're right about lower correlations helping your risk-adjusted returns. Let's try a backtest that is actually more fair (Portfolio 3 here is what you did, but I think Portfolio 1 vs. 2 is the fair one)

What does this backtest tell you?


Intl did better than US between 2002-2008 right? if so check out this backtest, intl vs intl small cap 2002-2008: http://bit.ly/2muk9yd


I'm not saying your original point isn't valid; I'm saying your backtest is a poor way to show it. My backtest I provided shows your point effectively and with sound logic as well.

And this most recent backtest is even worse -- 6 years?


i know right? it's difficult to find long periods when intl outperforms US. and with data for intl small caps :P

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Re: 15% International Small-Cap vs 30% Total International

Post by selters » Wed Mar 15, 2017 5:02 pm

As far as I know there is no international small cap value ETF. But iShares Edge MSCI Multifactor Intl Small-Cap ETF (Ticker: ISCF) has small cap value exposure and seems to be catching on in the market. Assets under management were only $6 million about a month ago, but now it's $13 million. It's still very low, but if it continues to grow at this pace, you should be fine. The ER is 0.40%.

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Re: 15% International Small-Cap vs 30% Total International

Post by Jiu Jitsu Fighter » Wed Mar 15, 2017 5:11 pm

rollsound wrote:Anyone else using solely international small-caps (e.g. VSS, VFSVX) for the international portion of their equities?
When I joined this site recently, I was dead-set on 100% VTSAX US Total Stock Market, but I've since decided to add some international.
I like how the small-caps are a little less correlated to VTSAX, and furthermore I've found with backtesting that a smaller amount of Intl small-caps even beats a larger amount of Total Intl, at least over the last 20 years.

Check out this backtest for example: http://bit.ly/2n0Yn8i

What I'm trying to accomplish is capturing the gains from the good Intl years, while still keep as much in the US TSM as possible. Thoughts?


Yes
50% VSIAX
50% VFSVX

My profession disallows me to own brokerage accounts, so I have mutual fund accounts with VG.

Once Vanguard rolls out an ISV fund, I will swap out into that. It may be years though. They don't even have a large-cap international value fund that is an index fund (get rid of VTRIX already). The AUM for VFSVX/VSS is so small right now (relatively, for VG).

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Re: 15% International Small-Cap vs 30% Total International

Post by willthrill81 » Wed Mar 15, 2017 5:11 pm

selters wrote:As far as I know there is no international small cap value ETF. But iShares Edge MSCI Multifactor Intl Small-Cap ETF (Ticker: ISCF) has small cap value exposure and seems to be catching on in the market. Assets under management were only $6 million about a month ago, but now it's $13 million. It's still very low, but if it continues to grow at this pace, you should be fine. The ER is 0.40%.


Thanks for the heads up. That seems a bit too small with a bit too high of an ER to interest me yet.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 15% International Small-Cap vs 30% Total International

Post by triceratop » Wed Mar 15, 2017 5:15 pm

willthrill81 wrote:
selters wrote:As far as I know there is no international small cap value ETF. But iShares Edge MSCI Multifactor Intl Small-Cap ETF (Ticker: ISCF) has small cap value exposure and seems to be catching on in the market. Assets under management were only $6 million about a month ago, but now it's $13 million. It's still very low, but if it continues to grow at this pace, you should be fine. The ER is 0.40%.


Thanks for the heads up. That seems a bit too small with a bit too high of an ER to interest me yet.


You won't find much better for International Value, let alone SV. EFV costs similarly for ILV. The Schwab Fundamental ETFs are favored by some.
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Re: 15% International Small-Cap vs 30% Total International

Post by Theoretical » Wed Mar 15, 2017 5:34 pm

DLS (WisdomTree International Small Cap Dividend) has a pretty good history with returns close to DFA's ISV option.

PDN and FNDC are the RAFI style value funds, and both are closer to midcaps than smalls.

There's really only one retail-available fund I've found that partially fits this bill. I don't count the First Trust ones because they're just too narrow.

SBSIX - Segall Bryant and Hamil International Small Cap Class I - It's a quality/value/momentum quant fund with 425 holdings that's been around about 5 years. The kickers hurt though. 1.03% Expense ratio and 94% turnover. On the upside, its average market cap and valuations are significantly lower than even DFA's. The I class is available at Scotttrade for minimal minimums and the A class is load-waived and NTF at Schwab for 1.28%.

Right now, I split my ISV 50/50 between DLS (.58) and FNDC (.4) for a blended ER of .49. There's little overlap between the two funds and it gets me really close to DFA's fund. Doing the same with SBSIX would get me a blended ER of .71 and there's no way I'd ever put a 94% turnover international small cap value mutual fund (w/o ETF tax advantages) into taxable, which is where most assets are.

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Re: 15% International Small-Cap vs 30% Total International

Post by Theoretical » Wed Mar 15, 2017 5:40 pm

Jiu Jitsu Fighter wrote:Once Vanguard rolls out an ISV fund, I will swap out into that. It may be years though. They don't even have a large-cap international value fund that is an index fund (get rid of VTRIX already). The AUM for VFSVX/VSS is so small right now (relatively, for VG).


They actually do now, or at least as a High Dividend Play - VYMI.

Schwab's Fundamental International Large Company is now .25%

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Re: 15% International Small-Cap vs 30% Total International

Post by Jiu Jitsu Fighter » Wed Mar 15, 2017 5:54 pm

Theoretical wrote:
Jiu Jitsu Fighter wrote:Once Vanguard rolls out an ISV fund, I will swap out into that. It may be years though. They don't even have a large-cap international value fund that is an index fund (get rid of VTRIX already). The AUM for VFSVX/VSS is so small right now (relatively, for VG).


They actually do now, or at least as a High Dividend Play - VYMI.

Schwab's Fundamental International Large Company is now .25%


Thanks so much for the info. I'll look into it as I prefer to tilt to value over size. However, I think dividends are not a good metric to use to get value exposure. Sometimes, I really question the logic behind Vanguard's rollout of funds. I get that people see a dividend fund and go nuts. How about "International Large-Cap Value Index"? Is that too hard to ask?

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Re: 15% International Small-Cap vs 30% Total International

Post by larryswedroe » Wed Mar 15, 2017 6:59 pm

Might try as suggested Schwab's fundamental indices and also Wisdom Tree products, at least worth looking at.
My favorite data point for those with the deadly combination of home country and recency biases is this one
2003-07 total return (from memory so might not be exact)
S&P 500 83%, EAFE 171%, DFA ISV 266%, and DFA EMV 546%
Larry

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Re: 15% International Small-Cap vs 30% Total International

Post by raven15 » Wed Mar 15, 2017 8:27 pm

rollsound wrote:Anyone else using solely international small-caps (e.g. VSS, VFSVX) for the international portion of their equities?
When I joined this site recently, I was dead-set on 100% VTSAX US Total Stock Market, but I've since decided to add some international.
I like how the small-caps are a little less correlated to VTSAX, and furthermore I've found with backtesting that a smaller amount of Intl small-caps even beats a larger amount of Total Intl, at least over the last 20 years.

Check out this backtest for example: http://bit.ly/2n0Yn8i

What I'm trying to accomplish is capturing the gains from the good Intl years, while still keep as much in the US TSM as possible. Thoughts?

I have only small and emerging markets funds for my international (in my tax sheltered accounts anyhow). It is equally split between:
Emerging Market Value - Schwab Fundamental (SFENX/FNDE)
Developed Market Small - Schwab Fundamental (SFILX/FNDC)
Emerging Market Small - SPDR EM Small (EWX)
So far they seem to be doing what I want, and generally seem to behave reasonably independently.

Jiu Jitsu Fighter wrote:Thanks so much for the info. I'll look into it as I prefer to tilt to value over size. However, I think dividends are not a good metric to use to get value exposure.

To be clear, the "fundamental" series are not high dividend funds. Quite the opposite, their weighting system has resulted in much lower than market dividends for as long as I have been following them.
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Re: 15% International Small-Cap vs 30% Total International

Post by Longtermgrowth » Wed Mar 15, 2017 9:50 pm

larryswedroe wrote:Might try as suggested Schwab's fundamental indices and also Wisdom Tree products, at least worth looking at.
My favorite data point for those with the deadly combination of home country and recency biases is this one
2003-07 total return (from memory so might not be exact)
S&P 500 83%, EAFE 171%, DFA ISV 266%, and DFA EMV 546%
Larry


Mr. Swedroe, I think many here would love to see an article from you rating the ETFs that give exposure to Developed Small Value and Emerging Small Value.

Wisdom Tree DLS (International SmallCap Div ETF) and DGS (Emerging Markets SmallCap Div ETF) looked the best to me, at least on the Morningstar "Holdings Style" grid, when attempting to find the best way to implement what you recommend internationally.

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Re: 15% International Small-Cap vs 30% Total International

Post by investordad » Thu Mar 16, 2017 9:12 am

raven15 wrote:
rollsound wrote:Anyone else using solely international small-caps (e.g. VSS, VFSVX) for the international portion of their equities?
When I joined this site recently, I was dead-set on 100% VTSAX US Total Stock Market, but I've since decided to add some international.
I like how the small-caps are a little less correlated to VTSAX, and furthermore I've found with backtesting that a smaller amount of Intl small-caps even beats a larger amount of Total Intl, at least over the last 20 years.

Check out this backtest for example: http://bit.ly/2n0Yn8i

What I'm trying to accomplish is capturing the gains from the good Intl years, while still keep as much in the US TSM as possible. Thoughts?

I have only small and emerging markets funds for my international (in my tax sheltered accounts anyhow). It is equally split between:
Emerging Market Value - Schwab Fundamental (SFENX/FNDE)
Developed Market Small - Schwab Fundamental (SFILX/FNDC)
Emerging Market Small - SPDR EM Small (EWX)
So far they seem to be doing what I want, and generally seem to behave reasonably independently.

Jiu Jitsu Fighter wrote:Thanks so much for the info. I'll look into it as I prefer to tilt to value over size. However, I think dividends are not a good metric to use to get value exposure.

To be clear, the "fundamental" series are not high dividend funds. Quite the opposite, their weighting system has resulted in much lower than market dividends for as long as I have been following them.


I am new to schwab, currently getting my accounts transferred over. i have been wrangling with this same thinking for a couple weeks. The smart international index fund from schwab is SWISX (schwab international index) has not done great since inception 20 yrs +1.97%, it is 56% giant cap, 35 % large cap, 8 %mid, and .1%small. Seeing how over the last decade small cap has been doing well, why have they not changed their allocation in their fund for better returns? The SFILX( schwab fundamental international small company index fund) on the other hand has been doing well since inception 5.8% since incept 2008 and its 62.2%mid cap, 22.5% small cap, 14.3 %large, .6 Giant, .5 micro.

So my thoughts lead me to like small as the better investment since it has been outperforming the total market, more risk=higher reward? I cannot predict the market or do i pretend to know more than the market, and past returns do not guarantee future returns, but I feeling a tilt towards small is better in the long run? I read this article https://www.wsj.com/articles/the-case-f ... 1454900908 and thats what got me thinking about it while i was doing research. And this one https://www.google.com/url?sa=t&rct=j&q ... 7726,d.eWE pretty much has me convinced to tilt towards small.

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Re: 15% International Small-Cap vs 30% Total International

Post by larryswedroe » Thu Mar 16, 2017 9:59 am

longtermgrowth
Use the regression tools at portfoliovisualizer.com to see the loadings you get on each of the funds and also the impact of implementation/construction rules and trading costs (that shows up in the alpha as well as the loadings).
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Re: 15% International Small-Cap vs 30% Total International

Post by Longtermgrowth » Thu Mar 16, 2017 12:49 pm

So I'm looking at the loadings and if anyone more knowledgeable about them can answer this (I hate to bother Mr. Swedroe again, though I still think a developed small value and emerging small value ETF comparison is a great idea for an article from him on etf.com :D ):

In the "Factor Analysis Summary": Market (Rm-Rf) higher or lower better? Size (SMB) lower better? Value (HML) higher better?

I'm pretty sure Momentum (MOM), Alpha and Annual Alpha, the higher the better?

R2 percentage higher or lower better?

I've read everything including "Notes on results" and it's still like trying to read another language.


Factor Analysis Results: https://www.portfoliovisualizer.com/factor-analysis?s=y&regressionType=1&symbols=VSS%2C+FNDC%2C+ISCF%2C+DLS%2C+DGS%2C+EWX%2C+EEMS&endDate=03%2F15%2F2017&factorDataSet=0&marketArea=1010&factorModel=4&useHMLDevFactor=false&includeQualityFactor=false&includeLowBetaFactor=false&fixedIncomeFactorModel=0&__checkbox_ffmkt=true&__checkbox_ffsmb=true&__checkbox_ffsmb5=true&__checkbox_ffhml=true&__checkbox_ffmom=true&__checkbox_ffrmw=true&__checkbox_ffcma=true&__checkbox_ffstrev=true&__checkbox_ffltrev=true&__checkbox_aqrmkt=true&__checkbox_aqrsmb=true&__checkbox_aqrhml=true&__checkbox_aqrhmldev=true&__checkbox_aqrmom=true&__checkbox_aqrqmj=true&__checkbox_aqrbab=true&__checkbox_trm=true&__checkbox_cdt=true&timePeriod=2&rollPeriod=36&marketAssetType=1&robustRegression=false
Last edited by Longtermgrowth on Fri Mar 17, 2017 1:09 pm, edited 1 time in total.

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Re: 15% International Small-Cap vs 30% Total International

Post by Doc » Thu Mar 16, 2017 2:46 pm

larryswedroe wrote:And yes the REAL benefit of international is in small which has lower correlation to US stocks than does Large (they tend to be more multinationals). But the biggest benefit is going to small value, not small, as you get the low correlation and even higher expected returns, allowing you to hold even less equity risk

I take Larry's approach in avoiding LC International because of the multinational aspects. At this point I am 25% LC blend, 25% LCV (un-hedged) and 25% SC. I will replace the LC with SC as tax considerations allow. The LCV value fund was originally small cap but it grew to big. (I wouldn't have any LC blend now except that I screwed up trades when doing TLH a year ago. :( )

But I have never convinced anyone that my "tilt" has any merit.
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Re: 15% International Small-Cap vs 30% Total International

Post by raven15 » Thu Mar 16, 2017 11:27 pm

investordad wrote:Seeing how over the last decade small cap has been doing well, why have they not changed their allocation in their fund for better returns?

That's not how it works, if it doesn't follow the "fundamental index" method it will be just another performance chasing fund :greedy. In general large value type companies around the world have not been doing well recently, and a fund whose methodology is to invest in those types of companies will necessarily also not do well.

So my thoughts lead me to like small as the better investment since it has been outperforming the total market, more risk=higher reward? I cannot predict the market or do i pretend to know more than the market, and past returns do not guarantee future returns, but I feeling a tilt towards small is better in the long run?

That's the theory. We won't know for sure until its too late to do anything about it. My money is on it until I am about ready to start withdrawing, at which point I will need to consider somewhat lowering my risk.
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Re: 15% International Small-Cap vs 30% Total International

Post by in_reality » Fri Mar 17, 2017 6:51 am

Longtermgrowth wrote:So I'm looking at the loadings and if anyone more knowledgeable about them can answer this (I hate to bother Mr. Swedroe again, though I still think a developed small value and emerging small value ETF comparison is a great idea for an article from him on etf.com :D ):

In the "Factor Analysis Summary": Market (Rm-Rf) higher or lower better? Size (SMB) lower better? Value (HML) higher better?

I'm pretty sure Momentum (MOM), Alpha and Annual Alpha, the higher the better?

R2 percentage higher or lower better?

I've read everything including "Notes on results" and it's still like trying to read another language.


Factor Analysis Results: https://www.portfoliovisualizer.com/factor-analysis?s=y&s=y&regressionType=1&symbols=VSS%2C+FNDC%2C+ISCF%2C+DLS%2C+DGS%2C+EWX%2C+EEMS&endDate=03%2F15%2F2017&factorDataSet=0&marketArea=0&factorModel=4&useHMLDevFactor=false&includeQualityFactor=false&includeLowBetaFactor=false&fixedIncomeFactorModel=0&__checkbox_ffmkt=true&__checkbox_ffsmb=true&__checkbox_ffsmb5=true&__checkbox_ffhml=true&__checkbox_ffmom=true&__checkbox_ffrmw=true&__checkbox_ffcma=true&__checkbox_ffstrev=true&__checkbox_ffltrev=true&__checkbox_aqrmkt=true&__checkbox_aqrsmb=true&__checkbox_aqrhml=true&__checkbox_aqrhmldev=true&__checkbox_aqrmom=true&__checkbox_aqrqmj=true&__checkbox_aqrbab=true&__checkbox_trm=true&__checkbox_cdt=true&timePeriod=2&rollPeriod=36&marketAssetType=1&robustRegression=false


A few points here:

You have to select and international Stock Market (ex-US).
Emerging market data seems entirely unreliable.
It's probably best to look at the threads involving robertt to understand the Fundamental loadings - the value exposure will change and the history of the funds isn't that long (especially for Schwab's ETFs - mutual funds are a little longer). For instance, see viewtopic.php?f=10&t=184501 He uses the life time of the index it tracks to get the loadings. Even then, good emerging data isn't available.

I gave up trying to use Portfolio Visualizer to show me the loadings. It's too dependent on and whether you use 3 or 4 or 5 factors and the other settings.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

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Re: 15% International Small-Cap vs 30% Total International

Post by MikeG62 » Fri Mar 17, 2017 7:39 am

rollsound wrote:...Anyone else using solely international small-caps (e.g. VSS, VFSVX) for the international portion of their equities?


FWIW, I use IEUS in addition to indexed foreign developed (and EM) funds. Adds a bit more exposure to SC stocks. I would not however use it solely for the international portion of my equities.

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Re: 15% International Small-Cap vs 30% Total International

Post by Doc » Fri Mar 17, 2017 8:54 am

in_reality wrote:Emerging market data seems entirely unreliable.

Doc says: Emerging markets data seems entirely unreliable. :D
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Re: 15% International Small-Cap vs 30% Total International

Post by Theoretical » Fri Mar 17, 2017 9:41 am

One observation. It seems like it might be that there's still significant premium available to harvest by the sheer fact that aside from DFA, there are so relatively few international small cap value funds actively targeting these stocks. Virtually none target actual small or microcaps. I wonder if the very flawedness in options in this case is a sign that there's opportunity,

Edit: One observation from looking at Fama-French's data is that it's pretty easy to get access to at least the non-pink sheet US retail microcaps and every cap level in between.

With the foreign small caps, it's really only a few small cap active funds that actually even much of any of the bottom 40% of market capitalization, especially not the bottom 20%, and most small cap funds are squarely in the international mid-cap range. A large part of this has to do with the FF definition of small being 90/10 international and 50/50 domestic, but it makes me wonder whether the small cap funds internationally are benefiting less by being small cap-oriented and more by not having giant gaps.
Last edited by Theoretical on Fri Mar 17, 2017 1:26 pm, edited 1 time in total.

Longtermgrowth
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Re: 15% International Small-Cap vs 30% Total International

Post by Longtermgrowth » Fri Mar 17, 2017 1:11 pm

in_reality wrote:A few points here:

You have to select and international Stock Market (ex-US).
Emerging market data seems entirely unreliable.
It's probably best to look at the threads involving robertt to understand the Fundamental loadings - the value exposure will change and the history of the funds isn't that long (especially for Schwab's ETFs - mutual funds are a little longer). For instance, see viewtopic.php?f=10&t=184501 He uses the life time of the index it tracks to get the loadings. Even then, good emerging data isn't available.

I gave up trying to use Portfolio Visualizer to show me the loadings. It's too dependent on and whether you use 3 or 4 or 5 factors and the other settings.


Thanks for pointing that out! I went back and edited the link.

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Re: 15% International Small-Cap vs 30% Total International

Post by Longtermgrowth » Sat Mar 18, 2017 1:19 pm

rollsound, one thing I didn't see mentioned is if this would be in a taxable account? Roughly half of the dividends from VSS are not qualified.
Maybe that doesn't matter if only holding half the amount you would otherwise hold in a total international fund like VXUS with around 70% QDI.

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Re: 15% International Small-Cap vs 30% Total International

Post by Doc » Sat Mar 18, 2017 3:05 pm

Longtermgrowth wrote:rollsound, one thing I didn't see mentioned is if this would be in a taxable account? Roughly half of the dividends from VSS are not qualified.
Maybe that doesn't matter if only holding half the amount you would otherwise hold in a total international fund like VXUS with around 70% QDI.

Is this due to the EM in VSS?
Doc wrote:Doc says: Emerging markets data seems entirely unreliable.
and have non-qualified dividends. :?: :D
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Re: 15% International Small-Cap vs 30% Total International

Post by Longtermgrowth » Sat Mar 18, 2017 4:48 pm

Doc wrote:
Longtermgrowth wrote:rollsound, one thing I didn't see mentioned is if this would be in a taxable account? Roughly half of the dividends from VSS are not qualified.
Maybe that doesn't matter if only holding half the amount you would otherwise hold in a total international fund like VXUS with around 70% QDI.

Is this due to the EM in VSS?
Doc wrote:Doc says: Emerging markets data seems entirely unreliable.
and have non-qualified dividends. :?: :D


I would imagine that's part of it, since most emerging market funds seem to have a low percentage of QDI. Take the above funds mentioned earlier, DLS and DGS. DLS was close to 90% QDI in 2016, but DGS was just below 40% QDI.

Or look at VXUS (Total International) vs VEA (Developed) - those two funds should be identical except for the 18 some percent emerging markets in VXUS. If I remember correctly, VEA has somewhere in the range of 10% higher QDI.

What else is bringing the QDI% down in VSS? maybe the 9 plus percent real estate? How much of that is from emerging markets though? DLS has 5.7% real estate for comparison. http://portfolios.morningstar.com/fund/summary?t=VSS&region=usa&culture=en_US

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Re: 15% International Small-Cap vs 30% Total International

Post by psychodoc » Sat Mar 18, 2017 6:12 pm

Jiu Jitsu Fighter wrote:
Yes
50% VSIAX
50% VFSVX

My profession disallows me to own brokerage accounts, so I have mutual fund accounts with VG.

Once Vanguard rolls out an ISV fund, I will swap out into that. It may be years though. They don't even have a large-cap international value fund that is an index fund (get rid of VTRIX already). The AUM for VFSVX/VSS is so small right now (relatively, for VG).



whoa, how does jiu jitsu fighting prevent you from owning brokerage accounts?

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Re: 15% International Small-Cap vs 30% Total International

Post by jalbert » Sat Mar 18, 2017 6:46 pm

triceratop wrote:I don't think your backtest is a good one; US Stocks outperformed International Stocks over that period, so less international of any kind would help you. But you're right about lower correlations helping your risk-adjusted returns. Let's try a backtest that is actually more fair (Portfolio 3 here is what you did, but I think Portfolio 1 vs. 2 is the fair one)

What does this backtest tell you?

Doesn't tell me a whole lot until I know what data is actually being backtested. The emerging markets asset class has gone through disruptive changes since 1995. When did EM get incorporated into the intl small cap data set on PV, before or after the EM currency crises of the 1990's?
Last edited by jalbert on Sat Mar 18, 2017 10:10 pm, edited 1 time in total.
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Re: 15% International Small-Cap vs 30% Total International

Post by tibbitts » Sat Mar 18, 2017 8:05 pm

psychodoc wrote:
Jiu Jitsu Fighter wrote:
Yes
50% VSIAX
50% VFSVX

My profession disallows me to own brokerage accounts, so I have mutual fund accounts with VG.

Once Vanguard rolls out an ISV fund, I will swap out into that. It may be years though. They don't even have a large-cap international value fund that is an index fund (get rid of VTRIX already). The AUM for VFSVX/VSS is so small right now (relatively, for VG).



whoa, how does jiu jitsu fighting prevent you from owning brokerage accounts?

That's a very interesting point, actually. Will everyone having fund accounts, including those who can't have brokerage accounts (I assume financial industry employees) at VG have their accounts closed in the coming months? Will they incur potentially huge capital gains? No such individuals can open new accounts at VG now?

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Re: 15% International Small-Cap vs 30% Total International

Post by TinkerPDX » Sat Mar 18, 2017 9:06 pm

rollsound wrote:thanks Larry Swedroe. I agree, waiting for a intl Vanguard SCV index fund to appear...


FNDC, kinda.. higher ER, but if you have a Schwab account, at least there's no transaction fee.

Curious what Larry thinks of it (and"fundamental" indexes generally - Schwab has a few funds based on these that approximate int scv (fndc), emg value (fnde), and int value (fndf))

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Re: 15% International Small-Cap vs 30% Total International

Post by CedarWaxWing » Sat Mar 18, 2017 9:33 pm

rollsound wrote:
triceratop wrote:I don't think your backtest is a good one; US Stocks outperformed International Stocks over that period, so less international of any kind would help you. But you're right about lower correlations helping your risk-adjusted returns. Let's try a backtest that is actually more fair (Portfolio 3 here is what you did, but I think Portfolio 1 vs. 2 is the fair one)

What does this backtest tell you?


Intl did better than US between 2002-2008 right? if so check out this backtest, intl vs intl small cap 2002-2008: http://bit.ly/2muk9yd


How about a forward test? That would be much more helpful. ;)

M

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Re: 15% International Small-Cap vs 30% Total International

Post by Doc » Sun Mar 19, 2017 7:07 am

Longtermgrowth wrote:What else is bringing the QDI% down in VSS? maybe the 9 plus percent real estate? How much of that is from emerging markets though? DLS has 5.7% real estate for comparison

REIT divs are not qualified.
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Re: 15% International Small-Cap vs 30% Total International

Post by elgob.bogle » Sun Mar 19, 2017 12:41 pm

rollsound - considering the backtester that triceratops linked and what Larry Swedroe noted, you could achieve the same results as shown for backtester portfolio 3 with 20% US small cap value, 20% International Small, 30% TIPS & 30% Short Term Treasuries (try plugging in these values), and thereby diversifying internationally and reducing the risk of huge losses in a severe equity crash. In addition, the highly liquid Short Term Treasuries would be great for re-balancing in such a scenario.

elgob

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Re: 15% International Small-Cap vs 30% Total International

Post by in_reality » Sun Mar 19, 2017 7:26 pm

elgob.bogle wrote:rollsound - considering the backtester that triceratops linked and what Larry Swedroe noted, you could achieve the same results as shown for backtester portfolio 3 with 20% US small cap value, 20% International Small, 30% TIPS & 30% Short Term Treasuries (try plugging in these values), and thereby diversifying internationally and reducing the risk of huge losses in a severe equity crash. In addition, the highly liquid Short Term Treasuries would be great for re-balancing in such a scenario.

elgob


I'd be wary of backtesting. It might show outperformance, but does it show how small cap is priced now.

My understanding is that small has gotten expensive compared to it's historical norm (along with low/min volatility and dividend growth) and globally is expected to underperform the market benchmark. Perhaps the data I am looking at is wrong or calculated incorrectly ...

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Re: 15% International Small-Cap vs 30% Total International

Post by Longtermgrowth » Sun Mar 19, 2017 9:44 pm

^ That's interesting. I figured as much here in the United States, but didn't think of that being the case internationally.

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Re: 15% International Small-Cap vs 30% Total International

Post by rollsound » Mon Mar 20, 2017 12:46 am

elgob.bogle wrote:rollsound - considering the backtester that triceratops linked and what Larry Swedroe noted, you could achieve the same results as shown for backtester portfolio 3 with 20% US small cap value, 20% International Small, 30% TIPS & 30% Short Term Treasuries (try plugging in these values), and thereby diversifying internationally and reducing the risk of huge losses in a severe equity crash. In addition, the highly liquid Short Term Treasuries would be great for re-balancing in such a scenario.

elgob


interesting. but i don't know enough about small-caps yet to decide on having 100% of my equities in them.

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Re: 15% International Small-Cap vs 30% Total International

Post by rollsound » Mon Mar 20, 2017 12:47 am

Longtermgrowth wrote:rollsound, one thing I didn't see mentioned is if this would be in a taxable account? Roughly half of the dividends from VSS are not qualified.
Maybe that doesn't matter if only holding half the amount you would otherwise hold in a total international fund like VXUS with around 70% QDI.


good point, i currently hold 15% of my portfolio in VFSVX in taxable, but going forward it will be held inside a 401k. anyone know if there's a foreign tax credit with that fund?

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Re: 15% International Small-Cap vs 30% Total International

Post by whodidntante » Mon Mar 20, 2017 1:05 am

rollsound wrote:thanks Larry Swedroe. I agree, waiting for a intl Vanguard SCV index fund to appear...


Vanguard would probably screw that up. It'll be cheap, but not SCV.

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Re: 15% International Small-Cap vs 30% Total International

Post by Longtermgrowth » Mon Mar 20, 2017 1:50 am

rollsound wrote:
Longtermgrowth wrote:rollsound, one thing I didn't see mentioned is if this would be in a taxable account? Roughly half of the dividends from VSS are not qualified.
Maybe that doesn't matter if only holding half the amount you would otherwise hold in a total international fund like VXUS with around 70% QDI.


good point, i currently hold 15% of my portfolio in VFSVX in taxable, but going forward it will be held inside a 401k. anyone know if there's a foreign tax credit with that fund?


VFSVX/VSS foreign tax credit is very close to Total International's according to this great thread from triceratop: https://www.bogleheads.org/forum/viewtopic.php?t=208818

Foreign tax paid per 10k invested 20.64

Edit: just looking at that thread, VWO (emerging markets) has 50% QDI and VSS has 49%. How in the world is VSS lower while having over 80% of its portfolio in developed small caps?! Real Estate is at 4% in VWO (less than half of the REITs in VSS), so maybe that's part of it, but I can't imagine that explains all of it...

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Re: 15% International Small-Cap vs 30% Total International

Post by Jiu Jitsu Fighter » Mon Mar 20, 2017 6:53 pm

tibbitts wrote:
psychodoc wrote:
Jiu Jitsu Fighter wrote:
Yes
50% VSIAX
50% VFSVX

My profession disallows me to own brokerage accounts, so I have mutual fund accounts with VG.

Once Vanguard rolls out an ISV fund, I will swap out into that. It may be years though. They don't even have a large-cap international value fund that is an index fund (get rid of VTRIX already). The AUM for VFSVX/VSS is so small right now (relatively, for VG).



whoa, how does jiu jitsu fighting prevent you from owning brokerage accounts?

That's a very interesting point, actually. Will everyone having fund accounts, including those who can't have brokerage accounts (I assume financial industry employees) at VG have their accounts closed in the coming months? Will they incur potentially huge capital gains? No such individuals can open new accounts at VG now?


You can call up VG and have your account marked to not transfer to a brokerage account. I don't know about new accounts.

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