Does your value fund own the wrong value stocks?

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stlutz
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Does your value fund own the wrong value stocks?

Post by stlutz » Fri May 04, 2018 6:58 pm

Interesting article from O'Shaughnessy Assest Management about how the use of Price/Book is putting a lot of stocks that value investors should be interested in into the growth bucket.

http://www.osam.com/Commentary/negative ... ce-to-book

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Re: Does your value fund own the wrong value stocks?

Post by bloom2708 » Fri May 04, 2018 7:07 pm

If you really wanted to categorize value/growth, wouldn't there have to be an index created of some sort? Hard/fast rules.

Look at the trailing 3 month return or 6 month return.

Value or Growth and the designation seems like the biggest "I don't understand" area of investing. When does a value stock move to growth? When does it move back? What if a company loses money? Is it value or growth? It is primarily why avoid any "value" tilts at all. Who says its value and why? Snake oil to sell a "sector" fund. :|
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Re: Does your value fund own the wrong value stocks?

Post by fennewaldaj » Fri May 04, 2018 10:10 pm

I wonder if this trend is going to make the DFA/FF way of placing value entirely by P/B slowly become obsolete. This would not say value doesn't work necessarily just that it has to be measured differently. Most of the other indexes use some sort of multi metric system. Morningstars style boxes only give a 1/8 weighting for price to book for example. For the CRSP indexes vanguard uses its one of 5 criteria.

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Re: Does your value fund own the wrong value stocks?

Post by garlandwhizzer » Sat May 05, 2018 12:48 pm

Insightful article, thanks for posting, stlutz. How to define the value premium? PE, PB, PSF, Growth at a reasonable price, Quality at a reasonable price--lots of ways to do it. On academic backtesting, the author gets to pick the optimal parameters that harvested the premium in retrospect over a given time period. The parameters that work best change from era to era and are not accurately predictable beforehand going forward. The value premium makes sense, cheap beats expensive long term. But that doesn't guarantee that value factor funds will accurately harvest the premium after costs for investors because the parameters that work are constantly changing.

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Re: Does your value fund own the wrong value stocks?

Post by Dead Man Walking » Fri May 18, 2018 12:53 am

None of the advocates factor-based investing responded to this thread. Since value is one of the factors that is frequently discussed by them, I decided to bump this thread in hopes of gaining their perspective on veiled value.

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Re: Does your value fund own the wrong value stocks?

Post by Always passive » Fri May 18, 2018 1:01 am

There is a decent correlation (R2 about 0.5) between long term performance and P/B. See https://www.starcapital.de/en/footernav ... luation%2F

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Re: Does your value fund own the wrong value stocks?

Post by garlandwhizzer » Fri May 18, 2018 4:55 pm

The following website describes the problem with using PB as a criterion for harvesting the value premium over the last 18 years during which it has underperformed its benchmark, the Russell 3000. The author suggests that PB no longer works but can be modified by substituting "Tangible Book Value" for Book Value in the formula. He defines Tangible Book Value as Book Value minus "Intangible Assets." My guess is that it's very difficult to define the exact value of "intangible assets." How does one value the intangible assets of tech companies which dominate their arenas like the FAANGs but don't have a lot on tangible assets? A lot of what they own is intellectual property, brand name, and dominance in the field--things it's hard to put a dollar value on. The market thinks they're worth a lot but that depends largely on bullish investor sentiment for future growth which, unlike bricks and mortar, can disappear overnight. In effect the author is removing PB that worked well to harvest value over the decades prior to 2000 but not since. He substitutes a new measure, "tangible book value," that has worked in retrospect for the past 18 years using rear view mirror evaluations to value "intangible assets". It is entirely possible that 18 years from now the new measure, Tangible Book Value, will also be shown to underperform its benchmark. New alterations that are necessary to make PB work over that time frame. Harvesting factor returns going into the future can be a bit like chasing after the constantly receeding sunset. In ever more efficient markets current asset prices take into account and reflect the ever expanding knowledge of how factors are best defined and harvested. SCV stocks in 2000 were screaming buys relative to tech bubble LCG regardless of how you defined value--PB, PE, PCF, etc.,. Personally I believe the low hanging value fruit no longer exists, professionals who dominate market action are wise to it. Future rationally factor returns are likely not as robust as the ever-optimistic backtesting academic literature suggests. Time will tell.

Interesting article worth a read.

https://seekingalpha.com/article/396321 ... book-ratio

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Re: Does your value fund own the wrong value stocks?

Post by Robert T » Fri May 18, 2018 6:20 pm

.
Reminds me of this earlier article - Three Value Investors Met in a Bar

I would just note that according to the data on Ken French's website the difference in annualized returns across different value sort metrics (price-to-book, price-to-earnings, price-to-cash flow) has been smaller in small caps than large caps since 1988 (the date in the OP linked article) and over the last 18 years.

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Re: Does your value fund own the wrong value stocks?

Post by nedsaid » Sat May 19, 2018 8:37 am

It is getting to the point where book value doesn't mean much at all. When companies McDonald's and Boeing get into the negative equity situation, it is a clue that something is amiss. Clearly, Generally Accepting Accounting Principles don't reflect the true economic value of assets on the balance sheet. The article StLutz linked to makes the point brilliantly. It isn't that Accountants are idiots, it is that there are limits to what accounting can do. You have to have some understanding of the underlying assumptions that accountants make.

This is what I mean that the market and the economy are dynamic, things change. It appears that book value is becoming more and more irrelevant by the day and that value investors should focus on earnings and cash flow instead. This brings up Warren Buffett's point that when you buy stocks and bonds, you are buying sets of cash flows.

One reason I don't trust investing by formulas. You have to know what is behind the numbers, otherwise it is just Garbage In, Garbage Out.
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Re: Does your value fund own the wrong value stocks?

Post by Buttery Lobster » Sun May 20, 2018 10:21 am

It seems to me the article is cherry picking the most dramatic examples of negative equity. I'm not really sure this is actually a big deal. A few things:

1) CRSP US Total Market Index holds 3,575 stocks. 118 companies with negative equity makes up only about a third of a percent of that entire universe.
2) As others have mentioned, many of the biggest value funds use multiple valuation metrics. "CRSP classifies value securities using the following factors: book to price, forward earnings to price, historic earnings to price, dividend-to-price ratio and sales-to-price ratio." S&P: "We measure value stocks using three factors: the ratios of book value, earnings, and sales to price."
3) Even if there are widespread structural changes that deflate or inflate price-to-book ratios, valuation is still relative. So the cheapest 50% is still the cheapest 50%.
4) This firm is selling a small cap value fund with a 0.99% ER and uses the Russell 2000 Value Index as their comparable benchmark, which I believe uses price-to-book as it's primary (only?) sorting metric. Fancy research is required to convince us why it's worth paying 4X more vs. IJS or IWN or 14X more vs. VBR.

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Re: Does your value fund own the wrong value stocks?

Post by nisiprius » Sun May 20, 2018 10:46 am

No true Scotsman
No true Scotsman or appeal to purity is an informal fallacy in which one attempts to protect a universal generalization from counterexamples by changing the definition in an ad hoc fashion to exclude the counterexample. Rather than denying the counterexample or rejecting the original claim, this fallacy modifies the subject of the assertion to exclude the specific case or others like it by rhetoric, without reference to any specific objective rule ("no true Scotsman would do such a thing"; i.e., those who perform that action are not part of our group and thus criticism of that action is not criticism of the group).... [For example,]

Person A: "No Scotsman puts sugar on his porridge."
Person B: "But my uncle Angus is a Scotsman and he puts sugar on his porridge."
Person A: "Ah yes, but no true Scotsman puts sugar on his porridge."
I remember someone objecting to the observation that the Vanguard Small-cap Value Fund did not outperform the Vanguard Small-cap Growth fund, over the past twenty years, by asserting it was only because Vanguard's index providers were not using the "true" definition of value (because they were not screening out utilities from the value fund).

"Value stocks outperform. Because of the value premium."
"But Vanguard has a small-cap value fund, and over the last twenty years it did not outperform their small-cap growth fund"
"Ah, yes, but you were not looking at true value stocks."

"No true Scotsman" almost seems to be the rule rather than the exception in investment writing.
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Re: Does your value fund own the wrong value stocks?

Post by KyleAAA » Sun May 20, 2018 11:25 am

Most of the value indices followed by recommended funds, including VBR and IJS, use multiple filters for value and not just P/B for this exact reason. I would say this is pretty much a non-story for factor investors.

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Re: Does your value fund own the wrong value stocks?

Post by Valuethinker » Sun May 20, 2018 12:23 pm

garlandwhizzer wrote:
Fri May 18, 2018 4:55 pm
The following website describes the problem with using PB as a criterion for harvesting the value premium over the last 18 years during which it has underperformed its benchmark, the Russell 3000. The author suggests that PB no longer works but can be modified by substituting "Tangible Book Value" for Book Value in the formula. He defines Tangible Book Value as Book Value minus "Intangible Assets." My guess is that it's very difficult to define the exact value of "intangible assets."
US GAAP does not allow capitalization of Research & Development and is pretty strict on other intangibles. Mostly what you get is purchased goodwill. Goodwill tends to get written off, according with empirical experience that most mergers fail to create value (for the acquirer's shareholders).

IFRS does allow capitalization of development costs (but not research).
How does one value the intangible assets of tech companies which dominate their arenas like the FAANGs but don't have a lot on tangible assets? A lot of what they own is intellectual property, brand name, and dominance in the field--things it's hard to put a dollar value on.
See above.
The market thinks they're worth a lot but that depends largely on bullish investor sentiment for future growth which, unlike bricks and mortar, can disappear overnight. In effect the author is removing PB that worked well to harvest value over the decades prior to 2000 but not since. He substitutes a new measure, "tangible book value," that has worked in retrospect for the past 18 years using rear view mirror evaluations to value "intangible assets". It is entirely possible that 18 years from now the new measure, Tangible Book Value, will also be shown to underperform its benchmark. New alterations that are necessary to make PB work over that time frame. Harvesting factor returns going into the future can be a bit like chasing after the constantly receeding sunset. In ever more efficient markets current asset prices take into account and reflect the ever expanding knowledge of how factors are best defined and harvested. SCV stocks in 2000 were screaming buys relative to tech bubble LCG regardless of how you defined value--PB, PE, PCF, etc.,. Personally I believe the low hanging value fruit no longer exists, professionals who dominate market action are wise to it. Future rationally factor returns are likely not as robust as the ever-optimistic backtesting academic literature suggests. Time will tell.

Interesting article worth a read.

https://seekingalpha.com/article/396321 ... book-ratio

Garland Whizzer
There seem to be some enduring quirks of market behaviour that allow value investing to continue to work, despite it being widely understood:

- there may be a behavioural explanation around human distaste for "lousy" stocks

- there is almost certain a risk-based story around what happens to value stocks in a really bad downturn/ recession

To the extent that the phenomenon endures, it is more likely to be about the second than the first.

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Re: Does your value fund own the wrong value stocks?

Post by garlandwhizzer » Sun May 20, 2018 2:09 pm

I believe the main point is that the value premium originally described by Fama/French was defined solely by GAAP measures of PB and it worked on backtesting at that time to produce robust long term outperformance. Now it no longer has worked in retrospect even on a cost-free basis for 18 years. I'm not saying that value isn't a logical theoretical concept, but rather that capturing it after costs for investors isn't as simple as it was in the days of Ben Graham who didn't consider buying a small cap value stock unless it's PB was less than one and it's PE was less than 10. No such stocks exist today as far as I know. I suspect that a high level of skill and a sharp eye toward minimizing expenses will be necessary for a SCV fund to be successful in the future and that there will be a bell shaped curve of SCV fund results, some SCV funds outperforming beta, some underperforming beta, and most very close to beta in long term results. There are multiple ways to define value and it is likely that ultimately some combination of them will work. It is however far from certain that simply selecting a small cap fund fund will guarantee success.

For example, RYSVX, Rydex S&P Small Cap 600 Pure Value Fund, loads up on the small factor big time, average market cap 740 mil, 50% micro-cap, and also loads up on the value factor big time. According to Morningstar style boxes it has 60% value to 6% growth in the small/micro cap space. In theory it should maximally harvest the SCV premium and be a big time long term winner.
Now lets see how RYSVX actually did in its entire 15 year history. If you invested 10K in it when it started in 2003, it would be worth 21.5K now. If instead you had invested the same 10K in 2003 on the S&P 500 you would now have 30.9K in spite of the fact that you were largely in LCG, negative on value, negative on size, during that time frame. If instead you had invested in VB, Vanguard's SC index fund which holds a lot of MC, weaker on small and weaker on value, you would now have 38.1 K, 16.5 K more than the deep value small/microcap fund. That difference is considerably more money than you originally invested. So what we see in RYSVX is massive and consistent underperformance along with much more volatility. RYSVX has dug such a deep hole in 15 years that investors who continue to hold it are unlikely to back to even with a cheap SC index fund for another decade or more, if ever. Such is the real result of a real fund which went in big time for value and small. It is likely that this fund which, incredibly enough, still has 16.7 mil in total assets (these must be ultra-hard core SCV true believers) will not survive much longer and wind up in the rather crowded fund graveyard.

Factor research is fascinating but I believe that a measure of skepticism is sometimes appropriate rather than assuming that it translates perfectly and reliably into real results in the real world.

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Re: Does your value fund own the wrong value stocks?

Post by vineviz » Sun May 20, 2018 9:05 pm

garlandwhizzer wrote:
Sun May 20, 2018 2:09 pm
For example, RYSVX, Rydex S&P Small Cap 600 Pure Value Fund, loads up on the small factor big time, average market cap 740 mil, 50% micro-cap, and also loads up on the value factor big time. According to Morningstar style boxes it has 60% value to 6% growth in the small/micro cap space. In theory it should maximally harvest the SCV premium and be a big time long term winner.
Now lets see how RYSVX actually did in its entire 15 year history.
RYSVX is a terrible choice for trying to illustrate this point. Not only is it a full load fund with an INSANE 1.53% expense ratio, it is ineptly managed (nearly 1,500% stock turnover, 5% cash, and one of the worst tax-adjusted returns I've ever seen).

I encourage you to take a look at SLYV, an ETF that tracks the same index as RYSVX but with rational fees and turnover. Not only has small value outperformed small growth since 2000, they have both outperformed large cap stocks.

https://finance.yahoo.com/chart/SLYV#ey ... JtaW4iOjF9
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Re: Does your value fund own the wrong value stocks?

Post by stlutz » Sun May 20, 2018 9:15 pm

Actually RZV would be the better comparison since it also follows the Pure Value index.

SLYV tracks the regular plain old value index. At least it dies current. I think it changed indexes along the way.

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Re: Does your value fund own the wrong value stocks?

Post by whodidntante » Sun May 20, 2018 9:35 pm

Due to limited options in my 401k, I have a large position in DFFVX US Targeted Value Portfolio. DFA believes that price to book is a useful definition of value, but when we read the prospectus we find that:
The Advisor may adjust the representation in the U.S. Targeted Value Portfolio of an eligible company, or exclude a company, after considering such factors as free float, momentum, trading strategies, liquidity, size, value, profitability, and other factors that the Advisor determines to be appropriate, given market conditions. Securities are considered value stocks primarily because a company’s shares have a low price in relation to their book value. In assessing value, the Advisor may consider additional factors such as price to cash flow or price to earnings ratios. In assessing profitability, the Advisor may consider different ratios, such as that of earnings or profits from operations relative to book value or assets. The criteria the Advisor uses for assessing value or profitability are subject to change from time to time.
DFA is leaving themselves a lot of leeway there. I wonder how they use it.

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Re: Does your value fund own the wrong value stocks?

Post by Solo Prosperity » Sun May 20, 2018 10:36 pm

Full Disclosure: I invest a small portion of my investments in a 25 stock value portfolio...

If you think that your value fund owns the wrong stocks, I would suggest finding a new value fund. There are plenty out there that all use different metrics to measure "value". Despite how important the Fama/French work was to the investing world, it has created a strange place where you need to use certain rules in order to capture "value". Here are a few ways you can calculate value off the top of my head:

p/b
p/e
p/fcf
p/ocf
p/s
ev/ebit
ev/ebitda
ev/fcf
ev/s
ev/gp
gp/ta

In reality, anything that goes up from the day you bought it could be considered a "value" play. Academics have created this world where a "value" stock is a stock in the bottom third, quitnile or decile according to a fundamental/economic metric. It has become a bit over the top in my opinion.

Price-to-book does seem to be the weakest metric to measure "value" historically, but it still has shown excess return and if that metric makes sense to you, go for it. I personally have never had much belief in the p/b metric so I choose not to use it. A lot of the disdain for p/b in recent years is its lack of performance in comparison to the other value metrics. Will that continue? Who knows. OSAM and some others sound like they believe it will given the shift to much larger "intangible" and "shadow/veiled" assets by firms in the 21st century, but it's anyone's guess.

Despite not being a big believer in p/b, my guess is that all this research showing how poor of a value metric it is, only means it is on the cusp of outperforming soon. That is typically how this stuff works..

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Re: Does your value fund own the wrong value stocks?

Post by Robert T » Mon May 21, 2018 1:04 am

garlandwhizzer wrote:
Sun May 20, 2018 2:09 pm
Now it no longer has worked in retrospect even on a cost-free basis for 18 years.
DFA uses P/B as a value metric.

Over the last 18 years: 2000-2017:

Annualized Returns / Growth in $10,000

8.85% / $46,035 = DFA Large Value Fund [DFLVX]
5.76% / $27,398 = Vanguard Total Stock Market [VTSMX]
https://www.portfoliovisualizer.com/bac ... ion2_2=100

6.29% / $29,978 = DFA International Value Fund [DFIVX]
3.60% / $18,917 = Vanguard Development Markets [VTMGX]
https://www.portfoliovisualizer.com/bac ... ion2_2=100

9.05% / $47,581 = DFA Emerging Markets Value [DFEVX]
7.11% / $34,401 = Vanguard Emerging Markets [VEIEX]
https://www.portfoliovisualizer.com/bac ... ion2_2=100

Obviously no guarantees going forward.

Robert
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Re: Does your value fund own the wrong value stocks?

Post by garlandwhizzer » Mon May 21, 2018 12:48 pm

Robert T wrote:
DFA uses P/B as a value metric.

Over the last 18 years: 2000-2017:

Annualized Returns / Growth in $10,000

8.85% / $46,035 = DFA Large Value Fund [DFLVX]
5.76% / $27,398 = Vanguard Total Stock Market [VTSMX]
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Good point as always, Robert T, but we have to take into account that this period starts in 2000, the year the tech bubble which was largely LCG burst. Weightings in that LCG segment were huge in TSM which suffered greatly in 2000 - 2003, while LCG was non-existent in DFLVX. If instead we choose the last 10 years to compare the two, 2007 - 2017, we get different numbers.

CAGR / Standard Deviation / Max drawdown / Sharpe ratio

7.6% / 18.6 / 60.6% / .45 DFLVX 100%

8.3 / 15.1 / 50.9% / .56 VTSMX 100%

Over that 10 year period, DFLVX was clearly riskier, 10 % greater maximum drawdown during the Great Recession, considerably higher standard deviation. In spite of taking increased risk, it had lower returns than TSM during that period. Needless to say VTSMX had a much higher Sharpe ratio, 25% higher in fact. Per unit of risk, it killed DFLVX. This does not take into account the advisory fee which is necessary to purchase DFLVX. Differing returns on these are these two funds are period dependent. If DFLVX rewards with outsized returns in the period selected, it likely does so by taking on greater risks. DFLVX is not a magical free lunch.

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Re: Does your value fund own the wrong value stocks?

Post by garlandwhizzer » Mon May 21, 2018 1:05 pm

vineviz wrote:

RYSVX is a terrible choice for trying to illustrate this point. Not only is it a full load fund with an INSANE 1.53% expense ratio, it is ineptly managed (nearly 1,500% stock turnover, 5% cash, and one of the worst tax-adjusted returns I've ever seen).
The expense ratio was not always that high, used to be a lot cheaper. When so many SVC investors fled the fund, only 16 mil in assets, the managers have to generate income from somewhere to keep the lights burning at work and cover the home mortgage in the Hamptons. I'm presuming that explains the current high expense ratio. Likewise I think recent turnover is inflation for the same reason, paucity of assets. It's index has always focused on maximizing SCV exposure, choosing deep value in the micr-cap space, and it does not to my knowledge use screens. In factor theory if you maximize exposure to those two factors, the first two other than beta to be described, it is expected to produce outperformance. Some factor true-believers claim that beta plus size plus value explain 80% -90% of all market returns. In this case that doesn't ring true which clearly demonstrates the wide gulf between exuberant academic factor research results and the often less impressive real factor fund results.

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Re: Does your value fund own the wrong value stocks?

Post by Robert T » Mon May 21, 2018 6:41 pm

garlandwhizzer wrote:
Mon May 21, 2018 12:48 pm
we have to take into account that this period starts in 2000, the year the tech bubble which was largely LCG burst. Weightings in that LCG segment were huge in TSM which suffered greatly in 2000 - 2003, while LCG was non-existent in DFLVX. If instead we choose the last 10 years to compare the two, 2007 - 2017, we get different numbers
Garlandwhizzer,

The time period used in my earlier post was simply in response to the article you linked and discussed - whose first sentence is "The Price to Book Ratio has performed poorly since 2000." Of course we can find periods where value has underperformed (e.g. 1985-99), this should be expected. Tilting a portfolio to value is a long-term commitment.

Robert
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Re: Does your value fund own the wrong value stocks?

Post by asif408 » Tue May 22, 2018 8:52 am

Robert T wrote:
Mon May 21, 2018 6:41 pm
garlandwhizzer wrote:
Mon May 21, 2018 12:48 pm
we have to take into account that this period starts in 2000, the year the tech bubble which was largely LCG burst. Weightings in that LCG segment were huge in TSM which suffered greatly in 2000 - 2003, while LCG was non-existent in DFLVX. If instead we choose the last 10 years to compare the two, 2007 - 2017, we get different numbers
Garlandwhizzer,

The time period used in my earlier post was simply in response to the article you linked and discussed - whose first sentence is "The Price to Book Ratio has performed poorly since 2000." Of course we can find periods where value has underperformed (e.g. 1985-99), this should be expected. Tilting a portfolio to value is a long-term commitment.

Robert
.
It seems to me that for all of these factor arguments, the time frame always seems to matter and cyclicality plays a major role. That is, if you invest in a factor, be it value or anything else, and buy into it when it is expensive you will have to wait many years (or even decades) for the cycle to turn to see outperformance, if you see it at all. OTOH, if you invest in a factor when it is trading cheaply, you likely won't have to wait a decade or more for outperformance, and the odds that you will underperform are low.

I imagine in the past there may have been more structural reasons to justify some of these factors outperforming, but nowadays, with the ease of access to investing in all the factors, I find it hard to believe that any factor, whether it be small, value, momentum, quality, profitability, etc. will have long term outperformance that can be explained by anything other than a beneficial starting and ending point of measurement.

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Re: Does your value fund own the wrong value stocks?

Post by vineviz » Tue May 22, 2018 10:51 am

garlandwhizzer wrote:
Mon May 21, 2018 1:05 pm
In this case that doesn't ring true which clearly demonstrates the wide gulf between exuberant academic factor research results and the often less impressive real factor fund results.
It doesn't ring true because you are looking an an unrepresentative example.

I mean, we agree this is an especially terrible fund right?

Heck, Rydex even runs an S&P 500 index fund that has underperformed its benchmark by 174bps over the past ten years (http://performance.morningstar.com/fund ... ture=en_US). We wouldn't use that as evidence that market index funds are a sham, and we can't use RYSVX as evidence that small cap value as a factor is inherently problematic.

RYSVX tells us nothing interesting about small cap value in general, because the specific issues with it are the dominant ones.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Does your value fund own the wrong value stocks?

Post by nisiprius » Tue May 22, 2018 5:45 pm

vineviz wrote:
Tue May 22, 2018 10:51 am
...I mean, we agree this is an especially terrible fund right?...
I wouldn't know. I think it's the only mutual fund that tracks S&P 600 Pure Value, which, if so, would make it both the worst and the best fund of its kind. Maybe there is general agreement that it is a terrible fund in hindsight, but I think I remember it being highly praised for being so much smaller and so much more value-y that competitors:

RYSVX:

Image

DFA Small-Cap Value Portfolio:

Image

And Vanguard Small-Cap Value Index:

Image

Let's agree that a 1.53% ER seems outrageously high. So let's correct for it. What would be a "reasonable" expense ratio? DFA Small-Cap Value Portfolio, DFSVX, has an 0.52% ER. So if we take RFSVX and boost its returns by 1.01% per year, we should get what RFSVX would have earned if it had had the same expense ratio as DFSVX.

The orange line is RFSVX's actual real-world performance. The blue line is the performance it would have had, if had had only an 0.52% expense ratio.

It still underperformed the Vanguard Total Stock Market Index Fund: 6.08% versus 8.69%
And it still was far more volatile than the total stock market: a standard deviation of 26.63% versus 13.92%.
And while Total Stock endured a mere 52% decline in 2008-2009, RFSVX experienced a 77% decline, holdings were cut to less than a quarter of their former value.

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I don't know what is happening here. But it is not fund expenses.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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vineviz
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Re: Does your value fund own the wrong value stocks?

Post by vineviz » Wed May 23, 2018 10:13 am

nisiprius wrote:
Tue May 22, 2018 5:45 pm
vineviz wrote:
Tue May 22, 2018 10:51 am
...I mean, we agree this is an especially terrible fund right?...
I wouldn't know.
I think a quick examination of its characteristics makes it pretty obvious that this is an especially terrible fund, as many (most?) of the Rydex index funds are.

You can easily see that RYSVX dramatically fails to track with RZV, which replicates the same index, and by (as you note) way more than the published expense ratio. RYSVX is ineptly managed. Period.

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Value strategies have generally underperformed growth strategies for the past 10 years (and the first half of 2017 was especially illustrative of this), a phenomenon that I think is definitely interesting and worth contemplating. But cherry picking egregiously bad examples isn't going to help anyone understand what's going on.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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