US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

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steve321
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US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by steve321 » Thu Aug 16, 2018 1:23 pm

I'd like to invest in a US small caps ETF and I've seen that there are 3 types of ETFs, tracking the
-S&P SmallCap 600
-MSCI USA Small Cap
-Russell 2000
Is any of these preferable? The S&P SmallCap 600 seems to work better than the Russell 2000, but what about MSCI USA Small Cap?

The other thing is that for Uk based investors I see that the iShares MSCI USA Small Cap UCITS ETF doesn't pay dividends whereas the iShares S&P SmallCap 600 UCITS ETF does: is there a difference as far as taxes are concerned?
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selters
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by selters » Thu Aug 16, 2018 1:50 pm

Out of all active decisions a passive investor can make, choosing a "small cap minus junk" fund rather than a total small cap market fund seems to be the best documented. The tendency of stocks of profitable companies to outperform stocks of unprofitable companies among small caps seems to be very persistent across most markets over most reasonably long time periods.

The S&P 600 index screens out unprofitable companies. So I'd go for the S&P 600 fund even if it pays out its dividends, which likely will be taxable every year. The dividend yield of small companies is so low that it won't matter too much.

Read this recent article by Larry Swedroe for a little more detail on this "small cap minus junk" factor: https://www.etf.com/sections/index-inve ... nopaging=1
Last edited by selters on Thu Aug 16, 2018 2:08 pm, edited 2 times in total.

MotoTrojan
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by MotoTrojan » Thu Aug 16, 2018 1:53 pm

Specific ETF matters too. You also could consider using a small-value form like many do.

VIOV and IJS are the small-value S&P600 ETFs I am familiar with that are very tax-efficient. SLYV is another which is not very tax-efficient, but would do fine in a tax-advantaged account.

Not familiar with the MSCI USA index, but in general if it doesn't pay dividends there will be less tax-drag.

I agree with above, the S&P's quality screen seems to help especially on the smaller companies.

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steve321
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by steve321 » Thu Aug 16, 2018 2:04 pm

MotoTrojan wrote:
Thu Aug 16, 2018 1:53 pm


VIOV and IJS are the small-value S&P600 ETFs I am familiar with that are very tax-efficient. SLYV is another which is not very tax-efficient, but would do fine in a tax-advantaged account.
Thanks, like I said I am in the UK; I heard of IJS but it will be probably better if I get an ETF from the LSE(?) Don't actually know whether it makes a difference as far as taxation and corresponding paperwork are concerned. The iShares ISP6 is probably the equivalent of IJS; it has an ongoing charge of 0.4% which is probably all right for small caps; the one thing that bothers me is that it's not accumulating.
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Theoretical
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by Theoretical » Thu Aug 16, 2018 2:59 pm

Do the S&P 600 in a UCITS fund/etf. It’s extremely well-constructed.

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nedsaid
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by nedsaid » Thu Aug 16, 2018 3:30 pm

I have owned the S&P 600 Small-Cap Index via an iShares ETF. I have been nothing but pleased with it.
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frequentflyer
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by frequentflyer » Fri Aug 17, 2018 12:02 am

What about the iShares MSCI World Small Cap UCITS ETF WSML ($) or WLDS (£) from ishares?

https://www.ishares.com/uk/individual/e ... (acc)-fund

TedSwippet
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by TedSwippet » Fri Aug 17, 2018 3:27 am

steve321 wrote:
Thu Aug 16, 2018 1:23 pm
The other thing is that for Uk based investors I see that the iShares MSCI USA Small Cap UCITS ETF doesn't pay dividends whereas the iShares S&P SmallCap 600 UCITS ETF does: is there a difference as far as taxes are concerned?
As far as I am aware, there isn't. This iShares fund is accumulating, and accumulating ETFs and accumulation units in funds and OEICs have a 'notional' dividend distribution that is taxed annually, and is then backed out for capital gains tax calculations. More in this article: https://www.youinvest.co.uk/articles/sh ... tion-units

In practical terms, accumulation funds can be a record-keeping nightmare outside of ISAs and SIPPs. It can be difficult to even uncover what this annual 'notional' dividend distribution is. Personally I reserve accumulation funds for ISAs and SIPPs only.

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steve321
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by steve321 » Fri Aug 17, 2018 3:51 am

TedSwippet wrote:
Fri Aug 17, 2018 3:27 am
steve321 wrote:
Thu Aug 16, 2018 1:23 pm
The other thing is that for Uk based investors I see that the iShares MSCI USA Small Cap UCITS ETF doesn't pay dividends whereas the iShares S&P SmallCap 600 UCITS ETF does: is there a difference as far as taxes are concerned?
As far as I am aware, there isn't. This iShares fund is accumulating, and accumulating ETFs and accumulation units in funds and OEICs have a 'notional' dividend distribution that is taxed annually, and is then backed out for capital gains tax calculations. More in this article: https://www.youinvest.co.uk/articles/sh ... tion-units

In practical terms, accumulation funds can be a record-keeping nightmare outside of ISAs and SIPPs. It can be difficult to even uncover what this annual 'notional' dividend distribution is. Personally I reserve accumulation funds for ISAs and SIPPs only.
Yes I suspected that. Thanks for the article.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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steve321
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by steve321 » Fri Aug 17, 2018 4:54 am

frequentflyer wrote:
Fri Aug 17, 2018 12:02 am
What about the iShares MSCI World Small Cap UCITS ETF WSML ($) or WLDS (£) from ishares?

https://www.ishares.com/uk/individual/e ... (acc)-fund
good point thanks, that simplfies things as I'd get one small cap fund only for the whole world. Hower, it probably wouldn't have the quality screen that was mentioned by selters in the case of the S&P600 fund?
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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Carlos Danger
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Re: US small cap ETF: MSCI US small, S&P600 or Russell 2000? (UK based investor)

Post by Carlos Danger » Fri Aug 17, 2018 6:59 am

As has already been stated, S&P weeds out the trash.

I use VIOO (and IVOO for midcap) in our portfolio.

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