Small-cap tilt

[michaeljmroger]

I know many people here tilt to small-caps (myself included) but I rarely see actual numbers. So, by how much do you tilt?

[ReformedSpender]

Sooo, how much do you tilt?

25% here using IJR (iShares Small Cap 600)

[michaeljmroger]

Sooo, how much do you tilt?

I’m not even sure how to calculate this

58% of my equities are in Total Stock Market, 28% in Ex-US and 14% in small-caps. Does that mean I have approximately a 35% tilt to small-caps?

[livesoft]

Please define what you mean by 0% tilt and 100% tilt and 50% tilt.

See: viewtopic.php?t=121203

[michaeljmroger]

Please define what you mean by 0% tilt and 100% tilt and 50% tilt.

Well, that’s what I said above: I don’t really know how to measure the tilt. I guess I was naively just expecting people to tell me the % of small-caps they have in proportion to their entire stock allocation.

[FinancialRookie]

2.01%

[Random Walker]

I’ve evolved on this over time. I see most all of our portfolios dominated by market beta, and I see the goal of diversification as spreading risk away from the market factor. Towards that end, virtually all my equity holdings are small value. Most small value equity funds have market betas of about 1 anyways, and additionally have exposures to size and value factors. Moreover, I can pretty much maintain portfolio expected return, decrease overall equity exposure, and increase exposure to term factor with increased bond allocation. These somewhat severe moves to SV on the equity side create a portfolio more in the direction of risk parity with risks more evenly spread across low or uncorrelated sources: market, size, value, term.
Also, the other factors, value, momentum, profitability, seem to be more pronounced in small caps, making diversification into those factors more meaningful as well.

Dave

[Prospero]

20% global small cap

[jason1]

the "clean" answer is 20 percent of my equities or 16% of total portfolio.
Overall is 48/16/16/20 TSM/SCB/international/TBM.
The real answer is a bit more complicated as I have TSM emulated with approximations, but last I checked I was still on track.

[pdavi21]

2/3 Large Cap and/or investable market and 1/3 small cap.

So slightly over 1/3 overall. Tilting is difficult to measure objectively. Also, my small cap tilts include midcaps due to the varying definition of small cap.

[dunkmachine]

25% of my US equity is small cap value (mix of IJS and SFSNX). 75% in Total Stock market. Target 12% of overall portfolio.

25% of my International equity is small cap value-y (mix of SFILX and FNDC). 75% in Global ex-US. Target 6% of overall portfolio.

Rick Ferri was the inspiration, but it's slightly modified on the international side as I don't slice and dice Pacific/European/EM.

[DaufuskieNate]

SMB factor exposure of .75 based on a global 3-factor Fama-French regression.

[fennewaldaj]

My equities are 50% US
of the US equities I am 37.% small cap funds (25% small value.12.5 % small blend)
and 25% mid cap funds (12.5% mid value. 12.5 mid blend)

Ex US is also 50% of equities
I am 42.5% small mid cap funds in the Ex US allocation

So over all ~50% small and mid cap.

[Dialectical Investor]

I'm not sure of the meaning of questions like this. If the real question is, what are some ways you measure your asset allocation against certain benchmarks, so that I may make measurements of my own?, that's understandable. But if the intent is, I'm not sure what my asset allocation should be, so tell me what yours is, so I can gather some data points to inform my decision, that sounds like a poor methodology to arrive at a decision.

[grabiner]

I define small as the bottom 20% of the market (not treating mid-caps as a separate class), and hold 50% of my US stock in small. I hold 1/8 of my US stock in large growth, 3/8 in large value, 1/8 in small growth, and 3/8 in small value.

I would hold 50% of my foreign stock in small-caps as well, but small-caps are more expensive. Vanguard's VSS (FTSE All-World Ex-US Small-Cap) doesn't cost that much more than large-cap stocks in expense ratio, but it has significantly more in non-qualified dividends, which adds to the tax cost because I hold it in a taxable account. If I had to hold US small-cap in a taxable account, I could avoid this issue with Vanguard Tax-Managed Small-Cap. (I actually have a small-cap fund in my employer plan.)

[samsdad]

Here’s what my box looks like according to M*:

10 10 11
08 12 11
12 14 13

I’d call it a small tilt toward small. A medium tilt toward medium. And leaning away from large.

[KJVanguard]

My largest US equity holding is TSM, but my 2nd largest is Small Cap Value. I would likely tilt more to SV, but I must keep TSM due to unrealized capital gains. Even if taxes were not an issue, I probably would still be too afraid to put everything in SV.

Vanguard's Portfolio Watch scolds me with a warning that I could underperform "the market." I ignore the dire warning. I must wonder if SV isn't more diversified than TSM in that the top ten holdings only make up 5% rather than TSM where 18% is concentrated in only ten companies. How top heavy a fund is strikes me as one reasonable measure of diversification. SV contains something like 800 stocks, so not nearly as much as the 3,000+ in TSM, though how much do the smallest 1,000 positions matter to performance? The vast bulk is still concentrated in the top 50.

55% of my equity holdings are international and VSS (or the mutual fund) make up my largest position.

[augryphon]

~7% small cap and small cap value combined

[Portfolio7]

We have small and midcap funds; also funds with some large cap components but that seem to tilt pretty heavily to size like VMNVX and VINEX. 70% of our funds read out as below, per Fidelity, but 30% is in proprietary equity funds only offered in my 401k (small-mid cap and some reits) If I worked it all out (and I haven't in a couple years) I suspect our portfolio has about 2.5 to 3 times the TSM exposure to midcap and perhaps 5-8x the exposure to small cap when the proprietary stuff is factored in.

I really don't think about it a lot: I think the important thing is that our portfolio is diversified, and we're comfortable with the risk (willingness, need, ability.) 20 plus years of good performance while swinging all over the place with my AA taught me that the 3 key things are 1) use low cost index funds 2) maintain a reasonable Equity/Bond mix and 3) to have a plan in a downturn (and Bogleheads have a good one: 'stay the course'). Factor tilts and such are a lot of fun to analyze and implement, but represent an "angels on the head of a pin" discussion for the most part, imho, for a variety of reasons.

15 17 24
11 11 11
04 04 02

[michaeljmroger]

~7% small cap and small cap value combined

Isn’t it basically what TSM has by default?

[MotoTrojan]

Of my US equities I hold 27% S&P600 small-value (20% of total portfolio) and the rest in Total US, so closer to 35% SC (with a value tilt). 25% remaining is in Total International; thought about tilting there too but would be too small a holding to warrant the complexity right now.

[pascalwager]

Total Stock Market 17%
Large Value 24%
Microcap 10%
Total International Stock 30%
International Value 12%
International Small Co. 6%
Emerging Markets 2%

[bluquark]

I’ve evolved on this over time. I see most all of our portfolios dominated by market beta, and I see the goal of diversification as spreading risk away from the market factor. Towards that end, virtually all my equity holdings are small value. Most small value equity funds have market betas of about 1 anyways, and additionally have exposures to size and value factors. Moreover, I can pretty much maintain portfolio expected return, decrease overall equity exposure, and increase exposure to term factor with increased bond allocation. These somewhat severe moves to SV on the equity side create a portfolio more in the direction of risk parity with risks more evenly spread across low or uncorrelated sources: market, size, value, term.
Also, the other factors, value, momentum, profitability, seem to be more pronounced in small caps, making diversification into those factors more meaningful as well.

Dave

I’ve evolved from conventional diversification, to being really into risk parity portfolio design, and then right back to conventional diversification. The reason I went back is that the correlation “fundamentals” that risk parity is designed around are based on empirical data, and the data does not go back that far in some cases. It has a whiff of “past performance” based decision-making, merely applied to volatility as opposed to return. Just as other multi-decade behaviors may change in a new secular market, correlations may lastingly shift as well. And the empirical data cannot prove what was a risk premium and what was a market inefficiency, nor does anyone seem to know what exactly will happen to factor premia as a result of so many investors going into factor funds (even if it is a risk premium, perhaps that means we now have both a risk premium and a new inefficiency combined?)

And look where the information about factors is coming from. Initially it comes from academics who if you ask them will tell you they are not trying to give you portfolio advice, research is continuing about many aspects of it and their mission is to improve the science of economics for its own sake. And then secondly you have the fund industry who was more than glad to seize the opportunity to sell investors a new category of fund products, with a sophisticated, sound strategy proven by research. Hmmm...

To be clear, I still think you will do OK with your small value strategy. It is pretty sound. But to me, it’s not something I believe in enough to commit to an AA for life on — whereas the market cap portfolio, which Fama has said he still believes in and none of his research has proven is suboptimal, is a commonsense well-grounded one.

[Random Walker]

Bluquark,
Can’t argue much with anything you wrote. Moreover, your cost savings are certain. Taking the heavy tilt approach really requires viewing market beta as just another factor, which understandably can be hard for many to swallow. If one can stand the thought of considering it just another source of return, then diversifying away from it towards risk parity is way more psychologically palatable.

Dave

[augryphon]

~7% small cap and small cap value combined

Isn’t it basically what TSM has by default?

I'm modeling TSM, which my 401k doesn't offer