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Question on International SCV

Posted: Sat Feb 09, 2019 12:37 pm
by oxy10
Hi Bogleheads,

I have a question on how portfolio visualizer does factor regression for international stocks. Below is the regression for FNDC. Can someone explain why the value load is negative? Isn't it supposed to be a SCV fund?

Mkt.RF 1.01
SMB 0.31
HML -0.12
MoM 0.03
https://www.portfoliovisualizer.com/fac ... sisResults

Re: Question on International SCV

Posted: Sat Feb 09, 2019 5:53 pm
by happenstance
FNDC is not a typical value fund that targets the HML factor. The Fundamental Index methodology weights stocks by quantitative measures of company size, rather than starting with market-cap and screening for value stocks. The strategy asserts that this reduces exposure in the index to growth stocks that are trading above their fundamentals, while increasing the amount in value stocks that are trading below their fundamentals. This effect tends to capture to the value and quality premia, but it is dynamic rather than fixed. They say that means that when growth is doing well, the exposure to value will be smaller, and vice versa. Schwab has a paper called Key distinctions between Fundamental Index and DFA methodologies that you may want to read.

Also, you can look at the longer-running history of SFILX.

Re: Question on International SCV

Posted: Sun Feb 10, 2019 9:19 am
by oxy10
Thanks that info was very helpful! Would there be other SCV funds you would recommend? I choose FNDC partly because of its somewhat lower ER of 0.39%.

Re: Question on International SCV

Posted: Sun Feb 10, 2019 9:58 am
by Wyodoc
I am certainly no expert but interested about International SCV. I tilt SCV domestically but not internationally but would be interested. I do use VSS (Vanguard ex-us small cap) for my international tilt to small. I know many people use FDNC (as you mentioned) and DLS (Wisdom tree small cap dividend) as surrogates for Intl SCV. Other popular funds are SCHC (Schwab intl small cap), VSS, SCZ (Ishares intl small cap), and ISCF (small cap multifactor), GWX (SPDR intl small cap) but all of these are not true SCV. Certainly worth researching though for a small tilt.

Personally I use VSS in tax advantaged and was looking at DLS to add to my taxable (it supposed to be "tax inefficient" but looking at 2017 foreign small funds it actually appears to be fairly efficient) and may even replace my VSS as well but not overly inclined to do that now. Also considering even FNDC like you. Overall waiting for a Intl SCV fund that has a reasonable ER and easily available (unlike DFA funds which can be difficult to obtain).

Re: Question on International SCV

Posted: Sun Feb 10, 2019 3:20 pm
by Doc
Wyodoc wrote:
Sun Feb 10, 2019 9:58 am
I tilt SCV domestically but not internationally but would be interested.
I do exactly the opposite. I avoid foreign large. I want foreign because it may be somewhat un-correlated to domestic. Large US companies and large foreign companies are mostly international firms and are all swimming in the same pool. Therefore all you are getting from foreign large compared to US is a currency factor. And many funds hedge that away anyhow. So if you want foreign for a negative or at least low correlation with US one should buy small foreign which will depend more on the local market and may therefore not look like the US.

Caveat: I've never seen anyone that agrees with my idea. But I've not seen anyone dispute it either.

Re: Question on International SCV

Posted: Sun Feb 10, 2019 3:29 pm
by Wyodoc
I actually completely agree with that statement. I have some old VEA in my taxable which would be difficult to sell but otherwise Over last couple years have only bought VSS. I’m actually not sure why I said “tilt” because I’m 70/30 small cap intnl/large cap. Have no plan to buy more large. In fact, as I said, looking to add additional small cap to my taxable....

I think everything you said makes sense :sharebeer

Re: Question on International SCV

Posted: Sun Feb 10, 2019 3:32 pm
by drk
Doc wrote:
Sun Feb 10, 2019 3:20 pm
Caveat: I've never seen anyone that agrees with my idea. But I've not seen anyone dispute it either.
IIRC, user jfhenton does exactly the same. I'd also argue that those of us using the Simplified Ultimate Buy and Hold are operating in the same vein, holding 25% of equities in ex-US small caps. So, I think you have company, Doc.

Re: Question on International SCV

Posted: Sun Feb 10, 2019 8:18 pm
by garlandwhizzer
Doc wrote:

So if you want foreign for a negative or at least low correlation with US one should buy small foreign which will depend more on the local market and may therefore not look like the US.

Caveat: I've never seen anyone that agrees with my idea. But I've not seen anyone dispute it either.
1+

I agree with you on this point, Doc, and I overweight SC in my INTL exposure. What you wrote makes a lot of sense to me.

Garland Whizzer

Re: Question on International SCV

Posted: Sun Feb 10, 2019 8:38 pm
by Risky Dude
DLS tracks very closely to DFA international small cap value and has 0.97 correlation with it.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Re: Question on International SCV

Posted: Sun Feb 10, 2019 8:54 pm
by Random Walker
Doc wrote:
Sun Feb 10, 2019 3:20 pm
Wyodoc wrote:
Sun Feb 10, 2019 9:58 am
I tilt SCV domestically but not internationally but would be interested.
I do exactly the opposite. I avoid foreign large. I want foreign because it may be somewhat un-correlated to domestic. Large US companies and large foreign companies are mostly international firms and are all swimming in the same pool. Therefore all you are getting from foreign large compared to US is a currency factor. And many funds hedge that away anyhow. So if you want foreign for a negative or at least low correlation with US one should buy small foreign which will depend more on the local market and may therefore not look like the US.

Caveat: I've never seen anyone that agrees with my idea. But I've not seen anyone dispute it either.
I agree and think this is true. International small is much more dependent on local market conditions. It’s likely to be much less correlated to US than Int Large. I believe ISV is at least as good a diversifier as EM.

Dave

Re: Question on International SCV

Posted: Mon Feb 11, 2019 12:12 am
by fennewaldaj
In addition to the mentioned DLS and FNDC one can consider active funds. The cheaper ones are only moderately more expensive than DLS. I actually have DLS, FNDC, DGS and some in Pear Tree Polaris foreign value small cap (QUSIX) (I seem to end up splitting positions when I am not fully satisfied by any of the options)

https://www.morningstar.com/funds/xnas/qusix/quote.html

Its reasonably priced (at least for the asset class) if you can get into the institutional version (ER 1.05). I would be reluctant to use it as my only position for a large ISCV position though because it is fairly concentrated at 75 equal weighted stocks.

Re: Question on International SCV

Posted: Mon Feb 11, 2019 4:37 am
by Risky Dude
I am an Australian so i just split international developed equally into two slices. International developed large and international developed small cap value. I keep international at country weighting. I use IJS for the US portion and DLS for the excluding US portion of my small cap value holdings. I also hold market weighting of emerging markets and i don't bother splitting it between large and small.

Re: Question on International SCV

Posted: Mon Feb 11, 2019 6:49 am
by james22
Offer a ISV fund, Vanguard.

Re: Question on International SCV

Posted: Mon Feb 11, 2019 8:46 am
by snailderby
oxy10 wrote:
Sat Feb 09, 2019 12:37 pm
Hi Bogleheads,

I have a question on how portfolio visualizer does factor regression for international stocks. Below is the regression for FNDC. Can someone explain why the value load is negative? Isn't it supposed to be a SCV fund?

Mkt.RF 1.01
SMB 0.31
HML -0.12
MoM 0.03
https://www.portfoliovisualizer.com/fac ... sisResults
1. happenstance's explanation is superb.

2. Also, FNDC holds stocks from developed markets, and developed markets are currently less "valuely" than emerging markets. So if FNDC has a negative value loading in Portfolio Visualizer compared to a benchmark that includes emerging markets, that's partly because of the developed v. emerging markets difference. Here are the value loadings of several other funds for reference:

SCHF (developed large): -0.10
SCHE (emerging large): +0.12
VSS (developed + emerging small): -0.11
SCHC (developed small): -0.16
FNDC (developed small): -0.14

See https://www.portfoliovisualizer.com/fac ... sion=false.

Re: Question on International SCV

Posted: Mon Feb 11, 2019 11:41 am
by DaufuskieNate
Portfolio Visualizer website indicates that international factor exposure data is developed markets only, not including emerging markets.

Re: Question on International SCV

Posted: Mon Feb 11, 2019 12:46 pm
by snailderby
snailderby wrote:
Mon Feb 11, 2019 8:46 am
Also, FNDC holds stocks from developed markets, and developed markets are currently less "valuely" than emerging markets. So if FNDC has a negative value loading in Portfolio Visualizer compared to a benchmark that includes emerging markets, that's partly because of the developed v. emerging markets difference. Here are the value loadings of several other funds for reference:

SCHF (developed large): -0.10
SCHE (emerging large): +0.12
VSS (developed + emerging small): -0.11
SCHC (developed small): -0.16
FNDC (developed small): -0.14

See https://www.portfoliovisualizer.com/fac ... sion=false.
DaufuskieNate wrote:
Mon Feb 11, 2019 11:41 am
Portfolio Visualizer website indicates that international factor exposure data is developed markets only, not including emerging markets.
I didn't realize that. Thank you for the correction!

Re: Question on International SCV

Posted: Mon Feb 11, 2019 1:32 pm
by DaufuskieNate
Getting reliable factor regressions on Portfolio Visualizer for emerging market funds is a bit problematic. I have found that using Asia-Ex Japan often gives the best R-squared values for diversified emerging market funds. Makes some sense, given the high representation of Asian countries in many EM funds, but it's still mixing apples and oranges.

Re: Question on International SCV

Posted: Mon Feb 11, 2019 1:51 pm
by jhfenton
drk wrote:
Sun Feb 10, 2019 3:32 pm
Doc wrote:
Sun Feb 10, 2019 3:20 pm
Caveat: I've never seen anyone that agrees with my idea. But I've not seen anyone dispute it either.
IIRC, user jfhenton does exactly the same. I'd also argue that those of us using the Simplified Ultimate Buy and Hold are operating in the same vein, holding 25% of equities in ex-US small caps. So, I think you have company, Doc.
Indeed. I would be happy to have no ex-US large cap. We didn't for a while, but we did start putting money in VTIAX/Vanguard Total Int'l Admiral last May in my wife's new 401(k). It was getting hard to keep ex-US at 50% of equities with no 401(k) money going into ex-US. (My 401(k) had no ex-US index funds until January, when they added VTMGX/Vanguard Developed Markets Index Admiral. I'm not planning to contribute to it.)

Right now, we have 1.6% in VTIAX, 27.8% in VSS, and 20.8% in emerging markets funds (VEMAX/Vanguard EM Admiral, FPADX/Fidelity EM Index, EMGF/iShares Edge EM Multifactor). Other than EMGF, none of our ex-US is value-tilted. I have not been convinced by any of the ex-US small cap value or multifactor funds.

Re: Question on International SCV

Posted: Mon Feb 11, 2019 2:48 pm
by Dead Man Walking
Doc wrote:
Sun Feb 10, 2019 3:20 pm
Wyodoc wrote:
Sun Feb 10, 2019 9:58 am
I tilt SCV domestically but not internationally but would be interested.
I do exactly the opposite. I avoid foreign large. I want foreign because it may be somewhat un-correlated to domestic. Large US companies and large foreign companies are mostly international firms and are all swimming in the same pool. Therefore all you are getting from foreign large compared to US is a currency factor. And many funds hedge that away anyhow. So if you want foreign for a negative or at least low correlation with US one should buy small foreign which will depend more on the local market and may therefore not look like the US.

Caveat: I've never seen anyone that agrees with my idea. But I've not seen anyone dispute it either.
I also agree with your perspective. Another aspect of small international is that paying dividends is often considered a quality factor in many emerging markets. US investors typically consider dividends a characteristic of value stocks. I believe Wisdom Tree considers dividends as a significant factor in at least one of their international small cap funds.

DMW

Re: Question on International SCV

Posted: Mon Feb 11, 2019 2:55 pm
by hdas
SCZ + DGS works ok

According to PV there was a period of 2-4 years in early 2000’s where int large cap massively outperformed small. :greedy

Re: Question on International SCV

Posted: Mon Feb 11, 2019 3:15 pm
by Doc
Dead Man Walking wrote:
Mon Feb 11, 2019 2:48 pm
Another aspect of small international is that paying dividends is often considered a quality factor in many emerging markets. US investors typically consider dividends a characteristic of value stocks.
Emerging markets scare the bejeezus out of me.

" What China's Recent Bond Defaults Mean For Investors"
https://www.forbes.com/sites/valuepartn ... a1e99b61d0

Goggle "chinese company bond default" for more.

Re: Question on International SCV

Posted: Tue Feb 12, 2019 1:06 am
by Dead Man Walking
Doc wrote:
Mon Feb 11, 2019 3:15 pm
Dead Man Walking wrote:
Mon Feb 11, 2019 2:48 pm
Another aspect of small international is that paying dividends is often considered a quality factor in many emerging markets. US investors typically consider dividends a characteristic of value stocks.
Emerging markets scare the bejeezus out of me.

" What China's Recent Bond Defaults Mean For Investors"
https://www.forbes.com/sites/valuepartn ... a1e99b61d0

Goggle "chinese company bond default" for more.
Emerging market stocks also scare me. The US markets are considered to be the most transparent in the world, yet we often are informed that there are shenanigans that occur in them. My imagination runs wild with the corruption that may occur in emerging markets. Consequently, I choose to invest in Vanguard small cap ex US index. China is the opposite of a transparent market. The devil is literally in the details!

DMW

Re: Question on International SCV

Posted: Tue Feb 12, 2019 1:34 am
by asset_chaos
Dead Man Walking wrote:
Tue Feb 12, 2019 1:06 am
Doc wrote:
Mon Feb 11, 2019 3:15 pm
Dead Man Walking wrote:
Mon Feb 11, 2019 2:48 pm
Another aspect of small international is that paying dividends is often considered a quality factor in many emerging markets. US investors typically consider dividends a characteristic of value stocks.
Emerging markets scare the bejeezus out of me.

" What China's Recent Bond Defaults Mean For Investors"
https://www.forbes.com/sites/valuepartn ... a1e99b61d0

Goggle "chinese company bond default" for more.
Emerging market stocks also scare me. The US markets are considered to be the most transparent in the world, yet we often are informed that there are shenanigans that occur in them. My imagination runs wild with the corruption that may occur in emerging markets. Consequently, I choose to invest in Vanguard small cap ex US index. China is the opposite of a transparent market. The devil is literally in the details!

DMW
If any differences are known, they are likely priced in. And transparency is studied. Transparency International, for instance, publishes research (https://www.transparency.org/topic/deta ... ate_sector).
TRANSPARENCY IN CORPORATE REPORTING: ASSESSING THE WORLD'S LARGEST COMPANIES (2014)

This Transparency International report evaluates the transparency of corporate reporting by the world’s 124 largest publicly listed companies.
and for emerging market companies
TRANSPARENCY IN CORPORATE REPORTING: ASSESSING EMERGING MARKET MULTINATIONALS

Transparency International conducted research into the public reporting practices of 100 emerging markets companies comprising a list of Global Challengers 2011.
Based on their methodology with 10 being the better score, developed market companies overall score was 3.8/10, while emerging market companies overall score was 3.6/10. Not a particularly transparent picture anywhere, but not very different for companies sited in developed and emerging markets.

Re: Question on International SCV

Posted: Tue Feb 12, 2019 2:17 am
by Dead Man Walking
asset_chaos wrote:
Tue Feb 12, 2019 1:34 am
Dead Man Walking wrote:
Tue Feb 12, 2019 1:06 am
Doc wrote:
Mon Feb 11, 2019 3:15 pm
Dead Man Walking wrote:
Mon Feb 11, 2019 2:48 pm
Another aspect of small international is that paying dividends is often considered a quality factor in many emerging markets. US investors typically consider dividends a characteristic of value stocks.
Emerging markets scare the bejeezus out of me.

" What China's Recent Bond Defaults Mean For Investors"
https://www.forbes.com/sites/valuepartn ... a1e99b61d0

Goggle "chinese company bond default" for more.
Emerging market stocks also scare me. The US markets are considered to be the most transparent in the world, yet we often are informed that there are shenanigans that occur in them. My imagination runs wild with the corruption that may occur in emerging markets. Consequently, I choose to invest in Vanguard small cap ex US index. China is the opposite of a transparent market. The devil is literally in the details!

DMW
If any differences are known, they are likely priced in. And transparency is studied. Transparency International, for instance, publishes research (https://www.transparency.org/topic/deta ... ate_sector).
TRANSPARENCY IN CORPORATE REPORTING: ASSESSING THE WORLD'S LARGEST COMPANIES (2014)

This Transparency International report evaluates the transparency of corporate reporting by the world’s 124 largest publicly listed companies.
and for emerging market companies
TRANSPARENCY IN CORPORATE REPORTING: ASSESSING EMERGING MARKET MULTINATIONALS

Transparency International conducted research into the public reporting practices of 100 emerging markets companies comprising a list of Global Challengers 2011.
Based on their methodology with 10 being the better score, developed market companies overall score was 3.8/10, while emerging market companies overall score was 3.6/10. Not a particularly transparent picture anywhere, but not very different for companies sited in developed and emerging markets.
I won’t debate your citations; however, I will point out that the Vanguard emerging market index fund contains 4,700 stocks. I don’t doubt that the 100 emerging market stocks scored well; it’s the other 4,600 that scare me.

DMW

Looking for References

Posted: Tue Feb 12, 2019 8:42 am
by hdas
Random Walker wrote:
Sun Feb 10, 2019 8:54 pm

I agree and think this is true. International small is much more dependent on local market conditions. It’s likely to be much less correlated to US than Int Large. I believe ISV is at least as good a diversifier as EM.

Dave
jhfenton wrote:
Mon Feb 11, 2019 1:51 pm
Indeed. I would be happy to have no ex-US large cap.
I share the same view. Is there any formal study of this? Appreciate any references you guys might have. :greedy

Re: Question on International SCV

Posted: Tue Feb 12, 2019 9:03 am
by Doc
Dead Man Walking wrote:
Tue Feb 12, 2019 1:06 am
Emerging market stocks also scare me. The US markets are considered to be the most transparent in the world, yet we often are informed that there are shenanigans that occur in them. My imagination runs wild with the corruption that may occur in emerging markets. Consequently, I choose to invest in Vanguard small cap ex US index. China is the opposite of a transparent market. The devil is literally in the details!
If you are using Vg Small Cap ex US VFSVX it is 20+% EM.

For those of you who are still debating EM I suggest doing a back of the envelope calculation on its possible effect.

For me AA = 50/50
Large/Small = 60/40
US/Foreign = 75/25
EM = 20% of Foreign (market cap)
EM outperforming by 10% (WAG)

Multiply all together and get "why bother".