Larry Swedroe: Small Value Lags For 15 Years

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Random Walker
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Larry Swedroe: Small Value Lags For 15 Years

Post by Random Walker »

https://www.etf.com/sections/index-inve ... nopaging=1

SV has under performed in US over last 15 years. It has outperformed internationally though, and a SV investor diversified globally would be ahead of a TSM investor likewise diversified globally over the last 15 years. 15 years under performance is a long time, but within the realm of expected potential behavior. There’s strong reason to believe in the premium looking forward. Firstly, if eradicated, it should be absent internationally as well. Secondly, if eradicated, we would expect the valuation of SV to market and growth to be lessened. But this is not the case. Underlying message is if you have SV exposure in your potprtfolio, stay the course.

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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Grt2bOutdoors »

And if you are not in small value, you haven’t missed out on anything either. But, you still have a chance to get in on the ground floor!! :wink:
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by packer16 »

I am not sure about your international argument. IMO the main argument for the disappearance of the premium is efficiency & the US is ahead of the world in that aspect of market evolution. You would expect to see the premium but its magnitude should decline over time as the market becomes more efficient.

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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Random Walker »

Grt2bOutdoors wrote: Wed Feb 20, 2019 3:27 pm And if you are not in small value, you haven’t missed out on anything either. But, you still have a chance to get in on the ground floor!! :wink:
Alternatively, it’s worth noting that Vanguard Total Stock Market and Dimensional Small Cap Value had identical 8.9% returns during this period. This brings up the point that tilted portfolios, when they underperform, tend to underperform by modest amounts. When they outperform, it tends to be more significant. During this 15 year period, the SV investor had higher expected returns and the potential benefits of factor diversification. Need to judge decisions based on information available at the time decision was made, not exclusively on the after the fact outcome.

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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by nisiprius »

Random Walker wrote: Wed Feb 20, 2019 3:24 pm...if you have SV exposure in your portfolio, stay the course...
I happen to agree with that. I also happen to think that if you do not have extra small-cap value exposure in your portfolio (beyond the amount that's in the total market), stay the course.

It's flailing around and changing things that does the harm. As long as you're doing something sensible, stick with it.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Kenkat »

Also it was widely said 15 years ago that Small Growth was a black hole to be avoided due to its poor risk adjusted historical returns. It occupies the bottom of the historical list. And guess where it finished over the past 15 years? That’s right, it finished first. Now I have owned small value for those 15 years and will stay the course, but also held some small growth for those 15 years as well. The main thing as mentioned above is you have to be patient with your strategy and choices.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Jags4186 »

Um, did anyone read the article? Small Value did outperform the US Total Market over the last 15 years...

Directly from the article:
Data is from Portfolio Visualizer and is for the 15-year period ending October 2018.

Vanguard Total Stock Market (VTSMX): 8.9%
Vanguard Small-Cap Value (VISVX): 9.4%
The article does point out US SCV has not performed as well in the most recent 15 year period as it has in past 15 year periods, but a 0.5% premium is certainly nothing to sneeze at.

And of course, none of these articles ever want to bring up 20 year returns...

Directly from Portfolio Visualizer 1/1/99 - 12/31/18
Vanguard Total Stock Market (VTSMX): 6.01%
Vanguard Small-Cap Value (VISVX): 8.78%
Last edited by Jags4186 on Wed Feb 20, 2019 4:07 pm, edited 1 time in total.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by WhiteMaxima »

Timing the market, timing the asset class, aren't them the same?
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by nisiprius »

Jags4186 wrote: Wed Feb 20, 2019 3:55 pm Um, did anyone read the article? Small Value did outperform the US Total Market over the last 15 years...

Directly from the article:
Data is from Portfolio Visualizer and is for the 15-year period ending October 2018.

Vanguard Total Stock Market (VTSMX): 8.9%
Vanguard Small-Cap Value (VISVX): 9.4%
The article does point out US SCV has not performed as well in the most recent 15 year period as it has in past 15 year periods, but a 0.5% premium is certainly nothing to sneeze at.
Um, did you read the article? Random Walker and Larry Swedroe tend to be oriented toward Dimensional's funds.

The premium was sufficiently tenuous that it showed up with Vanguard Small-Cap Value but not with DFA US Small-cap Value Portfolio,
Vanguard Total Stock Market (VTSMX): 8.9%
Vanguard U.S. Growth (VWUAX): 9.0%
Vanguard Value (VIVAX): 8.2%
Vanguard Small-Cap Growth (VISGX): 9.7%

Vanguard Small-Cap Value (VISVX): 9.4%
Dimensional Small-Cap Value (DFSVX): 8.9%

Note that while small growth outperformed small value, Vanguard’s small value fund did outperform the total market over the 15-year period, though Dimensional’s only managed a tie (due to its higher costs).
Sure, if you wanted to pin me down, the evidence from those three funds is that over this specific 15-year period, small-cap value slightly outperformed the total market, but it is so slight that it played peek-a-boo, showing up with one fund and not another. (Excusing DFSVX on the basis of "cost" doesn't seem right because the premise behind a recommendation of DFSVX is that the cost is justified by higher factor loadings, and by the superior management made possible by loosening the need to track an index).

And meanwhile, Fidelity Contrafund returned 10.78%, beating everything on that list by a full percentage point, and so what? That's not going to convince me, nor, I would guess, Random Walker or Larry Swedroe, to switch.

How about saying it's hard to be sure of this stuff, and we should try not to be too dogmatic.
Last edited by nisiprius on Wed Feb 20, 2019 8:41 pm, edited 4 times in total.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by mptness »

Should under-performance chasing out perform performance chasing? :confused
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by staythecourse »

What's the big deal? I believe the data supports scv outperforms majority of time over 20+ years. Not that it is 100% of time at 15 years.

This is none news. Maybe slow news day?

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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by rmelvey »

You guys got it all backwards. We are seeing the emergence of the growth premium! :wink:
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by azanon »

nisiprius wrote: Wed Feb 20, 2019 3:41 pm
Random Walker wrote: Wed Feb 20, 2019 3:24 pm...if you have SV exposure in your portfolio, stay the course...
I happen to agree with that. I also happen to think that if you do not have extra small-cap value exposure in your portfolio (beyond the amount that's in the total market), stay the course.

It's flailing around and changing things that does the harm. As long as you're doing something sensible, stick with it.
I absolutely agree with this.

And that makes me wonder really; Who are most of these research articles that come out monthly, yearly, etc. for anyway? Shouldn't almost all of us who've already been investing in accordance with their Investment Policy Statement (IPS), just stick with their IPS? Or stated another way, has any new research come out - say in the past 10 years - that would actually warrant an abandonment of the portfolio in their IPS based on 10-year-old research, and changing to a new strategy? Specifically, as an example, would Larry say that the new research discoveries/improvements on smart beta warrant a complete change in someone's portfolio, or would he recommend that they just stay with their low-cost, total market portfolio they started years ago?
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by deltaneutral83 »

I might be looking at this wrong, but IJS is beating the S&P significantly over a 15 year stretch and is marginally ahead over a 14 year stretch with Feb 2/19/2004-2/19/2019 and 2/19/2005-2/19/2019 respectively. S&P doesn't start to beat up on IJS until you examine 13 years, 2/19/2006-2/19/2019.
Last edited by deltaneutral83 on Wed Feb 20, 2019 5:11 pm, edited 1 time in total.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Jags4186 »

nisiprius wrote: Wed Feb 20, 2019 4:13 pm
Jags4186 wrote: Wed Feb 20, 2019 3:55 pm Um, did anyone read the article? Small Value did outperform the US Total Market over the last 15 years...

Directly from the article:
Data is from Portfolio Visualizer and is for the 15-year period ending October 2018.

Vanguard Total Stock Market (VTSMX): 8.9%
Vanguard Small-Cap Value (VISVX): 9.4%
The article does point out US SCV has not performed as well in the most recent 15 year period as it has in past 15 year periods, but a 0.5% premium is certainly nothing to sneeze at.
Um, did you read the article? Random Walker and Larry Swedroe tend to be oriented toward Dimensional's funds. In fact, Larry Swedroe recently criticized Vanguard's small-cap value fund as being inferior to Dimensional's, in A Tale of Three Small Value Funds.

The premium was sufficiently tenuous that it showed up with Vanguard Small-Cap Value but not with DFA US Small-cap Value Portfolio,
Vanguard Total Stock Market (VTSMX): 8.9%
Vanguard U.S. Growth (VWUAX): 9.0%
Vanguard Value (VIVAX): 8.2%
Vanguard Small-Cap Growth (VISGX): 9.7%

Vanguard Small-Cap Value (VISVX): 9.4%
Dimensional Small-Cap Value (DFSVX): 8.9%

Note that while small growth outperformed small value, Vanguard’s small value fund did outperform the total market over the 15-year period, though Dimensional’s only managed a tie (due to its higher costs).
Sure, if you wanted to pin me down, the evidence from those three funds is that over this specific 15-year period, small-cap value slightly outperformed the total market, but it is so slight that it played peek-a-boo, showing up with one fund and not another. (Excusing DFSVX on the basis of "cost" doesn't seem right because the premise behind a recommendation of DFSVX is that the cost is justified by higher factor loadings, and by the superior management made possible by loosening the need to track an index).

And meanwhile, Fidelity Contrafund returned 10.78%, beating everything on that list by a full percentage point, and so what? That's not going to convince me, nor, I would guess, Random Walker or Larry Swedroe, to switch.

How about saying it's hard to be sure of this stuff, and we should try not to be too dogmatic.
Of course I read the article. The very first line in the OPs post was
SV has underperformed in the US over the last 15 years.
The article then proceeds to talk about two SV funds, DFA and Vanguard. Neither of which underperformed the broader US market. I think it’s a bit of a sensationalist title. I don’t think SV is a panacea or anything, but it’s underperformance in a “bad” period either performed at par or best case delivered 0.5% outperformance.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by gmaynardkrebs »

I think there is a risk of not seeing the forest from the trees here, at least for me as a conservative investor. Virtually US equities have done well; virtually all US equity valuations are high. The fine distinctions, while valid, more or less miss the rising tide raising all boats points (to mix another metaphor). What I worry about is that the dominant force today is risk-on, risk-off, not SCV vs LC etc etc...
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Mel Lindauer »

In all of this number comparison, we need to remember that DFA advisors normally charge around 1%, so you might want to subtract that from the performance figures for DFA to get a valid comparison.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by matjen »

Mel Lindauer wrote: Wed Feb 20, 2019 5:46 pm In all of this number comparison, we need to remember that DFA advisors normally charge around 1%, so you might want to subtract that from the performance figures for DFA to get a valid comparison.
I think 1% is very much on the high side these days. I just quickly took a look at IFA's ADV since they are a very large DFA house and they start at .9% but then it goes down dramatically. Though I think fair to point out that .25% on every dollar AFTER 5 million probably doesn't account for very many investors.
https://www.adviserinfo.sec.gov/IAPD/Co ... _ID=532015
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annual fee for $1,000,000 is 0.825% (the First $500,000 at 0.90% and the Next $500,000 at
0.75%)."
More importantly, it is quite easy to find low cost DFA access and low cost advice. I pay a flat $1,000 a year for all my accounts and my wife's accounts for DFA, AQR, etc. access. Including rebalancing if desired. For me this is considerably cheaper than Vanguard's services for instance.

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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by whodidntante »

nisiprius wrote: Wed Feb 20, 2019 4:13 pm Um, did anyone read the article?
There's an article? I thought we were supposed to argue about the provocative thread subject. :happy
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Kenkat »

whodidntante wrote: Wed Feb 20, 2019 6:42 pm
nisiprius wrote: Wed Feb 20, 2019 4:13 pm Um, did anyone read the article?
There's an article? I thought we were supposed to argue about the provocative thread subject. :happy
It’s fun if you also skip reading others’ posts as well.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Artsdoctor »

We're all getting older and 15 years is a long time. If you bought the market and spent more time with family and friends, as opposed to slicing and dicing, wouldn't you really be further ahead?
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by larryswedroe »

Just so you know, I don't set the titles and it wasn't the one I gave them,
They want provocative titles to catch attention
I have no say
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by gmaynardkrebs »

larryswedroe wrote: Wed Feb 20, 2019 7:11 pm Just so you know, I don't set the titles and it wasn't the one I gave them,
They want provocative titles to catch attention
I have no say
Yes, and having worked for a major metropolitan newspaper myself for over 20 years (no, not the Daily Planet), I can attest that the typical headline writer has absolutely no idea what the column/article is about. I'm sure it's only gotten worse in the online world of today.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Day9 »

gmaynardkrebs wrote: Wed Feb 20, 2019 7:18 pm
larryswedroe wrote: Wed Feb 20, 2019 7:11 pm Just so you know, I don't set the titles and it wasn't the one I gave them,
They want provocative titles to catch attention
I have no say
Yes, and having worked for a major metropolitan newspaper myself for over 20 years (no, not the Daily Planet), I can attest that the typical headline writer has absolutely no idea what the column/article is about. I'm sure it's only gotten worse in the online world of today.
I did not know that. This is enlightening and has changed my perspective on many columnists.
I'm just a fan of the person I got my user name from
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by DaufuskieNate »

Headline writers may know what they are doing. This thread is certainly getting a lot of hits.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by whodidntante »

gmaynardkrebs wrote: Wed Feb 20, 2019 7:18 pm Yes, and having worked for a major metropolitan newspaper myself for over 20 years (no, not the Daily Planet)
You're just saying that so we won't discover who you are, Clark.
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I feel much more comfortable with small cap value

Post by Socrates »

than international. :shock: That said, I am staying the course with both. I tilt 20% (not counting my portion of Vanguard Total Stock Market) towards small cap value via IJs and Vanguard small cap value Index (which I have learned has a lot of mid cap) .
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by nisiprius »

I said
In fact, Larry Swedroe recently criticized Vanguard's small-cap value fund as being inferior to Dimensional's, in A Tale of Three Small Value Funds.
Larry Swedroe PMed me to say:

I did not criticize Vanguard's small value fund and never have. In articles discussing the three passively managed funds I always concluded that each, DFSVX, VISVX and BOSVX have all done what they were designed to do and do it well. It's just they seek different exposures.

Best
Larry
Accordingly, I withdraw that remark and have removed it from my post above.
Last edited by nisiprius on Wed Feb 20, 2019 10:19 pm, edited 2 times in total.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by pdavi21 »

It's because too many people tilted to small value. It turned all the small value companies into mid growth companies and all the mid growth companies turned into small value companies.
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Small Value has lagged during Two recent 15 year periods.

Post by Taylor Larimore »

Jags4181" wrote:The article does point out US SCV has not performed as well in the most recent 15 year period as it has in past 15 year periods.
Jags4181:

U.S. Small Cap Value performed just as poorly during a preceding 15-year period

Listed below are 15 year returns for various Morningstar categories ending 6-30-00:

Style.......1 Yr.....3 Yr.....5 Yr....10 Yr....15 Yrs.

LCG......27.19...27.04....24.98...17.85....17.15 (best)
LCB........8.93...17.29....20.35...15.60....15.23
LCV.......-5.21....8.74.....15.16..13.36....13.45

MCG.....57.24....31.09...24.81...18.14....16.82
MCB.....11.87....12.36...16.09...14.12....14.23
MCV.....-2.56......7.23...13.20...12.77....12.64

SCG.....55.14....24.42...20.86...17.12....15.64
SCB.....17.77....10.08...15.30...13.03....12.02
SCV......3.29......3.55...12.58....11.80...11.34 (worst)

Best wishes.
Taylor
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Re: Small Value has lagged during Two recent 15 year periods.

Post by venkman »

Taylor Larimore wrote: Wed Feb 20, 2019 9:07 pm
U.S. Small Cap Value performed just as poorly during a preceding 15-year period

Listed below are 15 year returns for various Morningstar categories ending 6-30-00:

LCG......27.19...27.04....24.98...17.85....17.15 (best)
SCV......3.29......3.55...12.58....11.80...11.34 (worst)
18 months later, the trailing 15-year returns for SCV had moved from worst to best. That seems to make a pretty decent case for tilting.
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Re: Small Value has lagged during Two recent 15 year periods.

Post by dkturner »

Taylor Larimore wrote: Wed Feb 20, 2019 9:07 pm
Jags4181" wrote:The article does point out US SCV has not performed as well in the most recent 15 year period as it has in past 15 year periods.
Jags4181:

U.S. Small Cap Value performed just as poorly during a preceding 15-year period

Listed below are 15 year returns for various Morningstar categories ending 6-30-00:

Style.......1 Yr.....3 Yr.....5 Yr....10 Yr....15 Yrs.

LCG......27.19...27.04....24.98...17.85....17.15 (best)
LCB........8.93...17.29....20.35...15.60....15.23
LCV.......-5.21....8.74.....15.16..13.36....13.45

MCG.....57.24....31.09...24.81...18.14....16.82
MCB.....11.87....12.36...16.09...14.12....14.23
MCV.....-2.56......7.23...13.20...12.77....12.64

SCG.....55.14....24.42...20.86...17.12....15.64
SCB.....17.77....10.08...15.30...13.03....12.02
SCV......3.29......3.55...12.58....11.80...11.34 (worst)

Best wishes.
Taylor
Well. I guess You have given credence to Warren Buffett’s recommendation that the time to buy something is when it’s on sale. Care to take a guess as to how small-cap value performed over the 15 year period 2000-2014?
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by dcabler »

staythecourse wrote: Wed Feb 20, 2019 4:31 pm What's the big deal? I believe the data supports scv outperforms majority of time over 20+ years. Not that it is 100% of time at 15 years.

This is none news. Maybe slow news day?

Good luck.
Nah, not a slow news day. It's just that it's been, what, a full 2 or 3 days since the last pro/con discussion of SCV here on BH? And this thread seems to be killing two birds with one stone: SCV and International SCV. So maybe we don't have to start another "should I own international" thread for a few more days. :D
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Re: Small Value has lagged during Two recent 15 year periods.

Post by Jags4186 »

Taylor Larimore wrote: Wed Feb 20, 2019 9:07 pm
Jags4181" wrote:The article does point out US SCV has not performed as well in the most recent 15 year period as it has in past 15 year periods.
Jags4181:

U.S. Small Cap Value performed just as poorly during a preceding 15-year period

Listed below are 15 year returns for various Morningstar categories ending 6-30-00:

Style.......1 Yr.....3 Yr.....5 Yr....10 Yr....15 Yrs.

LCG......27.19...27.04....24.98...17.85....17.15 (best)
LCB........8.93...17.29....20.35...15.60....15.23
LCV.......-5.21....8.74.....15.16..13.36....13.45

MCG.....57.24....31.09...24.81...18.14....16.82
MCB.....11.87....12.36...16.09...14.12....14.23
MCV.....-2.56......7.23...13.20...12.77....12.64

SCG.....55.14....24.42...20.86...17.12....15.64
SCB.....17.77....10.08...15.30...13.03....12.02
SCV......3.29......3.55...12.58....11.80...11.34 (worst)

Best wishes.
Taylor
What about the 15 year periods ending 12/31 of the following years:

2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018

SCV has outperformed LCB every single 15 year period for the past 18 years according to Portfolio Visualizer.

I’m of course not saying the total market/SP500 isn’t an important holding. It is of course mine and probably everyone else’s largest and core equity class. But betting the farm on essentially LCB seems like equally as risky as adding some additional small and mid cap (which is essentially VGs SCV fund) so that when it does outperform you get some benefit.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by aristotelian »

nisiprius wrote: Wed Feb 20, 2019 4:13 pm Um, did you read the article? Random Walker and Larry Swedroe tend to be oriented toward Dimensional's funds.

The premium was sufficiently tenuous that it showed up with Vanguard Small-Cap Value but not with DFA US Small-cap Value Portfolio,Vanguard Total Stock Market (VTSMX): 8.9%
Vanguard U.S. Growth (VWUAX): 9.0%
Vanguard Value (VIVAX): 8.2%
Vanguard Small-Cap Growth (VISGX): 9.7%

Vanguard Small-Cap Value (VISVX): 9.4%
Dimensional Small-Cap Value (DFSVX): 8.9%

Is it coincidence that the .5% difference between VISVX and DFSVX is about the same as DFA's expense ratio?
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by nisiprius »

aristotelian wrote: Thu Feb 21, 2019 8:41 am
nisiprius wrote: Wed Feb 20, 2019 4:13 pm Um, did you read the article? Random Walker and Larry Swedroe tend to be oriented toward Dimensional's funds.

The premium was sufficiently tenuous that it showed up with Vanguard Small-Cap Value but not with DFA US Small-cap Value Portfolio,Vanguard Total Stock Market (VTSMX): 8.9%
Vanguard U.S. Growth (VWUAX): 9.0%
Vanguard Value (VIVAX): 8.2%
Vanguard Small-Cap Growth (VISGX): 9.7%

Vanguard Small-Cap Value (VISVX): 9.4%
Dimensional Small-Cap Value (DFSVX): 8.9%

Is it coincidence that the .5% difference between VISVX and DFSVX is about the same as DFA's expense ratio?
Larry Swedroe attributes it to the expense ratio. But I don't think that's valid, because the usual justification for DFA's (higher than Vanguard but still low) expense ratio is that you get more factor exposure for your money. If the DFA fund has a higher factor exposure, then if there was a small-cap value premium in this time frame DFA ought to have outperformed better than VISVX before expenses, and it should have performed enough better to overcome the extra expenses.

I believe that it's all lost in the noise, and you just can't tell whether or not there was "really" any difference between VTSMX, VISVX, and DFSVX over that time period. They were all about the same, and the "winner" was just the random luck of the draw. If you believe that an 0.5% difference is good evidence that you "should" choose VISVX, then there is better evidence that you "should" choose Fidelity Contrafund or what have you.

One of the perennial questions about more-exotic asset classes, including small-cap value, is that they incur higher investment expenses, so how much of any theoretical premium is offset by higher costs?

Another perennial and unresolvable debates is whether our strategies should be based on the real-life results of investments a "mass affluent" investor can actually invest in--i.e. mutual funds and ETFs, or whether they should be based on what how the investments would have performed cost-free. And another one is whether we should base our strategy results of what we now know to have been good-performing mutual funds and ETFs in a category, or whether we should look at category averages.
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Re: Small Value has lagged during Two recent 15 year periods.

Post by Random Walker »

Jags4186 wrote: Thu Feb 21, 2019 8:08 am I’m of course not saying the total market/SP500 isn’t an important holding. It is of course mine and probably everyone else’s largest and core equity class. But betting the farm on essentially LCB seems like equally as risky as adding some additional small and mid cap (which is essentially VGs SCV fund) so that when it does outperform you get some benefit.
Im at the point where I own almost exclusively SCV on the equity side. TSM can be viewed as a bet on a single factor, market beta. SCV can be viewed as an effort to diversify across factors, with exposure to market factor, size, value. A big part of factor investing involves taking a different view of diversification.

Dave
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by packer16 »

What I am surprised at is the variability of the returns of funds that claim they are all trying to capture the small cap value premium in a similar diversified manner. What they are trying to capture appears to be a variable as actively managed value funds.

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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Random Walker »

packer16 wrote: Thu Feb 21, 2019 10:31 am What I am surprised at is the variability of the returns of funds that claim they are all trying to capture the small cap value premium in a similar diversified manner. What they are trying to capture appears to be a variable as actively managed value funds.

Packer
Assuming the funds are passive, it’s basically just a function of factor exposure, and perhaps secondarily other fund construction rules like buy/hold ranges, momentum and profitability screens, patient trading. This is why expense ratio alone can’t be used to make decisions. A more expensive fund may add more value than expense. Unfortunately, I’m not greatly qualified to perform those analyses.

Dave

P.S. Note that a more expensive factor fund is less expensive than initially apparent from the expense ratio. Assume an investor is trying to target a certain factor exposure for his portfolio. He will need relatively less of the more expensive factor fund with deeper factor exposures to obtain the overall portfolio factor exposure he is seeking. That means the investor can use more of the cheaper TSM or Core fund. This is why Larry frequently refers to cost per unit value added as opposed to cost alone. VISVX has less exposure to size and value than more expensive DISVX: need less DISVX to get same factor exposure.

P.P.S Also note that by using less of a more expensive fund with deeper factor exposure, the investor is taking on less market beta risk for the sake of equivalent exposures to the other factors. And the purpose of factor investing for factorheads is to diversify away from market beta. We all have enough of that in our portfolios already! So using a more expensive fund with deeper exposures can result in a move more in the direction of risk parity: a more efficient portfolio. Trade offs between portfolio efficiency and cost!

Dave
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by packer16 »

My point is it sounds like there is a large implementation variation & complexity in SCV funds. If the answer is as you say, why would not all SCV value funds maximize value factor weights? Why are most not doing this? Some that are doing the factor "light" approach appear to be doing better that the factor "heavy" approach. While in theory SCV factor approach appears simple it sounds like in implementation it is very complex & the implementation sounds like active investing when different rules are creating different portfolios.

BTW IMO you are taking on a large factor timing risk if your TSM equity exposure is all SCV. If you add factors to taste, I think you will be fine but if you are substituting SCV & other factor funds for TSM you are running a risk that factors are correlations & not fundamental risk factors over your expected holding period.

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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by dkturner »

packer16 wrote: Thu Feb 21, 2019 10:31 am What I am surprised at is the variability of the returns of funds that claim they are all trying to capture the small cap value premium in a similar diversified manner. What they are trying to capture appears to be a variable as actively managed value funds.

Packer
The SCV long term performance that Larry is talking about is greatest among the very smallest of value stocks - those in the 9th and 10th deciles. The DFA fund has considerably greater exposure to the smallest of the SCV stocks than the Vanguard fund does. If you X-ray the Vanguard SCV Fund you will see that only about 45% of its exposure is to small-cap stocks. The other 55% is invested in mid-cap stocks. Mid-caps have had better performance over at least the last 10 years, which helps explain why the Vanguard SCV Fund has outperformed the DFA Fund.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by nisiprius »

I note that the 9th and 10th deciles are pretty small, in dollars, and if they get really popular there may not be enough to go around. According to Table 7-5, p. 109, 2015 Ibbotson SBBI Classic Yearbook, Decile 9 contains 0.80% of total market cap; Decile 10, 0.61%. The same table shows $174 billion and $135 billion, respectively, in market cap.

So, 1.41% of the total market, and that's just for the size factor, including growth, blend, and value.

For small-cap value alone, I'm guessing it would be a third of that--even less if you're going for a heavy factor loading. Say a fifth? 0.3% of the market? So, maybe a grand total market cap of about $70 billion dollars. That's all of the DFA-quality small-cap value stocks there are, grand total, for the whole market. And DFSVX has a market cap of $14 billion.

If I haven't slipped a decimal somewhere, DFSVX, all by itself, has scarfed up a fifth of all of the DFA-quality small-cap value there is--seem right?
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by staythecourse »

dcabler wrote: Thu Feb 21, 2019 7:40 am
staythecourse wrote: Wed Feb 20, 2019 4:31 pm What's the big deal? I believe the data supports scv outperforms majority of time over 20+ years. Not that it is 100% of time at 15 years.

This is none news. Maybe slow news day?

Good luck.
Nah, not a slow news day. It's just that it's been, what, a full 2 or 3 days since the last pro/con discussion of SCV here on BH? And this thread seems to be killing two birds with one stone: SCV and International SCV. So maybe we don't have to start another "should I own international" thread for a few more days. :D
Funny, but probably true. :D

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by staythecourse »

dcabler wrote: Thu Feb 21, 2019 7:40 am
staythecourse wrote: Wed Feb 20, 2019 4:31 pm What's the big deal? I believe the data supports scv outperforms majority of time over 20+ years. Not that it is 100% of time at 15 years.

This is none news. Maybe slow news day?

Good luck.
Nah, not a slow news day. It's just that it's been, what, a full 2 or 3 days since the last pro/con discussion of SCV here on BH? And this thread seems to be killing two birds with one stone: SCV and International SCV. So maybe we don't have to start another "should I own international" thread for a few more days. :D
Funny, but probably true. :D

Good luck.
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by pward »

Meh, value vs growth really comes down to the economic backdrop. The economic backdrop for most of the last 100 years favored value. The economic backdrop the last 10 years have favored growth. International current economics favor value. He can keep looking for excuses to justify his (wrong) assertion that value premiums are given and will show themselves as strong in the future as they had in the past. The truth of the matter is, nobody knows nothing. I like a lot of what Swedroe has to say, but he is rolling the dice on SCV. Just because one respected expert believes in it doesn't mean it's a fact. We have no idea what the macro environment is going to look like 5, 10, or 20 years down the road. Growth or value out performance is a coin flip going forward. Personally, I sleep better at night investing in blend index's as opposed to factors. I do overweight small caps, because small cap premium does exist and unlike value premium it is consistent over most meaningful timeframes. And too often people compare SCV to TSM, when they should be also looking at SCV vs small cap blend. Leaving that important last comparison out fails to provide the full context.
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Re: Small Value has lagged during Two recent 15 year periods.

Post by Jags4186 »

Random Walker wrote: Thu Feb 21, 2019 10:13 am
Jags4186 wrote: Thu Feb 21, 2019 8:08 am I’m of course not saying the total market/SP500 isn’t an important holding. It is of course mine and probably everyone else’s largest and core equity class. But betting the farm on essentially LCB seems like equally as risky as adding some additional small and mid cap (which is essentially VGs SCV fund) so that when it does outperform you get some benefit.
Im at the point where I own almost exclusively SCV on the equity side. TSM can be viewed as a bet on a single factor, market beta. SCV can be viewed as an effort to diversify across factors, with exposure to market factor, size, value. A big part of factor investing involves taking a different view of diversification.

Dave
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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by garlandwhizzer »

Some SCV funds have lagged for 15 years (I take Larry at his word on this one) and others apparently have not. Those that had deeper exposure to both small and value (DFSVX, RYAZX) have underperformed SCV funds with less exposure to these premiums (VISVX and even NAESX). That implies a couple of things. First the pure premiums themselves have been negative or unharvestable after costs for investors for the last 15 years. Those with deeper exposure to SCV have tended to underperform those with less exposure over this time span. Second, there is a dispersion of results in SCV funds depending on cost structure, trading cost/frequency, and how strictly they actually define the small factor--whether micro-cap, SC, or include some MC--and how they define the value factor (PB, PE, PCF, whether to screen for negative MOM, junk, etc.,). Results vary and are highly dependent on approach, much like active management. One expects that when and if SCV premiums become significantly positive that those who have deeper exposure and suffered for it will tend to outperform and reward the patience of those who have held on for 15 years now. I agree with others that if you've held on this long, now is not the time to bail out of SCV. Markets go through alternating multi-year cycles where growth outperforms value or visa versa, and whether LC outperforms SC or visa versa. A cycle shift gets more likely and likely stronger when it has been out of style for a longer time period. Having said that, this last 15 years of SCV history underlines how nice, simple, and effective it can be not to bet on one small segment of the market but to own it all at a very cheap price.

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Re: Larry Swedroe: Small Value Lags For 15 Years

Post by Random Walker »

packer16 wrote: Thu Feb 21, 2019 11:17 am BTW IMO you are taking on a large factor timing risk if your TSM equity exposure is all SCV. If you add factors to taste, I think you will be fine but if you are substituting SCV & other factor funds for TSM you are running a risk that factors are correlations & not fundamental risk factors over your expected holding period.

Packer
It really requires looking at diversification differently. Factor timing/sequence of returns risk is certainly significant when all the equity risk is placed in the single factor, market beta. When any factor can underperform for long periods, diversifying across historically uncorrelated factors can make very good sense. Check out the charts in Chapter 9 of Larry’s factor book. They show that a 1/n portfolio diversified across the factors is less likely to yield a negative result over any time frame than any single factor, including market beta.

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Re: Small Value has lagged during Two recent 15 year periods.

Post by willthrill81 »

Jags4186 wrote: Thu Feb 21, 2019 8:08 am
Taylor Larimore wrote: Wed Feb 20, 2019 9:07 pm
Jags4181" wrote:The article does point out US SCV has not performed as well in the most recent 15 year period as it has in past 15 year periods.
Jags4181:

U.S. Small Cap Value performed just as poorly during a preceding 15-year period

Listed below are 15 year returns for various Morningstar categories ending 6-30-00:

Style.......1 Yr.....3 Yr.....5 Yr....10 Yr....15 Yrs.

LCG......27.19...27.04....24.98...17.85....17.15 (best)
LCB........8.93...17.29....20.35...15.60....15.23
LCV.......-5.21....8.74.....15.16..13.36....13.45

MCG.....57.24....31.09...24.81...18.14....16.82
MCB.....11.87....12.36...16.09...14.12....14.23
MCV.....-2.56......7.23...13.20...12.77....12.64

SCG.....55.14....24.42...20.86...17.12....15.64
SCB.....17.77....10.08...15.30...13.03....12.02
SCV......3.29......3.55...12.58....11.80...11.34 (worst)

Best wishes.
Taylor
What about the 15 year periods ending 12/31 of the following years:

2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018

SCV has outperformed LCB every single 15 year period for the past 18 years according to Portfolio Visualizer.

I’m of course not saying the total market/SP500 isn’t an important holding. It is of course mine and probably everyone else’s largest and core equity class. But betting the farm on essentially LCB seems like equally as risky as adding some additional small and mid cap (which is essentially VGs SCV fund) so that when it does outperform you get some benefit.
+1

Further, IIRC, the handful of historic periods where SCV underperformed LCB, the underperformance was quite small. So it seems to me that it's basically a situation where you might underperform a little over the long-term but where you're historically very likely to outperform, very possibly significantly. That seems like a good bet to me.
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