Small Cap Value heads Rejoice !!!

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MotoTrojan
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Re: [Small Cap Value heads Rejoice !!!]

Post by MotoTrojan » Sun Mar 22, 2020 5:02 pm

Indexer99 wrote:
Sun Mar 22, 2020 4:12 pm
Indexer99 wrote:
Sat Mar 21, 2020 2:40 pm
JoMoney wrote:
Thu Mar 19, 2020 4:17 pm
Looks like today's change might re-adjust things, but as of yesterday's close any "premium" in returns of DFSVX over a S&P 500 fund since inception is gone, and if you had bought in the heydays, the shortfall is decidedly worse :shock:
Image
Thank you for this chart. My sense ten years ago was SCV was inherently riskier, and the point I tried to make was that it wasn't just risk, but risk in the sense of permanent loss. In a real depression or catastrophe, these small companies are more likely to fail. Maybe now or in a year is a time to buy? For me the chart above shows holding SCV led to more risk. Yet, until the fund is sold these are unrealized losses. I debated buying this fund last week, but went for total market.
The expense ratio for this fund (DFSVX) is .51%, which is high. I wonder if that, in itself, played a role in the fund underperforming the S & P?
The Larry-esque portfolio, in which there is 70% in bonds, is more stable, as seen in the chart above, but as I recall many people tried to get too much of a good thing and invested 50% or more in small cap value.
There are lower cost options today which helps but it’s quite easy to compare CAGR and see if the expense was enough to offset the deficit.

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Uncorrelated
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Re: [Small Cap Value heads Rejoice !!!]

Post by Uncorrelated » Sun Mar 22, 2020 6:00 pm

Comparing the CAGR of DFSVX and S&P500 isn't really relevant. The CAGR of a fund is a function of the geometric return. However, the total portfolio expected utility is a function of the arithmetic return and volatility of the total portfolio. This makes the comparison between DFSVX and S&P500 entirely useless. If we run a factor regression on portfoliovisualizer, we find that DFSVX actually did realize .14% higher average monthly return since inception. Which is the figure that actually matters when incorporating tilts in your portfolio.

Also, the very act of using DFSVX is a form of recency bias and selection bias. The fund goes back to 1993 but we have factor data going back to 1927 or something, and also plenty of data for international and emerging markets. All of that information should be used to evaluate size/value. It's kind of annoying to see the same recency bias nonsense again and again. To make an intelligent investing decision, you need to evaluate all available data. Not the data from last day. Not the data from last month. Not the data since DFSVX inception. But all data.

DFSVX is useful for one thing and one thing only, to estimate the friction costs of a factor approach. However, since we don't have access to a long-only factor set, it's not possible to actually perform this analysis unless you churn the data from CRSP yourself...

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Re: [Small Cap Value heads Rejoice !!!]

Post by Elysium » Sun Mar 22, 2020 6:30 pm

oneleaf wrote:
Sun Mar 22, 2020 11:44 am
Jebediah wrote:
Sat Mar 21, 2020 7:22 pm
I'm a tilter and as such I find Elysium's bloodthirst for all things Larry/SCV kind of biased/distasteful, but I have to say I think this analysis is right. It's just a very unlucky freak hit to SCV. A great number of these companies will go under, we will lose 80% or more, maybe 90%, and then half-heartedly recover, trailing the large caps possibly for decades, our investing lifetimes. (and sorry NedSaid, still not a capitulation. 50% down is too far already, might as well just hold it and mourn).

What is the argument for these companies rebounding more successfully than large caps post-pandemic? The growth-value spread is, I'm sorry, just a dumb abstraction. What is the fundamental reason for future SV outperformance?

This is going to be a calamity for DFA, Buckingham and Larry. Doesn't he also recommend an alternative fund that shorts the VIX? Ouch. Also LENDX. Double ouch. And then QSPIX with its bias to value. Why would he recommend so many things that do poorly at the same time? I think Larry is going to be the indexing world's Bill Miller, his legacy destroyed. What a bummer.
A calamity for DFA, Buckingham, and Larry? Wow, exaggerate much?

Looking at returns from 2016 until today, the Larry-esque Portfolio is a pretty clear winner, even with small value underperforming. I don't always agree with Larry, but he does know how to build portfolios for people. An extremely SV/EM tilted portfolio with more bonds resulted the highest return among the 3 portfolios below, with by far the lowest volatility.

Here is a 100% equities (50/50 VTI/VXUS) portfolio: Total Portfolio Return since 2016 is 12.93%
Image

Here is a 60/40 stocks/bonds global portfolio (30% VTI, 30%VXUS, 40% IEF): Total Portfolio Return since 2016 is 12.94%
Image

Here is a Larry-Esque Portfolio (10% IJS, 10% DLS, 10% PXH, 70% IEF): Total Portfolio Return 13.51%
Image
Just replace the 30% in Portfolio #3 with VTI, or even 15/15 VTI/VXUS and the returns are better than 10% each in IJS, DLS, PXH.

Bond heavy portfolios always look better in bear markets. Keeping high allocation to bonds and then tilting to distressed securities corner of the market is an idea that hopes to juice up returns, it only works for individuals who are financially secure enough to live off just the bond portion no matter what happens to that 30% exposed to market beta. They can bet the 30% on anything they want, even short the market and hope to win big, doesn't matter one bit to them if they gain or lose since the 70% in bonds are more than enough for them to live rest of their lives.

Larry Swedroe personally is in that boat, he has acknowledged so here before, his fixed income allocation is more than enough for him to last a lifetime, how many who follow this advice are on the same boat? Proceed with caution, strategies used by very high net worth individuals are seldom useful for the rest of ordinary investors, even well off Bogleheads with seven figure portfolios.

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Re: [Small Cap Value heads Rejoice !!!]

Post by nisiprius » Sun Mar 22, 2020 7:27 pm

Uncorrelated wrote:
Sun Mar 22, 2020 6:00 pm
...Also, the very act of using DFSVX is a form of recency bias and selection bias. The fund goes back to 1993 but we have factor data going back to 1927...
This is a difficult issue. By that I don't mean "I'm right and you're wrong," I mean it's a difficult issue.

You can't invest in an academic paper. Even if you had continuing access to the exact constituents of the research portfolio, It's impractical for retail investors to invest in a big enough portfolio of individual stocks in a defined-in-a-paper index. It was worse than impractical before the end of fixed commissions in 1975, when a typical individual-stock transaction cost over $100 in commissions plus $.50/share fee for odd lots.

The act of writing a paper incorporates selection bias, because nobody bothers committing to writing a paper unless they already know, based on examining prior data, that the prior data looks tempting. And there is publication bias.

In the case of small value, the groundbreaking papers appeared in 1992 and 1993, so the only out-of-sample data we has begins at that date; DFSVX, with inception in 3/31/1993, includes virtually the whole period of out-of-sample data.

My subjective impression is that there are a lot of investing strategies and asset classes that for whatever reason looked spectacular just about up to the beginning of investability using mutual funds and ETFs, and then petered out shortly thereafter. Two that come to mind are commodities, whose past looked so bright circa 2004-2006 that they became a standard recommendation for retirement portfolios,

Image

and managed futures:

Image

The explanation might be an actual change resulting from "financialization" and investors piling in, or the same kind of "decline effect" seen in scientific research.

So, yes, there is a problem in looking only at real-world mutual funds and ETFs that allowed real-world investment with real money. But there is also a problem in looking at paper data divorced from any investability.

Tangentially, it has always seemed odd to me that investors look at the Fama-French studies that use a certain research data set, and then invest in mutual funds and ETFs that track indexes that do not try to match that data set. Why do you suppose it is that there aren't any mutual funds or ETFs that try to literally track the actual Fama-French "research portfolios?"
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Re: [Small Cap Value heads Rejoice !!!]

Post by garlandwhizzer » Sun Mar 22, 2020 8:11 pm

Uncorrelated wrote:

Comparing the CAGR of DFSVX and S&P500 isn't really relevant.
I totally disagree. I believe real fund results are the only things that matter for investors. I personally find the models totally unrealistic and don't care a jot about factor regressions. Long/short, cost-free, no trading frictions which by the way are severe in the small cap space, no trading costs (in earlier days costs were not measured in decimal points but fractions and three were wide bid/ask spreads especially in the thinly traded relatively illiquid SC space--all of which are totally ignored in factor models, and finally fund fees added to that. That is the real world and that is what most investors care about, making money not having wonderful factor regressions. Fama himself has pointed out that returns for size and value returns even with these flawed models have declined substantially since 1992-3 when the factors were first described. No one questions that if we had a time machine and we could go back in time to 1929 -1992, when markets were driven by mom and pop rather than today's highly paid professionals all of whom are fully versed in factor theory, when small value stocks were largely ignored, unloved, and undervalued, SCV would work beautifully. It doesn't now.
Uncorrelated also wrote:

If we run a factor regression on portfoliovisualizer, we find that DFSVX actually did realize .14% higher average monthly return since inception. Which is the figure that actually matters when incorporating tilts in your portfolio.
I value dollars in my pocket a great deal more than factor regressions. Dollars work in stores. Factor regressions don't. The models are largely a joke in my opinion, designed to promote the interests of the academics who discover factors (300+ total factors described) and those who create and market funds that take these approaches. Portfolio Visualizer results stop at at the end of February, March the latest severe swoon for DFSVX, is not included in Portfolio Visualizer's results. The results from my post which included March were from Morningstar as I and others have pointed out on this very topic. The difference in returns between the two DFSVX (SCV)and VFINX (LCB) are not significant. What is significant is that DFSVX took significantly greater risk as measured by maximum drawdown which I believe to be the best measure of risk, and that return per unit of risk as measured by Sharpe ration was much better with VFINX. It produced basically the same return with less risk and volatility. DFSVX has been promoted as a tool for significant long term out-perfomance, and this it quite clearly failed to do over the 27 year period particularly in a risk adjusted manner.
Uncorrelate also wrote:

Also, the very act of using DFSVX is a form of recency bias and selection bias. The fund goes back to 1993
Recency bias? This is a 27 year period which for many of us is longer than our investing horizon. If SCV is supposed to outperform significantly long term--why else put up with the increased risk of SCV?--how is that relative to LCB (huge negative load on size, no value slant whatsoever) that after multiple bull and bear market cycles over 27 years it's essentially even with a fund that took much less risk and tolerated much less volatility to get there? As the old lady in the TV add said after biting into what looked like a big hamburger, "Where's the beef?"

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Re: [Small Cap Value heads Rejoice !!!]

Post by Uncorrelated » Mon Mar 23, 2020 7:27 am

nisiprius wrote:
Sun Mar 22, 2020 7:27 pm
Uncorrelated wrote:
Sun Mar 22, 2020 6:00 pm
...Also, the very act of using DFSVX is a form of recency bias and selection bias. The fund goes back to 1993 but we have factor data going back to 1927...
This is a difficult issue. By that I don't mean "I'm right and you're wrong," I mean it's a difficult issue.
Those are all good arguments. Ultimately, the point of discussion is whether value/size are robust and expected to persist over time. Based on academic research in both US and international I believe the correct answer is yes.

There are also good arguments that point in the other direction, in particular the publication bias you mentioned. And also the disconnect between the academic approach and actual fund implementation. There are also concerns that the efficient market might arbitrage away the excess returns, although I think that that is unlikely. My personal opinion is that international offers sufficient out-of-sample data that publication bias is no longer an issue. The difference between live fund performance and factor data remains an issue, it doesn't appear to be a big issue but I simply don't know how to properly evaluate it.

I wasn't around during the commodities debate. As far as my understanding goes, the evidence for positive risk factors in commodities is rather weak. My philosophy is to only invest in risk factors that have extraordinary strong evidence attached to them. Of course, what constitutes extraordinary evidence differs between individuals, even if we all have access to exactly the same data it's unlikely we will all arrive at the same conclusion. But I much prefer to have a discussion about the strength of the evidence than a discussion about single backtests.

garlandwhizzer wrote:
Sun Mar 22, 2020 8:11 pm
Uncorrelated wrote:

Comparing the CAGR of DFSVX and S&P500 isn't really relevant.
I totally disagree. I believe real fund results are the only things that matter for investors. I personally find the models totally unrealistic and don't care a jot about factor regressions. Long/short, cost-free, no trading frictions which by the way are severe in the small cap space, no trading costs (in earlier days costs were not measured in decimal points but fractions and three were wide bid/ask spreads especially in the thinly traded relatively illiquid SC space--all of which are totally ignored in factor models, and finally fund fees added to that. That is the real world and that is what most investors care about, making money not having wonderful factor regressions. Fama himself has pointed out that returns for size and value returns even with these flawed models have declined substantially since 1992-3 when the factors were first described. No one questions that if we had a time machine and we could go back in time to 1929 -1992, when markets were driven by mom and pop rather than today's highly paid professionals all of whom are fully versed in factor theory, when small value stocks were largely ignored, unloved, and undervalued, SCV would work beautifully. It doesn't now.
Fama & French didn't point out that the SCV premium has reduced since 1993. Fama & French pointed out that the SVC premium has been alive and well in international markets, and pointed out that the SCV premium in the US after 1993 is not statistically different from pre-1993. This is hardly an argument to dismiss SCV if you previously believed in SCV. Again, it you want to evaluate SVC, you must evaluate all data and not just the US data since 1993. The SCV premium has been alive and kicking in international markets, offering more than double the performance of a market weighted index (pv link).
Uncorrelated also wrote:

If we run a factor regression on portfoliovisualizer, we find that DFSVX actually did realize .14% higher average monthly return since inception. Which is the figure that actually matters when incorporating tilts in your portfolio.
I value dollars in my pocket a great deal more than factor regressions. Dollars work in stores. Factor regressions don't. The models are largely a joke in my opinion, designed to promote the interests of the academics who discover factors (300+ total factors described) and those who create and market funds that take these approaches. Portfolio Visualizer results stop at at the end of February, March the latest severe swoon for DFSVX, is not included in Portfolio Visualizer's results. The results from my post which included March were from Morningstar as I and others have pointed out on this very topic. The difference in returns between the two DFSVX (SCV)and VFINX (LCB) are not significant. What is significant is that DFSVX took significantly greater risk as measured by maximum drawdown which I believe to be the best measure of risk, and that return per unit of risk as measured by Sharpe ration was much better with VFINX. It produced basically the same return with less risk and volatility. DFSVX has been promoted as a tool for significant long term out-perfomance, and this it quite clearly failed to do over the 27 year period particularly in a risk adjusted manner.
The performance figure I mentioned was not calculated by a factor model. It was the live excess monthly performance from DFSVX compared to the benchmark fund. This (and volatility) is the figure that actually matters when evaluating a factor tilt. In portfolio visualizer, we can trivially observe that a ratio of 30% SVC and 70% LCB was able to capture most of the outperformance of SCV, at only slightly higher volatility than LCB. Why are you using LCB anyway? Isn't the default suggestion to use total stock market?

Just because a 100% tilt failed to outperform, doesn't mean that a modest tilt isn't useful. Just because a tilt failed to outperform over the specified time period, doesn't mean it will fail over any time period. Just because an US tilt wasn't useful, doesn't mean international tilting is useless. All data from all time periods and all tilt depths should be evaluated to determine whether a tilt is useful. You only evaluated one period, from one particular tilt, from one geographic region. I can't take that seriously. There are valid arguments not to tilt, but these are not the arguments you mentioned.

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Re: [Small Cap Value heads Rejoice !!!]

Post by Random Walker » Mon Mar 23, 2020 9:28 am

The market prices risk, and we all believe nondiversifiable risk and expected return should be related. In the recent swoon I believe TSM has lost 20-25% and SCV funds with serious loadings have lost 45-50%. Doesn’t this likely support the thesis that SV funds are more risky?
TSM by definition has a loading on the market factor of 1. Most SCV funds have a loading on the market factor very slightly higher at maybe 1.1, yet they’ve lost almost twice as much in this recent period. Perhaps that is evidence supporting the thesis that not only do SV funds have more market risk, they also have separate unique risks. Wouldn’t exposure to separate unique risks, instead of simply more of one type of risk, result in a more efficient portfolio?

Dave

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Steve Reading
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Re: [Small Cap Value heads Rejoice !!!]

Post by Steve Reading » Mon Mar 23, 2020 9:46 am

Random Walker wrote:
Mon Mar 23, 2020 9:28 am
The market prices risk, and we all believe nondiversifiable risk and expected return should be related. In the recent swoon I believe TSM has lost 20-25% and SCV funds with serious loadings have lost 45-50%. Doesn’t this likely support the thesis that SV funds are more risky?
Yes, it might say they're riskier. Then again, the energy sector has lost 61% so that's even riskier by that logic isn't it?
Random Walker wrote:
Mon Mar 23, 2020 9:28 am
Most SCV funds have a loading on the market factor very slightly higher at maybe 1.1, yet they’ve lost almost twice as much in this recent period. Perhaps that is evidence supporting the thesis that not only do SV funds have more market risk, they also have separate unique risks.
Yes, the energy sector has near beta of 1 as well and has lost even more than SCV. So the energy sector has plenty of unique risks by this logic.
Random Walker wrote:
Mon Mar 23, 2020 9:28 am
Wouldn’t exposure to separate unique risks, instead of simply more of one type of risk, result in a more efficient portfolio?
Well then add VDE to your portfolio to increase efficiency right Dave?

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The Most Efficient Portfolio

Post by Taylor Larimore » Mon Mar 23, 2020 10:00 am

305pelusa wrote:Well then add VDE to your portfolio to increase efficiency right Dave?
305pelusa:

A total market index fund IS the most efficient portfolio. Adding additional funds actually decreases portfolio efficiency. Read this:

Three Proofs that TSM is Efficient

Best wishes.
Taylor
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Re: [Small Cap Value heads Rejoice !!!]

Post by Random Walker » Mon Mar 23, 2020 10:23 am

305,
Well, you’re certainly following my logic :-) only argument I can make with that is that VDE is a sector bet. There is specific sector risk that can be diversified away. According to Portfolio Visualizer VDE has significant loadings on size and value. One could obtain similar loadings with a fund but not be limited to a single sector. Pretty sure you knew I’d say that :-)

Dave

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Re: The Most Efficient Portfolio

Post by Uncorrelated » Mon Mar 23, 2020 10:25 am

Taylor Larimore wrote:
Mon Mar 23, 2020 10:00 am
305pelusa wrote:Well then add VDE to your portfolio to increase efficiency right Dave?
305pelusa:

A total market index fund IS the most efficient portfolio. Adding additional funds actually decreases portfolio efficiency. Read this:

Three Proofs that TSM is Efficient

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The Vanguard Total Stock Market Index fund and its Total Bond Market cousin represent the purest form of common-sense investing."
I laughed really hard about the fact that this paper's reference section is empty.

They don't actually prove that TSM is the most efficient portfolio. They prove that if the efficient market hypothesis, CAPM or the Fama/French model are true, then that implies that TSM is efficient (not "the most efficient". Just "efficient"). This isn't useful because all of those models are known to be false. Furthermore, TSM isn't the only efficient portfolio under their Fama/French model. In fact, the same proof can be used to prove that a small cap value portfolio is efficient.

I appreciate the sentiment, but the paper doesn't prove what you said it proves. Quite the opposite, in fact.

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Re: [Small Cap Value heads Rejoice !!!]

Post by acegolfer » Mon Mar 23, 2020 10:28 am

Random Walker wrote:
Mon Mar 23, 2020 9:28 am
The market prices risk, and we all believe nondiversifiable risk and expected return should be related. In the recent swoon I believe TSM has lost 20-25% and SCV funds with serious loadings have lost 45-50%. Doesn’t this likely support the thesis that SV funds are more risky?
TSM by definition has a loading on the market factor of 1. Most SCV funds have a loading on the market factor very slightly higher at maybe 1.1, yet they’ve lost almost twice as much in this recent period. Perhaps that is evidence supporting the thesis that not only do SV funds have more market risk, they also have separate unique risks. Wouldn’t exposure to separate unique risks, instead of simply more of one type of risk, result in a more efficient portfolio?

Dave
Adding non-market risk factor can lower volatility. I agree. But it will increase other risks. How's that more efficient?

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Re: The Most Efficient Portfolio

Post by acegolfer » Mon Mar 23, 2020 10:35 am

Uncorrelated wrote:
Mon Mar 23, 2020 10:25 am
They don't actually prove that TSM is the most efficient portfolio. They prove that if the efficient market hypothesis, CAPM or the Fama/French model are true, then that implies that TSM is efficient (not "the most efficient". Just "efficient"). This isn't useful because all of those models are known to be false. Furthermore, TSM isn't the only efficient portfolio under their Fama/French model. In fact, the same proof can be used to prove that a small cap value portfolio is efficient.
If FF 3factor model is correct, SMB and HML are efficient. SCV is not a factor and hence not efficient. You can easily check this. Pick your favorite SCV fund. Run a regression using your favorite asset pricing factor model. Check whether R-squared is 100%. If not, it's not efficient. For more, google "idiosyncratic volatility".

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Re: [Small Cap Value heads Rejoice !!!]

Post by Steve Reading » Mon Mar 23, 2020 10:42 am

Random Walker wrote:
Mon Mar 23, 2020 10:23 am
305,
Well, you’re certainly following my logic :-) only argument I can make with that is that VDE is a sector bet. There is specific sector risk that can be diversified away. According to Portfolio Visualizer VDE has significant loadings on size and value. One could obtain similar loadings with a fund but not be limited to a single sector. Pretty sure you knew I’d say that :-)

Dave
But that's not fair. You're starting from the assumption that SCV is a non-diversifiable risk and that a sector is diversifiable. Then you see they have both declined. But you argue the decline from the former is evidence of a unique, worthwhile form of risk to pursue while the latter is a risk that is diversifiable and not worth pursuing.

What is fundamentally different between SCV and the energy sector? They're both just slices of the total market. They're both pervasive (when energy declines in the US, it declines everywhere). You don't get to participate in energy sector gains without taking it energy sector risk. Ditto for SCV.

There's something fundamentally different. And that is that energy is NOT a factor. It does not explain returns in a portfolio. Which means there's no return premia. While size and value ARE factors, because they do explain returns that cannot be explained by beta. They have return premia.

So your logic here:
Random Walker wrote:
Mon Mar 23, 2020 9:28 am
The market prices risk, and we all believe nondiversifiable risk and expected return should be related. In the recent swoon I believe TSM has lost 20-25% and SCV funds with serious loadings have lost 45-50%. Doesn’t this likely support the thesis that SV funds are more risky?
TSM by definition has a loading on the market factor of 1. Most SCV funds have a loading on the market factor very slightly higher at maybe 1.1, yet they’ve lost almost twice as much in this recent period. Perhaps that is evidence supporting the thesis that not only do SV funds have more market risk, they also have separate unique risks. Wouldn’t exposure to separate unique risks, instead of simply more of one type of risk, result in a more efficient portfolio?

Dave
is not enough. That's not all it takes to conclude that SCV is a form of risk that can be added to increase efficiency. Not at all.

You must also show SCV produces outsized returns, returns unexplained by beta. The day SCV does not do so, it just become a "diversifiable" risk, like a sector bet, a state bet (ex: invest in CA). It's just an arbitrary slice of the TSM pie.

I think there are good arguments to tilt to SCV. I just don't buy the "look how much it has declined, it must be a unique risk, so tilting must increase efficiency". That's not all it takes.

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Re: [Small Cap Value heads Rejoice !!!]

Post by theorist » Mon Mar 23, 2020 11:01 am

At a less lofty level: how does one efficiently invest in international small value with a mutual fund? (I try to avoid ETFs)

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Re: [Small Cap Value heads Rejoice !!!]

Post by Random Walker » Mon Mar 23, 2020 11:28 am

acegolfer wrote:
Mon Mar 23, 2020 10:28 am
Random Walker wrote:
Mon Mar 23, 2020 9:28 am
The market prices risk, and we all believe nondiversifiable risk and expected return should be related. In the recent swoon I believe TSM has lost 20-25% and SCV funds with serious loadings have lost 45-50%. Doesn’t this likely support the thesis that SV funds are more risky?
TSM by definition has a loading on the market factor of 1. Most SCV funds have a loading on the market factor very slightly higher at maybe 1.1, yet they’ve lost almost twice as much in this recent period. Perhaps that is evidence supporting the thesis that not only do SV funds have more market risk, they also have separate unique risks. Wouldn’t exposure to separate unique risks, instead of simply more of one type of risk, result in a more efficient portfolio?

Dave
Adding non-market risk factor can lower volatility. I agree. But it will increase other risks. How's that more efficient?
By diversifying across different, unique, independent risks

Dave

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Re: [Small Cap Value heads Rejoice !!!]

Post by Random Walker » Mon Mar 23, 2020 11:32 am

305pelusa wrote:
Mon Mar 23, 2020 10:42 am
I think there are good arguments to tilt to SCV. I just don't buy the "look how much it has declined, it must be a unique risk, so tilting must increase efficiency". That's not all it takes.
I agree with you. It’s a hint that there is unique different risk involved, by no means proof.

Dave

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Re: [Small Cap Value heads Rejoice !!!]

Post by acegolfer » Mon Mar 23, 2020 3:22 pm

Random Walker wrote:
Mon Mar 23, 2020 11:28 am
acegolfer wrote:
Mon Mar 23, 2020 10:28 am
Random Walker wrote:
Mon Mar 23, 2020 9:28 am
The market prices risk, and we all believe nondiversifiable risk and expected return should be related. In the recent swoon I believe TSM has lost 20-25% and SCV funds with serious loadings have lost 45-50%. Doesn’t this likely support the thesis that SV funds are more risky?
TSM by definition has a loading on the market factor of 1. Most SCV funds have a loading on the market factor very slightly higher at maybe 1.1, yet they’ve lost almost twice as much in this recent period. Perhaps that is evidence supporting the thesis that not only do SV funds have more market risk, they also have separate unique risks. Wouldn’t exposure to separate unique risks, instead of simply more of one type of risk, result in a more efficient portfolio?

Dave
Adding non-market risk factor can lower volatility. I agree. But it will increase other risks. How's that more efficient?
By diversifying across different, unique, independent risks

Dave
By doing so, you are lowering volatility and increasing other risks. That's not considered as "more efficient". You are trading one risk for another risk.

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Re: [Small Cap Value heads Rejoice !!!]

Post by MotoTrojan » Mon Mar 23, 2020 3:28 pm

theorist wrote:
Mon Mar 23, 2020 11:01 am
At a less lofty level: how does one efficiently invest in international small value with a mutual fund? (I try to avoid ETFs)
I am not sure how tax-efficient it has been (cap-gain distributions), but Schwab's SFILX is the MF version of FNDC, my ex-US small-value fund of choice.

Avantis also has a MF AVDVX but I am not sure where you can buy it. It should mirror their AVDV ETF which is a bit deeper of a small tilt than FNDC, and less exposure to Japan (still hefty but FNDC is one of the highest).

User avatar
Uncorrelated
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Re: [Small Cap Value heads Rejoice !!!]

Post by Uncorrelated » Mon Mar 23, 2020 3:33 pm

Random Walker wrote:
Mon Mar 23, 2020 11:32 am
305pelusa wrote:
Mon Mar 23, 2020 10:42 am
I think there are good arguments to tilt to SCV. I just don't buy the "look how much it has declined, it must be a unique risk, so tilting must increase efficiency". That's not all it takes.
I agree with you. It’s a hint that there is unique different risk involved, by no means proof.

Dave
No, that's enough evidence that there are unique risks involved. The problem is that it's only worth exposing yourself to unique sources of risk if those have a positive excess return attached to them. This happens to be the case for market, size and value, but not for REIT and utilities. To name a few.
acegolfer wrote:
Mon Mar 23, 2020 3:22 pm
Random Walker wrote:
Mon Mar 23, 2020 11:28 am
acegolfer wrote:
Mon Mar 23, 2020 10:28 am
Random Walker wrote:
Mon Mar 23, 2020 9:28 am
The market prices risk, and we all believe nondiversifiable risk and expected return should be related. In the recent swoon I believe TSM has lost 20-25% and SCV funds with serious loadings have lost 45-50%. Doesn’t this likely support the thesis that SV funds are more risky?
TSM by definition has a loading on the market factor of 1. Most SCV funds have a loading on the market factor very slightly higher at maybe 1.1, yet they’ve lost almost twice as much in this recent period. Perhaps that is evidence supporting the thesis that not only do SV funds have more market risk, they also have separate unique risks. Wouldn’t exposure to separate unique risks, instead of simply more of one type of risk, result in a more efficient portfolio?

Dave
Adding non-market risk factor can lower volatility. I agree. But it will increase other risks. How's that more efficient?
By diversifying across different, unique, independent risks

Dave
By doing so, you are lowering volatility and increasing other risks. That's not considered as "more efficient". You are trading one risk for another risk.
From a mean-variance standpoint, that makes the portfolio more efficient.

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Steve Reading
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Re: [Small Cap Value heads Rejoice !!!]

Post by Steve Reading » Mon Mar 23, 2020 3:39 pm

Random Walker wrote:
Mon Mar 23, 2020 11:32 am
305pelusa wrote:
Mon Mar 23, 2020 10:42 am
I think there are good arguments to tilt to SCV. I just don't buy the "look how much it has declined, it must be a unique risk, so tilting must increase efficiency". That's not all it takes.
I agree with you. It’s a hint that there is unique different risk involved, by no means proof.

Dave
It’s certainly evidence of a unique risk. Just like VDE has a unique risk. But that doesn’t mean tilting to that risk increases efficiency. That’s the key part. That’s only the case if that risk actually brings in some form of premium.

So the logic that it has risks and that they’re unique makes sense. But you can’t then just make the giant leap that it must increase efficiency to add it 0_o

acegolfer
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Re: [Small Cap Value heads Rejoice !!!]

Post by acegolfer » Mon Mar 23, 2020 3:41 pm

Uncorrelated wrote:
Mon Mar 23, 2020 3:33 pm

From a mean-variance standpoint, that makes the portfolio more efficient.
True, if you are a mean-variance investor. But average investors are not mean-variance investors. If we were all mean-variance investors, we would be back to CAPM world and there's no size, value premium.

dcabler
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Re: [Small Cap Value heads Rejoice !!!]

Post by dcabler » Mon Mar 23, 2020 3:45 pm

theorist wrote:
Mon Mar 23, 2020 11:01 am
At a less lofty level: how does one efficiently invest in international small value with a mutual fund? (I try to avoid ETFs)
With difficulty. M*'s screener only comes up with 33 mutual funds that are international mid/small value with no load. The majority have e/r's well over 1.0%. Only 12 show up with e/r less than or equal to 1% and most are above 0.5% Of those 12, 3 require a minimum purchase of at least $1M. That leaves 9.
Of those 9
- 1 from Wells Fargo
- 4 from TIAA-CREF which look like different classes of the same fund
- 1 from Free Market International Equities
- 3 from DFA

From there you'd need to dig deeper to figure out which are index funds and which are managed.

Among the less expensive ones are some offerings from DFA such as DISVX (e/r = 0.68), but getting access to DFA funds can be difficult if you don't already have it available in something like a 401K or an advisor affiliated with them.

MotoTrojan
Posts: 9948
Joined: Wed Feb 01, 2017 8:39 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by MotoTrojan » Mon Mar 23, 2020 3:58 pm

dcabler wrote:
Mon Mar 23, 2020 3:45 pm
theorist wrote:
Mon Mar 23, 2020 11:01 am
At a less lofty level: how does one efficiently invest in international small value with a mutual fund? (I try to avoid ETFs)
With difficulty. M*'s screener only comes up with 33 mutual funds that are international mid/small value with no load. The majority have e/r's well over 1.0%. Only 12 show up with e/r less than or equal to 1% and most are above 0.5% Of those 12, 3 require a minimum purchase of at least $1M. That leaves 9.
Of those 9
- 1 from Wells Fargo
- 4 from TIAA-CREF which look like different classes of the same fund
- 1 from Free Market International Equities
- 3 from DFA

From there you'd need to dig deeper to figure out which are index funds and which are managed.

Among the less expensive ones are some offerings from DFA such as DISVX (e/r = 0.68), but getting access to DFA funds can be difficult if you don't already have it available in something like a 401K or an advisor affiliated with them.
It missed SFILX which seems to be better than any of these in terms of requirements/ER.

vencat
Posts: 265
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Re: [Small Cap Value heads Rejoice !!!]

Post by vencat » Mon Mar 23, 2020 4:07 pm

With the help of google:
Funds only
https://mutualfunds.com/categories/equi ... nnel%23467

ETFs:
AVDV
DLS
ISCF
FNDC

theorist
Posts: 631
Joined: Sat Sep 28, 2019 11:39 am

Re: [Small Cap Value heads Rejoice !!!]

Post by theorist » Mon Mar 23, 2020 4:24 pm

MotoTrojan wrote:
Mon Mar 23, 2020 3:28 pm
theorist wrote:
Mon Mar 23, 2020 11:01 am
At a less lofty level: how does one efficiently invest in international small value with a mutual fund? (I try to avoid ETFs)
I am not sure how tax-efficient it has been (cap-gain distributions), but Schwab's SFILX is the MF version of FNDC, my ex-US small-value fund of choice.

Avantis also has a MF AVDVX but I am not sure where you can buy it. It should mirror their AVDV ETF which is a bit deeper of a small tilt than FNDC, and less exposure to Japan (still hefty but FNDC is one of the highest).
Thanks! MarketWatch gives SFILX a “3” in terms of tax efficiency. I will need to hold in a taxable account, so I might look around a bit more. But this has a reasonable ER and indeed might be a good way to fill this nice in the market.

dcabler
Posts: 1407
Joined: Wed Feb 19, 2014 11:30 am

Re: [Small Cap Value heads Rejoice !!!]

Post by dcabler » Mon Mar 23, 2020 5:07 pm

MotoTrojan wrote:
Mon Mar 23, 2020 3:58 pm
dcabler wrote:
Mon Mar 23, 2020 3:45 pm
theorist wrote:
Mon Mar 23, 2020 11:01 am
At a less lofty level: how does one efficiently invest in international small value with a mutual fund? (I try to avoid ETFs)
With difficulty. M*'s screener only comes up with 33 mutual funds that are international mid/small value with no load. The majority have e/r's well over 1.0%. Only 12 show up with e/r less than or equal to 1% and most are above 0.5% Of those 12, 3 require a minimum purchase of at least $1M. That leaves 9.
Of those 9
- 1 from Wells Fargo
- 4 from TIAA-CREF which look like different classes of the same fund
- 1 from Free Market International Equities
- 3 from DFA

From there you'd need to dig deeper to figure out which are index funds and which are managed.

Among the less expensive ones are some offerings from DFA such as DISVX (e/r = 0.68), but getting access to DFA funds can be difficult if you don't already have it available in something like a 401K or an advisor affiliated with them.
It missed SFILX which seems to be better than any of these in terms of requirements/ER.
It did indeed! Interesting. Looks like a good one.

Cheers.

dcabler
Posts: 1407
Joined: Wed Feb 19, 2014 11:30 am

Re: [Small Cap Value heads Rejoice !!!]

Post by dcabler » Mon Mar 23, 2020 5:09 pm

vencat wrote:
Mon Mar 23, 2020 4:07 pm
With the help of google:
Funds only
https://mutualfunds.com/categories/equi ... nnel%23467

ETFs:
AVDV
DLS
ISCF
FNDC
The link for funds has a title page and paragraph at the top which discusses small/mid cap value, but the list of funds on the page is a hodgepodge of SP500, bond funds, etc.
Last edited by dcabler on Mon Mar 23, 2020 5:16 pm, edited 2 times in total.

MotoTrojan
Posts: 9948
Joined: Wed Feb 01, 2017 8:39 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by MotoTrojan » Mon Mar 23, 2020 5:09 pm

theorist wrote:
Mon Mar 23, 2020 4:24 pm
MotoTrojan wrote:
Mon Mar 23, 2020 3:28 pm
theorist wrote:
Mon Mar 23, 2020 11:01 am
At a less lofty level: how does one efficiently invest in international small value with a mutual fund? (I try to avoid ETFs)
I am not sure how tax-efficient it has been (cap-gain distributions), but Schwab's SFILX is the MF version of FNDC, my ex-US small-value fund of choice.

Avantis also has a MF AVDVX but I am not sure where you can buy it. It should mirror their AVDV ETF which is a bit deeper of a small tilt than FNDC, and less exposure to Japan (still hefty but FNDC is one of the highest).
Thanks! MarketWatch gives SFILX a “3” in terms of tax efficiency. I will need to hold in a taxable account, so I might look around a bit more. But this has a reasonable ER and indeed might be a good way to fill this nice in the market.
ETFs really do help in this niche sub-markets with their avoidance of capital-gains distributions. ISCF, DLS, FNDC, AVDV all seem to be quite tax-efficient for International funds.

dcabler
Posts: 1407
Joined: Wed Feb 19, 2014 11:30 am

Re: [Small Cap Value heads Rejoice !!!]

Post by dcabler » Mon Mar 23, 2020 5:45 pm

MotoTrojan wrote:
Mon Mar 23, 2020 5:09 pm
theorist wrote:
Mon Mar 23, 2020 4:24 pm
MotoTrojan wrote:
Mon Mar 23, 2020 3:28 pm
theorist wrote:
Mon Mar 23, 2020 11:01 am
At a less lofty level: how does one efficiently invest in international small value with a mutual fund? (I try to avoid ETFs)
I am not sure how tax-efficient it has been (cap-gain distributions), but Schwab's SFILX is the MF version of FNDC, my ex-US small-value fund of choice.

Avantis also has a MF AVDVX but I am not sure where you can buy it. It should mirror their AVDV ETF which is a bit deeper of a small tilt than FNDC, and less exposure to Japan (still hefty but FNDC is one of the highest).
Thanks! MarketWatch gives SFILX a “3” in terms of tax efficiency. I will need to hold in a taxable account, so I might look around a bit more. But this has a reasonable ER and indeed might be a good way to fill this nice in the market.
ETFs really do help in this niche sub-markets with their avoidance of capital-gains distributions. ISCF, DLS, FNDC, AVDV all seem to be quite tax-efficient for International funds.
Might want to look again at some of these including SFILX. Some are listed a small cap only, not small cap value. Definitely more choices for small cap, including some with pretty low e/r like VFSVX (e/r = 0.11%) or the equivalent ETF VSS (e/r=0.11%)

Also DLS tracks a WisdomTree International SmallCap Dividend Index and seems to only generate income, with no cap gains.

Cheers.

MotoTrojan
Posts: 9948
Joined: Wed Feb 01, 2017 8:39 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by MotoTrojan » Mon Mar 23, 2020 5:49 pm

dcabler wrote:
Mon Mar 23, 2020 5:45 pm
MotoTrojan wrote:
Mon Mar 23, 2020 5:09 pm
theorist wrote:
Mon Mar 23, 2020 4:24 pm
MotoTrojan wrote:
Mon Mar 23, 2020 3:28 pm
theorist wrote:
Mon Mar 23, 2020 11:01 am
At a less lofty level: how does one efficiently invest in international small value with a mutual fund? (I try to avoid ETFs)
I am not sure how tax-efficient it has been (cap-gain distributions), but Schwab's SFILX is the MF version of FNDC, my ex-US small-value fund of choice.

Avantis also has a MF AVDVX but I am not sure where you can buy it. It should mirror their AVDV ETF which is a bit deeper of a small tilt than FNDC, and less exposure to Japan (still hefty but FNDC is one of the highest).
Thanks! MarketWatch gives SFILX a “3” in terms of tax efficiency. I will need to hold in a taxable account, so I might look around a bit more. But this has a reasonable ER and indeed might be a good way to fill this nice in the market.
ETFs really do help in this niche sub-markets with their avoidance of capital-gains distributions. ISCF, DLS, FNDC, AVDV all seem to be quite tax-efficient for International funds.
Might want to look again at some of these including SFILX. Some are listed a small cap only, not small cap value. Definitely more choices for small cap, including some with pretty low e/r like VFSVX (e/r = 0.11%) or the equivalent ETF VSS (e/r=0.11%)

Also DLS tracks a WisdomTree International SmallCap Dividend Index and seems to only generate income, with no cap gains.

Cheers.
DLS is an ETF, hence no cap gains, just like FNDC, AVDV, ISCF.

FNDC/SFILX use a fundamental weight so while not dedicated small-value funds, they tilt heavily in that direction, just as DLS does (fundamentally weighted as well, but only using dividends rather than dividends, cash flow, and sales combined). Check out all of their P/B’s and you can see a significant tilt.

dcabler
Posts: 1407
Joined: Wed Feb 19, 2014 11:30 am

Re: [Small Cap Value heads Rejoice !!!]

Post by dcabler » Mon Mar 23, 2020 5:57 pm

MotoTrojan wrote:
Mon Mar 23, 2020 5:49 pm
dcabler wrote:
Mon Mar 23, 2020 5:45 pm
MotoTrojan wrote:
Mon Mar 23, 2020 5:09 pm
theorist wrote:
Mon Mar 23, 2020 4:24 pm
MotoTrojan wrote:
Mon Mar 23, 2020 3:28 pm


I am not sure how tax-efficient it has been (cap-gain distributions), but Schwab's SFILX is the MF version of FNDC, my ex-US small-value fund of choice.

Avantis also has a MF AVDVX but I am not sure where you can buy it. It should mirror their AVDV ETF which is a bit deeper of a small tilt than FNDC, and less exposure to Japan (still hefty but FNDC is one of the highest).
Thanks! MarketWatch gives SFILX a “3” in terms of tax efficiency. I will need to hold in a taxable account, so I might look around a bit more. But this has a reasonable ER and indeed might be a good way to fill this nice in the market.
ETFs really do help in this niche sub-markets with their avoidance of capital-gains distributions. ISCF, DLS, FNDC, AVDV all seem to be quite tax-efficient for International funds.
Might want to look again at some of these including SFILX. Some are listed a small cap only, not small cap value. Definitely more choices for small cap, including some with pretty low e/r like VFSVX (e/r = 0.11%) or the equivalent ETF VSS (e/r=0.11%)

Also DLS tracks a WisdomTree International SmallCap Dividend Index and seems to only generate income, with no cap gains.

Cheers.
DLS is an ETF, hence no cap gains, just like FNDC, AVDV, ISCF.

FNDC/SFILX use a fundamental weight so while not dedicated small-value funds, they tilt heavily in that direction, just as DLS does (fundamentally weighted as well, but only using dividends rather than dividends, cash flow, and sales combined). Check out all of their P/B’s and you can see a significant tilt.
Think they'll stay that way or is this just a snapshot in time?

MotoTrojan
Posts: 9948
Joined: Wed Feb 01, 2017 8:39 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by MotoTrojan » Mon Mar 23, 2020 6:06 pm

dcabler wrote:
Mon Mar 23, 2020 5:57 pm
MotoTrojan wrote:
Mon Mar 23, 2020 5:49 pm


FNDC/SFILX use a fundamental weight so while not dedicated small-value funds, they tilt heavily in that direction, just as DLS does (fundamentally weighted as well, but only using dividends rather than dividends, cash flow, and sales combined). Check out all of their P/B’s and you can see a significant tilt.
Think they'll stay that way or is this just a snapshot in time?
I would suggest if you are interested you do a little research on the RAFI Fundamental index approaches (few variants with small differences in weighting approach). Yes they will always tilt towards value from blend, and the amount of tilt is actually dynamic based on whether the market is relatively overweight growth vs. value (as growth surges, the fund tilts towards value, and vise versa).

https://www.researchaffiliates.com/en_u ... index.html

I personally am I huge believer in the approach (Rob's book is excellent) and hold my entire ex-US stake in FNDC (30% of portfolio) along with a portion of my 50% US Large/Total allocation in FNDX (whatever isn't in my 401k's VTSAX).

I am using S&P600/CRSP indexes for my US small-value exposure though, as I want a stronger small-tilt to offset my large-cap holdings, and the RAFI funds have a larger median market cap; given that all of my ex-US is in a RAFI small-fund I don't mind the less aggressive size tilt.

dcabler
Posts: 1407
Joined: Wed Feb 19, 2014 11:30 am

Re: [Small Cap Value heads Rejoice !!!]

Post by dcabler » Mon Mar 23, 2020 6:13 pm

MotoTrojan wrote:
Mon Mar 23, 2020 6:06 pm
dcabler wrote:
Mon Mar 23, 2020 5:57 pm
MotoTrojan wrote:
Mon Mar 23, 2020 5:49 pm


FNDC/SFILX use a fundamental weight so while not dedicated small-value funds, they tilt heavily in that direction, just as DLS does (fundamentally weighted as well, but only using dividends rather than dividends, cash flow, and sales combined). Check out all of their P/B’s and you can see a significant tilt.
Think they'll stay that way or is this just a snapshot in time?
I would suggest if you are interested you do a little research on the RAFI Fundamental index approaches (few variants with small differences in weighting approach). Yes they will always tilt towards value from blend, and the amount of tilt is actually dynamic based on whether the market is relatively overweight growth vs. value (as growth surges, the fund tilts towards value, and vise versa).

https://www.researchaffiliates.com/en_u ... index.html

I personally am I huge believer in the approach (Rob's book is excellent) and hold my entire ex-US stake in FNDC (30% of portfolio) along with a portion of my 50% US Large/Total allocation in FNDX (whatever isn't in my 401k's VTSAX).

I am using S&P600/CRSP indexes for my US small-value exposure though, as I want a stronger small-tilt to offset my large-cap holdings, and the RAFI funds have a larger median market cap; given that all of my ex-US is in a RAFI small-fund I don't mind the less aggressive size tilt.
I hold both small and mid cap value in US, using mainly SP indexes as well and only go with CRSP because there's the only thing available in my smaller accounts.

I missed that the ones you were mentioning tracked fundamental indexes. Not my thing.

I've held an international small fund for a while mainly because back in the day before no commission trading at Fido, it was the only thing I had commission free access to via iShares. And while I wasn't out shopping, this portion of a seemingly never ending thread on SCV, now has me thinking about international small cap value again, since that's what I originally wanted, but couldn't have when I bought international small cap.

Thanks!

JamesDean44
Posts: 155
Joined: Sat Jan 13, 2018 7:36 pm

Re: The Most Efficient Portfolio

Post by JamesDean44 » Mon Mar 23, 2020 6:23 pm

Uncorrelated wrote:
Mon Mar 23, 2020 10:25 am
Taylor Larimore wrote:
Mon Mar 23, 2020 10:00 am
305pelusa wrote:Well then add VDE to your portfolio to increase efficiency right Dave?
305pelusa:

A total market index fund IS the most efficient portfolio. Adding additional funds actually decreases portfolio efficiency. Read this:

Three Proofs that TSM is Efficient

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "The Vanguard Total Stock Market Index fund and its Total Bond Market cousin represent the purest form of common-sense investing."
I laughed really hard about the fact that this paper's reference section is empty.

They don't actually prove that TSM is the most efficient portfolio. They prove that if the efficient market hypothesis, CAPM or the Fama/French model are true, then that implies that TSM is efficient (not "the most efficient". Just "efficient"). This isn't useful because all of those models are known to be false. Furthermore, TSM isn't the only efficient portfolio under their Fama/French model. In fact, the same proof can be used to prove that a small cap value portfolio is efficient.

I appreciate the sentiment, but the paper doesn't prove what you said it proves. Quite the opposite, in fact.
Haha, that is interesting.

MotoTrojan
Posts: 9948
Joined: Wed Feb 01, 2017 8:39 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by MotoTrojan » Mon Mar 23, 2020 6:27 pm

dcabler wrote:
Mon Mar 23, 2020 6:13 pm
MotoTrojan wrote:
Mon Mar 23, 2020 6:06 pm
dcabler wrote:
Mon Mar 23, 2020 5:57 pm
MotoTrojan wrote:
Mon Mar 23, 2020 5:49 pm


FNDC/SFILX use a fundamental weight so while not dedicated small-value funds, they tilt heavily in that direction, just as DLS does (fundamentally weighted as well, but only using dividends rather than dividends, cash flow, and sales combined). Check out all of their P/B’s and you can see a significant tilt.
Think they'll stay that way or is this just a snapshot in time?
I would suggest if you are interested you do a little research on the RAFI Fundamental index approaches (few variants with small differences in weighting approach). Yes they will always tilt towards value from blend, and the amount of tilt is actually dynamic based on whether the market is relatively overweight growth vs. value (as growth surges, the fund tilts towards value, and vise versa).

https://www.researchaffiliates.com/en_u ... index.html

I personally am I huge believer in the approach (Rob's book is excellent) and hold my entire ex-US stake in FNDC (30% of portfolio) along with a portion of my 50% US Large/Total allocation in FNDX (whatever isn't in my 401k's VTSAX).

I am using S&P600/CRSP indexes for my US small-value exposure though, as I want a stronger small-tilt to offset my large-cap holdings, and the RAFI funds have a larger median market cap; given that all of my ex-US is in a RAFI small-fund I don't mind the less aggressive size tilt.
I hold both small and mid cap value in US, using mainly SP indexes as well and only go with CRSP because there's the only thing available in my smaller accounts.

I missed that the ones you were mentioning tracked fundamental indexes. Not my thing.

I've held an international small fund for a while mainly because back in the day before no commission trading at Fido, it was the only thing I had commission free access to via iShares. And while I wasn't out shopping, this portion of a seemingly never ending thread on SCV, now has me thinking about international small cap value again, since that's what I originally wanted, but couldn't have when I bought international small cap.

Thanks!
If you want a solid ex-US dedicated small-value ETF I think AVDV is your only real answer. Very new but looks super promising and at 36bp it’s actually the cheapest of all the options.

Random Walker
Posts: 4522
Joined: Fri Feb 23, 2007 8:21 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by Random Walker » Mon Mar 23, 2020 6:56 pm

acegolfer wrote:
Mon Mar 23, 2020 3:22 pm
Random Walker wrote:
Mon Mar 23, 2020 11:28 am
acegolfer wrote:
Mon Mar 23, 2020 10:28 am
Random Walker wrote:
Mon Mar 23, 2020 9:28 am
The market prices risk, and we all believe nondiversifiable risk and expected return should be related. In the recent swoon I believe TSM has lost 20-25% and SCV funds with serious loadings have lost 45-50%. Doesn’t this likely support the thesis that SV funds are more risky?
TSM by definition has a loading on the market factor of 1. Most SCV funds have a loading on the market factor very slightly higher at maybe 1.1, yet they’ve lost almost twice as much in this recent period. Perhaps that is evidence supporting the thesis that not only do SV funds have more market risk, they also have separate unique risks. Wouldn’t exposure to separate unique risks, instead of simply more of one type of risk, result in a more efficient portfolio?

Dave
Adding non-market risk factor can lower volatility. I agree. But it will increase other risks. How's that more efficient?
By diversifying across different, unique, independent risks

Dave
By doing so, you are lowering volatility and increasing other risks. That's not considered as "more efficient". You are trading one risk for another risk.
At the portfolio level, I do think trading some of one type risk for another unique and independent type of risk does result in increased portfolio efficiency.

Dave

JamesDean44
Posts: 155
Joined: Sat Jan 13, 2018 7:36 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by JamesDean44 » Mon Mar 23, 2020 7:15 pm

Random Walker wrote:
Mon Mar 23, 2020 6:56 pm
acegolfer wrote:
Mon Mar 23, 2020 3:22 pm
Random Walker wrote:
Mon Mar 23, 2020 11:28 am
acegolfer wrote:
Mon Mar 23, 2020 10:28 am
Random Walker wrote:
Mon Mar 23, 2020 9:28 am
The market prices risk, and we all believe nondiversifiable risk and expected return should be related. In the recent swoon I believe TSM has lost 20-25% and SCV funds with serious loadings have lost 45-50%. Doesn’t this likely support the thesis that SV funds are more risky?
TSM by definition has a loading on the market factor of 1. Most SCV funds have a loading on the market factor very slightly higher at maybe 1.1, yet they’ve lost almost twice as much in this recent period. Perhaps that is evidence supporting the thesis that not only do SV funds have more market risk, they also have separate unique risks. Wouldn’t exposure to separate unique risks, instead of simply more of one type of risk, result in a more efficient portfolio?

Dave
Adding non-market risk factor can lower volatility. I agree. But it will increase other risks. How's that more efficient?
By diversifying across different, unique, independent risks

Dave
By doing so, you are lowering volatility and increasing other risks. That's not considered as "more efficient". You are trading one risk for another risk.
At the portfolio level, I do think trading some of one type risk for another unique and independent type of risk does result in increased portfolio efficiency.

Dave
Agreed. And I don't think it is a controversial point.

JamesDean44
Posts: 155
Joined: Sat Jan 13, 2018 7:36 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by JamesDean44 » Mon Mar 23, 2020 7:17 pm

MotoTrojan wrote:
Mon Mar 23, 2020 6:27 pm
dcabler wrote:
Mon Mar 23, 2020 6:13 pm
MotoTrojan wrote:
Mon Mar 23, 2020 6:06 pm
dcabler wrote:
Mon Mar 23, 2020 5:57 pm
MotoTrojan wrote:
Mon Mar 23, 2020 5:49 pm


FNDC/SFILX use a fundamental weight so while not dedicated small-value funds, they tilt heavily in that direction, just as DLS does (fundamentally weighted as well, but only using dividends rather than dividends, cash flow, and sales combined). Check out all of their P/B’s and you can see a significant tilt.
Think they'll stay that way or is this just a snapshot in time?
I would suggest if you are interested you do a little research on the RAFI Fundamental index approaches (few variants with small differences in weighting approach). Yes they will always tilt towards value from blend, and the amount of tilt is actually dynamic based on whether the market is relatively overweight growth vs. value (as growth surges, the fund tilts towards value, and vise versa).

https://www.researchaffiliates.com/en_u ... index.html

I personally am I huge believer in the approach (Rob's book is excellent) and hold my entire ex-US stake in FNDC (30% of portfolio) along with a portion of my 50% US Large/Total allocation in FNDX (whatever isn't in my 401k's VTSAX).

I am using S&P600/CRSP indexes for my US small-value exposure though, as I want a stronger small-tilt to offset my large-cap holdings, and the RAFI funds have a larger median market cap; given that all of my ex-US is in a RAFI small-fund I don't mind the less aggressive size tilt.
I hold both small and mid cap value in US, using mainly SP indexes as well and only go with CRSP because there's the only thing available in my smaller accounts.

I missed that the ones you were mentioning tracked fundamental indexes. Not my thing.

I've held an international small fund for a while mainly because back in the day before no commission trading at Fido, it was the only thing I had commission free access to via iShares. And while I wasn't out shopping, this portion of a seemingly never ending thread on SCV, now has me thinking about international small cap value again, since that's what I originally wanted, but couldn't have when I bought international small cap.

Thanks!
If you want a solid ex-US dedicated small-value ETF I think AVDV is your only real answer. Very new but looks super promising and at 36bp it’s actually the cheapest of all the options.
I agree. I'm split between the mutual fund versions of FNDC and AVDV.

caklim00
Posts: 2196
Joined: Mon May 26, 2008 10:09 am

Re: [Small Cap Value heads Rejoice !!!]

Post by caklim00 » Mon Mar 23, 2020 7:19 pm

JamesDean44 wrote:
Mon Mar 23, 2020 7:17 pm
MotoTrojan wrote:
Mon Mar 23, 2020 6:27 pm
dcabler wrote:
Mon Mar 23, 2020 6:13 pm
MotoTrojan wrote:
Mon Mar 23, 2020 6:06 pm
dcabler wrote:
Mon Mar 23, 2020 5:57 pm


Think they'll stay that way or is this just a snapshot in time?
I would suggest if you are interested you do a little research on the RAFI Fundamental index approaches (few variants with small differences in weighting approach). Yes they will always tilt towards value from blend, and the amount of tilt is actually dynamic based on whether the market is relatively overweight growth vs. value (as growth surges, the fund tilts towards value, and vise versa).

https://www.researchaffiliates.com/en_u ... index.html

I personally am I huge believer in the approach (Rob's book is excellent) and hold my entire ex-US stake in FNDC (30% of portfolio) along with a portion of my 50% US Large/Total allocation in FNDX (whatever isn't in my 401k's VTSAX).

I am using S&P600/CRSP indexes for my US small-value exposure though, as I want a stronger small-tilt to offset my large-cap holdings, and the RAFI funds have a larger median market cap; given that all of my ex-US is in a RAFI small-fund I don't mind the less aggressive size tilt.
I hold both small and mid cap value in US, using mainly SP indexes as well and only go with CRSP because there's the only thing available in my smaller accounts.

I missed that the ones you were mentioning tracked fundamental indexes. Not my thing.

I've held an international small fund for a while mainly because back in the day before no commission trading at Fido, it was the only thing I had commission free access to via iShares. And while I wasn't out shopping, this portion of a seemingly never ending thread on SCV, now has me thinking about international small cap value again, since that's what I originally wanted, but couldn't have when I bought international small cap.

Thanks!
If you want a solid ex-US dedicated small-value ETF I think AVDV is your only real answer. Very new but looks super promising and at 36bp it’s actually the cheapest of all the options.
I agree. I'm split between the mutual fund versions of FNDC and AVDV.
You own AVDVX? Where did you buy it?

JamesDean44
Posts: 155
Joined: Sat Jan 13, 2018 7:36 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by JamesDean44 » Mon Mar 23, 2020 7:27 pm

caklim00 wrote:
Mon Mar 23, 2020 7:19 pm
JamesDean44 wrote:
Mon Mar 23, 2020 7:17 pm
MotoTrojan wrote:
Mon Mar 23, 2020 6:27 pm
dcabler wrote:
Mon Mar 23, 2020 6:13 pm
MotoTrojan wrote:
Mon Mar 23, 2020 6:06 pm


I would suggest if you are interested you do a little research on the RAFI Fundamental index approaches (few variants with small differences in weighting approach). Yes they will always tilt towards value from blend, and the amount of tilt is actually dynamic based on whether the market is relatively overweight growth vs. value (as growth surges, the fund tilts towards value, and vise versa).

https://www.researchaffiliates.com/en_u ... index.html

I personally am I huge believer in the approach (Rob's book is excellent) and hold my entire ex-US stake in FNDC (30% of portfolio) along with a portion of my 50% US Large/Total allocation in FNDX (whatever isn't in my 401k's VTSAX).

I am using S&P600/CRSP indexes for my US small-value exposure though, as I want a stronger small-tilt to offset my large-cap holdings, and the RAFI funds have a larger median market cap; given that all of my ex-US is in a RAFI small-fund I don't mind the less aggressive size tilt.
I hold both small and mid cap value in US, using mainly SP indexes as well and only go with CRSP because there's the only thing available in my smaller accounts.

I missed that the ones you were mentioning tracked fundamental indexes. Not my thing.

I've held an international small fund for a while mainly because back in the day before no commission trading at Fido, it was the only thing I had commission free access to via iShares. And while I wasn't out shopping, this portion of a seemingly never ending thread on SCV, now has me thinking about international small cap value again, since that's what I originally wanted, but couldn't have when I bought international small cap.

Thanks!
If you want a solid ex-US dedicated small-value ETF I think AVDV is your only real answer. Very new but looks super promising and at 36bp it’s actually the cheapest of all the options.
I agree. I'm split between the mutual fund versions of FNDC and AVDV.
You own AVDVX? Where did you buy it?
Schwab--self directed brokerage option in employer 401(k).

caklim00
Posts: 2196
Joined: Mon May 26, 2008 10:09 am

Re: [Small Cap Value heads Rejoice !!!]

Post by caklim00 » Mon Mar 23, 2020 8:02 pm

JamesDean44 wrote:
Mon Mar 23, 2020 7:27 pm
caklim00 wrote:
Mon Mar 23, 2020 7:19 pm
JamesDean44 wrote:
Mon Mar 23, 2020 7:17 pm
MotoTrojan wrote:
Mon Mar 23, 2020 6:27 pm
dcabler wrote:
Mon Mar 23, 2020 6:13 pm


I hold both small and mid cap value in US, using mainly SP indexes as well and only go with CRSP because there's the only thing available in my smaller accounts.

I missed that the ones you were mentioning tracked fundamental indexes. Not my thing.

I've held an international small fund for a while mainly because back in the day before no commission trading at Fido, it was the only thing I had commission free access to via iShares. And while I wasn't out shopping, this portion of a seemingly never ending thread on SCV, now has me thinking about international small cap value again, since that's what I originally wanted, but couldn't have when I bought international small cap.

Thanks!
If you want a solid ex-US dedicated small-value ETF I think AVDV is your only real answer. Very new but looks super promising and at 36bp it’s actually the cheapest of all the options.
I agree. I'm split between the mutual fund versions of FNDC and AVDV.
You own AVDVX? Where did you buy it?
Schwab--self directed brokerage option in employer 401(k).
Interesting, is there a charge for purchases? I tried to put in an order on Wells Trade for it a few months back and it failed.

EDIT: Same thing happens when I try on schwab. Says only for institutional investors...

garlandwhizzer
Posts: 2863
Joined: Fri Aug 06, 2010 3:42 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by garlandwhizzer » Mon Mar 23, 2020 8:12 pm

Uncorrelated wrote:

Those are all good arguments. Ultimately, the point of discussion is whether value/size are robust and expected to persist over time. Based on academic research in both US and international I believe the correct answer is yes.
Uncorrelated may well be right on this point. There are plausible reasons Value and SCV in particular should outperform. Gene Fama who "discovered" it is IMO a brilliant, deeply knowledgeable, and very honest researcher, the opposite of a con man. Actually Ben Graham had been using it very successfully for many years before it was "discovered." Back in those days investors flocked in herds to large cap stocks and had little or no interest in the SCV space. Graham regularly found overlooked small and also mid-cap companies with PE less than 10, strong balances sheets, and selling for less than book value. No wonder he did so well. I don't believe such stocks exist today in the US market will all the SCV funds seeking them. So SCV IMO is unlikely to produce the very impressive results of 1929 -1992, but it might produce some outperformance for those with sufficient patience.

I think Mr. Fama believes that SCV outperformance is largely the reward that very patient investors receive for taking on for the increased risk inherent in struggling small cap companies. In a sense he doesn't see much conflict between the EMH and value investing in terms of risk-adjusted reward. Not a free lunch, but a reward for patience and perseverance. I personally hold a US portfolio dominated by TSM (75%) but the other 25% is SCV which I have held for well more than a decade through thick and thin, mostly thin for a long time. I'm still waiting for my reward but it might still come.

It is very hard to beat the risk-adjusted returns of cap weight indexing in the US LC space which is intensely scrutinized every day by legions of professionals looking for outperformance. This is especially true in bull markets which are typically driven by LCG which in turn is usually heavily represented in indexes like TSM. This has been the case throughout the decade long bull market that ended recently. I continue to hold SCV in spite of its problems for two reasons. First SCV is conceptually the opposite of LCG and should in theory offer diversification on that basis for a TSM or VOO investor. Second, SCV clearly does have substantial bursts of robust outperformance in the past, often after it has been long neglected by investors enamored with a long run of LCG. This was the case in 2000 - 2005 SCV spurt after the tech bubble burst. We're certainly overdue now for a big SCV run, but that's not a guarantee. There are no guarantees about anything in stock investing IMO as is clear from the recent global market collapse due to a previously unknown virus arising in a small area of China thousands of miles away from the markets. Who could have imagined that script? Bonds hold few surprises. Equity, a lot, but the good news is that it goes in both directions.

Garland Whizzer

JamesDean44
Posts: 155
Joined: Sat Jan 13, 2018 7:36 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by JamesDean44 » Mon Mar 23, 2020 9:25 pm

caklim00 wrote:
Mon Mar 23, 2020 8:02 pm
JamesDean44 wrote:
Mon Mar 23, 2020 7:27 pm
caklim00 wrote:
Mon Mar 23, 2020 7:19 pm
JamesDean44 wrote:
Mon Mar 23, 2020 7:17 pm
MotoTrojan wrote:
Mon Mar 23, 2020 6:27 pm


If you want a solid ex-US dedicated small-value ETF I think AVDV is your only real answer. Very new but looks super promising and at 36bp it’s actually the cheapest of all the options.
I agree. I'm split between the mutual fund versions of FNDC and AVDV.
You own AVDVX? Where did you buy it?
Schwab--self directed brokerage option in employer 401(k).
Interesting, is there a charge for purchases? I tried to put in an order on Wells Trade for it a few months back and it failed.

EDIT: Same thing happens when I try on schwab. Says only for institutional investors...
Too bad. Yes, there is a $50 purchase fee. I am assuming I have access because it is a sdba.

MotoTrojan
Posts: 9948
Joined: Wed Feb 01, 2017 8:39 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by MotoTrojan » Mon Mar 23, 2020 9:35 pm

JamesDean44 wrote:
Mon Mar 23, 2020 9:25 pm
caklim00 wrote:
Mon Mar 23, 2020 8:02 pm
JamesDean44 wrote:
Mon Mar 23, 2020 7:27 pm
caklim00 wrote:
Mon Mar 23, 2020 7:19 pm
JamesDean44 wrote:
Mon Mar 23, 2020 7:17 pm


I agree. I'm split between the mutual fund versions of FNDC and AVDV.
You own AVDVX? Where did you buy it?
Schwab--self directed brokerage option in employer 401(k).
Interesting, is there a charge for purchases? I tried to put in an order on Wells Trade for it a few months back and it failed.

EDIT: Same thing happens when I try on schwab. Says only for institutional investors...
Too bad. Yes, there is a $50 purchase fee. I am assuming I have access because it is a sdba.
How often are you purchasing it? If you were purchasing $100K at a time that would be one thing, but with recurring 401k contributions I would just use the ETF and save the $50.

marky2kk
Posts: 37
Joined: Tue Feb 11, 2020 10:53 am

Re: [Small Cap Value heads Rejoice !!!]

Post by marky2kk » Mon Mar 23, 2020 9:36 pm

A simple economic reason for the existence of a small cap premium could be liquidity. Small cap stocks are less liquid and by investing you earn a liquidity premium. If you are a long-term buy and hold investor, you can afford to take the liquidity risk and earn the premium---just like with a CD. If you have to sell in downturns or have to sell frequently, you cannot.

That's why I keep investing in small caps despite the underperformance. I think economically and ex-ante, there are good reasons for the existence of a premium, which I, as a long-term buy and hold investor, can earn.

JamesDean44
Posts: 155
Joined: Sat Jan 13, 2018 7:36 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by JamesDean44 » Mon Mar 23, 2020 9:43 pm

MotoTrojan wrote:
Mon Mar 23, 2020 9:35 pm
JamesDean44 wrote:
Mon Mar 23, 2020 9:25 pm
caklim00 wrote:
Mon Mar 23, 2020 8:02 pm
JamesDean44 wrote:
Mon Mar 23, 2020 7:27 pm
caklim00 wrote:
Mon Mar 23, 2020 7:19 pm

You own AVDVX? Where did you buy it?
Schwab--self directed brokerage option in employer 401(k).
Interesting, is there a charge for purchases? I tried to put in an order on Wells Trade for it a few months back and it failed.

EDIT: Same thing happens when I try on schwab. Says only for institutional investors...
Too bad. Yes, there is a $50 purchase fee. I am assuming I have access because it is a sdba.
How often are you purchasing it? If you were purchasing $100K at a time that would be one thing, but with recurring 401k contributions I would just use the ETF and save the $50.
You're right of course. But because of some professional restrictions, I can't purchase ETFs from certain issuers. I purchase the mutual fund equivalent of FNDC on a regular basis without a transaction fee; I've bought AVDVX only once and won't be making another purchase for some time due to the fee.

Random Walker
Posts: 4522
Joined: Fri Feb 23, 2007 8:21 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by Random Walker » Mon Mar 23, 2020 9:52 pm

marky2kk wrote:
Mon Mar 23, 2020 9:36 pm
A simple economic reason for the existence of a small cap premium could be liquidity. Small cap stocks are less liquid and by investing you earn a liquidity premium. If you are a long-term buy and hold investor, you can afford to take the liquidity risk and earn the premium---just like with a CD. If you have to sell in downturns or have to sell frequently, you cannot.

That's why I keep investing in small caps despite the underperformance. I think economically and ex-ante, there are good reasons for the existence of a premium, which I, as a long-term buy and hold investor, can earn.
I think it’s fair to say that the other factor premia (value, momentum, profitability) tend to be larger in the smaller stocks as well.

Dave

james22
Posts: 1697
Joined: Tue Aug 21, 2007 2:22 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by james22 » Tue Mar 24, 2020 4:21 am

How's International Explorer (VINEX) tilting these days?

It has at times in the past tilted to value.

MotoTrojan
Posts: 9948
Joined: Wed Feb 01, 2017 8:39 pm

Re: [Small Cap Value heads Rejoice !!!]

Post by MotoTrojan » Tue Mar 24, 2020 6:24 am

Random Walker wrote:
Mon Mar 23, 2020 9:52 pm
marky2kk wrote:
Mon Mar 23, 2020 9:36 pm
A simple economic reason for the existence of a small cap premium could be liquidity. Small cap stocks are less liquid and by investing you earn a liquidity premium. If you are a long-term buy and hold investor, you can afford to take the liquidity risk and earn the premium---just like with a CD. If you have to sell in downturns or have to sell frequently, you cannot.

That's why I keep investing in small caps despite the underperformance. I think economically and ex-ante, there are good reasons for the existence of a premium, which I, as a long-term buy and hold investor, can earn.
I think it’s fair to say that the other factor premia (value, momentum, profitability) tend to be larger in the smaller stocks as well.

Dave
I think this has been disproven a few times, perhaps by 305p.

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