Small Cap Value heads Rejoice !!!

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Forester
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

rkhusky wrote: Wed Aug 12, 2020 12:54 pm
Forester wrote: Wed Aug 12, 2020 11:45 am
My equities are a tri-barbell (a tribell?) Momentum, Min Vol (both MSCI), SCV (mix of VG, RAFI, WisdomTree). If SCV stinks then the remaining 2/3 are likely doing great. If Momentum stocks bust as in Dotcom, SCV & Min Vol will hold up while Momentum slowly rotates from growth names to value names.
Does this just average out to TSM?
Worst case yes but with less lumpy returns. a smarter way to own megacap stocks. Case for low vol / mommentum barbell instead of market weight index; https://www.fortunefinancialadvisors.c ... m-barbell/
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

Massdriver wrote: Wed Aug 12, 2020 2:22 pm However, I wouldn't overweight an index of the TSM of Japan.
Why not? I guess it's news to me that Japanese stocks weren't that great.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Re: Small Cap Value heads Rejoice !!!

Post by abuss368 »

Brandon4454 wrote: Wed Aug 12, 2020 9:40 am I can't get SCV in my 401k, but I can get it in my Roth IRA. What percentage of my portfolio would you suggest I allocate to the SCV fund VBR? Thanks. I only have 5% going to SCV and another 5% going to a Small cap index, swssx
5% barely moves the needle up or down. I would simplify and own the haystack with total market index funds.
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Re: Small Cap Value heads Rejoice !!!

Post by rkhusky »

Forester wrote: Wed Aug 12, 2020 3:07 pm
Case for low vol / mommentum barbell instead of market weight index; https://www.fortunefinancialadvisors.c ... m-barbell/
Wonder why the author chose the start date of Aug 1994, rather than something like Jan 1993 (25 years) or Jan 1998 (20 years)?

And it seems like there was a sea-change around 2005.
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Re: Small Cap Value heads Rejoice !!!

Post by abuss368 »

Steve Reading wrote: Wed Aug 12, 2020 3:09 pm
Massdriver wrote: Wed Aug 12, 2020 2:22 pm However, I wouldn't overweight an index of the TSM of Japan.
Why not? I guess it's news to me that Japanese stocks weren't that great.
When did this occur?
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

abuss368 wrote: Wed Aug 12, 2020 7:53 pm
Steve Reading wrote: Wed Aug 12, 2020 3:09 pm
Massdriver wrote: Wed Aug 12, 2020 2:22 pm However, I wouldn't overweight an index of the TSM of Japan.
Why not? I guess it's news to me that Japanese stocks weren't that great.
When did this occur?
They are my largest country holding outside of the US by a long-shot so I am curious too.
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

Imagine making decisions based on past returns 0_o
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Re: Small Cap Value heads Rejoice !!!

Post by asif408 »

Steve Reading wrote: Thu Aug 13, 2020 9:47 am
Imagine making decisions based on past returns 0_o
What's not shown in that graph is the abysmal returns of international small value stocks prior to 1999. Here are the returns from 1990-1998 vs other major asset classes*:

International small: -1.08%
EAFE: 5.29%
US small: 13.56%
S&P: 17.89

*Source: The Intelligent Asset Allocator

I doubt many people were piling into international small stocks in the late 90s when the S&P had a nearly 20% CAGR advantage over the prior decade and pretty much every other asset class other than emerging markets and precious metals was generating positive returns.
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

Steve Reading wrote: Thu Aug 13, 2020 9:47 am
Imagine making decisions based on past returns 0_o
:confused
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

asif408 wrote: Thu Aug 13, 2020 10:14 am
Steve Reading wrote: Thu Aug 13, 2020 9:47 am
Imagine making decisions based on past returns 0_o
What's not shown in that graph is the abysmal returns of international small value stocks prior to 1999. Here are the returns from 1990-1998 vs other major asset classes*:

International small: -1.08%
EAFE: 5.29%
US small: 13.56%
S&P: 17.89

*Source: The Intelligent Asset Allocator

I doubt many people were piling into international small stocks in the late 90s when the S&P had a nearly 20% CAGR advantage over the prior decade and pretty much every other asset class other than emerging markets and precious metals was generating positive returns.
Makes me feel better about piling into things that have stunk recently.

This data source for ex-US small-value uses DFA's DISVX thru 2009 then switches to Vanguard's VSS and while it doesn't show the entire 1990's, it does show an incredible lack of performance from 1995 to mid-2003. For the full time-frame it generates twice as much in gained $.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
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Re: Small Cap Value heads Rejoice !!!

Post by garlandwhizzer »

Forester wrote:

Worst case yes but with less lumpy returns. a smarter way to own megacap stocks. Case for low vol / mommentum barbell instead of market weight index; https://www.fortunefinancialadvisors.c ... m-barbell/
The quoted article, https://www.fortunefinancialadvisors.co ... m-barbell/, demonstrates superior returns of a 50 MOM/50 LOW VOL large cap portfolio with less risk and lower volatility than a cap weighted index like S&P 500 over the time frame 8/1994 - 1/2008. It looks like a sure long term winner. At the very end of the article in smaller print there is a disclaimer which gives the secret to this outstanding performance. These results are based not on real funds but on factor models. Factor model cost free long/short doubles the returns at no charge but it's a lot worse than that. All the trades (Momentum is a frequent trading strategy) are also cost free and there are no nasty management fees to deal with. Finally there are no trading frictions in these trades. There is no way that investors in real funds should expect these results either in this time period or going forward. Factor models are carefully designed to magnify the positives (long/short), completely neglect the negatives (trading and management costs, trading frictions) and hence to magnify slight/nonexistent market differences into what appear to be compellingly positive model results. If the real factor funds were as successful as the models that promote them, it would be nice. Unfortunately that has not typically been the case during our era of factor funds/ETFs proliferation.

There is doubt that a LOW VOL/MOM portfolio combining these 2 opposite poles of market volatility the has some theoretical appeal. Whether real funds using this approach will put money in investors pockets is a different question altogether. The paper quoted above is authored by a man whose income is derived at least in part from the thing he promotes. The most important part of the article to read carefully IMO is the disclaimer at the end which is written in small print.

Garland Whizzer
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Re: Small Cap Value heads Rejoice !!!

Post by Ketawa »

garlandwhizzer wrote: Thu Aug 13, 2020 1:37 pm
Forester wrote:

Worst case yes but with less lumpy returns. a smarter way to own megacap stocks. Case for low vol / mommentum barbell instead of market weight index; https://www.fortunefinancialadvisors.c ... m-barbell/
The quoted article, https://www.fortunefinancialadvisors.co ... m-barbell/, demonstrates superior returns of a 50 MOM/50 LOW VOL large cap portfolio with less risk and lower volatility than a cap weighted index like S&P 500 over the time frame 8/1994 - 1/2008. It looks like a sure long term winner. At the very end of the article in smaller print there is a disclaimer which gives the secret to this outstanding performance. These results are based not on real funds but on factor models. Factor model cost free long/short doubles the returns at no charge but it's a lot worse than that. All the trades (Momentum is a frequent trading strategy) are also cost free and there are no nasty management fees to deal with. Finally there are no trading frictions in these trades. There is no way that investors in real funds should expect these results either in this time period or going forward. Factor models are carefully designed to magnify the positives (long/short), completely neglect the negatives (trading and management costs, trading frictions) and hence to magnify slight/nonexistent market differences into what appear to be compellingly positive model results. If the real factor funds were as successful as the models that promote them, it would be nice. Unfortunately that has not typically been the case during our era of factor funds/ETFs proliferation.

There is doubt that a LOW VOL/MOM portfolio combining these 2 opposite poles of market volatility the has some theoretical appeal. Whether real funds using this approach will put money in investors pockets is a different question altogether. The paper quoted above is authored by a man whose income is derived at least in part from the thing he promotes. The most important part of the article to read carefully IMO is the disclaimer at the end which is written in small print.

Garland Whizzer
iShares Edge MSCI USA Momentum Factor ETF (MTUM) has been around since 2013, and in a Fama-French 4-factor model has the following loadings:

Market (Rm-Rf) 1.01
SMB -0.11
HML -0.15
MOM 0.29
Annualized Alpha (α) 0.34%

Exactly the loadings you would expect from this fund, and it manages to pull it off with a positive alpha. Alpha is also positive if analyzed using the AQR factor model including QMJ.
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Re: Small Cap Value heads Rejoice !!!

Post by asif408 »

MotoTrojan wrote: Thu Aug 13, 2020 1:00 pm
asif408 wrote: Thu Aug 13, 2020 10:14 am
Steve Reading wrote: Thu Aug 13, 2020 9:47 am
Imagine making decisions based on past returns 0_o
What's not shown in that graph is the abysmal returns of international small value stocks prior to 1999. Here are the returns from 1990-1998 vs other major asset classes*:

International small: -1.08%
EAFE: 5.29%
US small: 13.56%
S&P: 17.89

*Source: The Intelligent Asset Allocator

I doubt many people were piling into international small stocks in the late 90s when the S&P had a nearly 20% CAGR advantage over the prior decade and pretty much every other asset class other than emerging markets and precious metals was generating positive returns.
Makes me feel better about piling into things that have stunk recently.

This data source for ex-US small-value uses DFA's DISVX thru 2009 then switches to Vanguard's VSS and while it doesn't show the entire 1990's, it does show an incredible lack of performance from 1995 to mid-2003. For the full time-frame it generates twice as much in gained $.

https://www.portfoliovisualizer.com/bac ... ion2_2=100
It looks like data for DISVX goes back to 1995, and looking at it, international small value was as bad as emerging markets during the 1995-2003 period: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D. US stocks doubled over that time while EM & ISCV lost you money.

Fast forward to the last 9 years, and the performance has been reminiscent of the 1995-2003 period for EM and ISCV, with ISCV not awful through 2017 but really stinking it up since Jan 2018: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D. The performance gap is very similar to the late 90s/early 2000s period. US stocks tripled your money over the last 9 years, while ISCV & EM gave you back less than a Total Bond Market fund over that time frame.

Diversification in action! :shock:
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Small Print

Post by Taylor Larimore »

garlandwhizzer wrote: Thu Aug 13, 2020 1:37 pm
Forester wrote:

Worst case yes but with less lumpy returns. a smarter way to own megacap stocks. Case for low vol / mommentum barbell instead of market weight index; https://www.fortunefinancialadvisors.c ... m-barbell/
The quoted article, https://www.fortunefinancialadvisors.co ... m-barbell/, demonstrates superior returns of a 50 MOM/50 LOW VOL large cap portfolio with less risk and lower volatility than a cap weighted index like S&P 500 over the time frame 8/1994 - 1/2008. It looks like a sure long term winner. At the very end of the article in smaller print there is a disclaimer which gives the secret to this outstanding performance. These results are based not on real funds but on factor models. Factor model cost free long/short doubles the returns at no charge but it's a lot worse than that. All the trades (Momentum is a frequent trading strategy) are also cost free and there are no nasty management fees to deal with. Finally there are no trading frictions in these trades. There is no way that investors in real funds should expect these results either in this time period or going forward. Factor models are carefully designed to magnify the positives (long/short), completely neglect the negatives (trading and management costs, trading frictions) and hence to magnify slight/nonexistent market differences into what appear to be compellingly positive model results. If the real factor funds were as successful as the models that promote them, it would be nice. Unfortunately that has not typically been the case during our era of factor funds/ETFs proliferation.

There is doubt that a LOW VOL/MOM portfolio combining these 2 opposite poles of market volatility the has some theoretical appeal. Whether real funds using this approach will put money in investors pockets is a different question altogether. The paper quoted above is authored by a man whose income is derived at least in part from the thing he promotes. The most important part of the article to read carefully IMO is the disclaimer at the end which is written in small print.

Garland Whizzer
Garland Whizzer:

Thank you for the excellent analysis.

It appears we have both learned that the "small print" is often more important than the main article.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Full Disclosure. Fair disclosure. Complete disclosure. Those are the watchwords of the financial system."
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Re: Small Cap Value heads Rejoice !!!

Post by rascott »

Massdriver wrote: Wed Aug 12, 2020 2:22 pm
rascott wrote: Tue Aug 11, 2020 7:58 pm
Steve Reading wrote: Mon Aug 10, 2020 10:21 pm Fellow value heads
Look at the price chart since inception of FNDF and FNDC. They've gone nowhere for the past 6 years. Look at VIOV and VBR for the past 5 years. Also have barely moved. Now look at SPY. Whoah what a difference.

Some times I think this much value buying will either be the dumbest or most brilliant decision I'll ever make.

Any of you value heads ever have those feeling? They're not feelings for capitulation, more like the crash between the belief that markets should be very efficient (and this won't be a free lunch) and the gut feeling that these investments are really neglected because some times markets are like that (in which case these investments will be amazing purchases 10 years down the road).

I bought a slug of FNDF once my paycheck hit today. Something about it just feels right. What do you say nedsaid?
Good luck. I've owned a chunk of FNDC for years. It just sits there like a dead animal on the side of the road. Pretty sure my high yield savings accounts have bested its pitiful return.

I refuse to buy that trash any longer (it's basically a ton of Japanese equities, barf).
I'm open to correction, but DISVX (Int SCV) has quite a few Japanese equities in it and has done quite well over its run. However, I wouldn't overweight an index of the TSM of Japan.
FNDC is like 36% Japan. Such is the result of Quant based investing. Problem is Japan's equity market is exceedingly rigged and broken.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

rascott wrote: Thu Aug 13, 2020 4:36 pm
Massdriver wrote: Wed Aug 12, 2020 2:22 pm
rascott wrote: Tue Aug 11, 2020 7:58 pm
Steve Reading wrote: Mon Aug 10, 2020 10:21 pm Fellow value heads
Look at the price chart since inception of FNDF and FNDC. They've gone nowhere for the past 6 years. Look at VIOV and VBR for the past 5 years. Also have barely moved. Now look at SPY. Whoah what a difference.

Some times I think this much value buying will either be the dumbest or most brilliant decision I'll ever make.

Any of you value heads ever have those feeling? They're not feelings for capitulation, more like the crash between the belief that markets should be very efficient (and this won't be a free lunch) and the gut feeling that these investments are really neglected because some times markets are like that (in which case these investments will be amazing purchases 10 years down the road).

I bought a slug of FNDF once my paycheck hit today. Something about it just feels right. What do you say nedsaid?
Good luck. I've owned a chunk of FNDC for years. It just sits there like a dead animal on the side of the road. Pretty sure my high yield savings accounts have bested its pitiful return.

I refuse to buy that trash any longer (it's basically a ton of Japanese equities, barf).
I'm open to correction, but DISVX (Int SCV) has quite a few Japanese equities in it and has done quite well over its run. However, I wouldn't overweight an index of the TSM of Japan.
FNDC is like 36% Japan. Such is the result of Quant based investing. Problem is Japan's equity market is exceedingly rigged and broken.
Got any recommendations for good reads/sources to learn more about this rigged and broken market? FNDC is pretty spicy at 36% but IVAL has a whopping 51.5%.
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Re: Small Cap Value heads Rejoice !!!

Post by rascott »

MotoTrojan wrote: Thu Aug 13, 2020 4:43 pm
rascott wrote: Thu Aug 13, 2020 4:36 pm
Massdriver wrote: Wed Aug 12, 2020 2:22 pm
rascott wrote: Tue Aug 11, 2020 7:58 pm
Steve Reading wrote: Mon Aug 10, 2020 10:21 pm Fellow value heads
Look at the price chart since inception of FNDF and FNDC. They've gone nowhere for the past 6 years. Look at VIOV and VBR for the past 5 years. Also have barely moved. Now look at SPY. Whoah what a difference.

Some times I think this much value buying will either be the dumbest or most brilliant decision I'll ever make.

Any of you value heads ever have those feeling? They're not feelings for capitulation, more like the crash between the belief that markets should be very efficient (and this won't be a free lunch) and the gut feeling that these investments are really neglected because some times markets are like that (in which case these investments will be amazing purchases 10 years down the road).

I bought a slug of FNDF once my paycheck hit today. Something about it just feels right. What do you say nedsaid?
Good luck. I've owned a chunk of FNDC for years. It just sits there like a dead animal on the side of the road. Pretty sure my high yield savings accounts have bested its pitiful return.

I refuse to buy that trash any longer (it's basically a ton of Japanese equities, barf).
I'm open to correction, but DISVX (Int SCV) has quite a few Japanese equities in it and has done quite well over its run. However, I wouldn't overweight an index of the TSM of Japan.
FNDC is like 36% Japan. Such is the result of Quant based investing. Problem is Japan's equity market is exceedingly rigged and broken.
Got any recommendations for good reads/sources to learn more about this rigged and broken market? FNDC is pretty spicy at 36% but IVAL has a whopping 51.5%.
https://www.reuters.com/article/us-japa ... SKBN21B0CX

Their central bank owns roughly 10% of the total equity market.... and they continue to grow their share.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

rascott wrote: Thu Aug 13, 2020 4:36 pm FNDC is like 36% Japan. Such is the result of Quant based investing.
I nearly spit out my water at the thought of FNDC being considered a "quant fund".
MotoTrojan wrote: Thu Aug 13, 2020 4:43 pm Got any recommendations for good reads/sources to learn more about this rigged and broken market?
Lmao links a reuters page.
rascott wrote: Thu Aug 13, 2020 5:11 pm https://www.reuters.com/article/us-japa ... SKBN21B0CX

Their central bank owns roughly 10% of the total equity market.... and they continue to grow their share.
Yeah I also don't like the BOJ. What with all of the buying of tradeable securities. I much prefer our Federal Reserve, oh wait.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
garlandwhizzer
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Re: Small Cap Value heads Rejoice !!!

Post by garlandwhizzer »

ketawa wrote:

iShares Edge MSCI USA Momentum Factor ETF (MTUM) has been around since 2013, and in a Fama-French 4-factor model has the following loadings:

Market (Rm-Rf) 1.01
SMB -0.11
HML -0.15
MOM 0.29
Annualized Alpha (α) 0.34%

Exactly the loadings you would expect from this fund, and it manages to pull it off with a positive alpha. Alpha is also positive if analyzed using the AQR factor model including QMJ.
There is no question that MTUM has done well during its lifetime but a lot of its success relative to VOO (S&P 500) is due to the fact that it has concentrated in LCG especially one segment mega-cap tech. First of all, finding a winner relative to the LC cap weight index with the Momentum its name does not mean the strategy works. Any investment approach used by multiple funds that depart from cap weighing will produce a bell shaped distribution of results including both winners and losers. Deciding a strategy (MOM) works needs more evidence than finding a single winner.

Ketawa mentions the AQR factor model. Let us look at how AQR MOM funds using AQR's state of the art factor insight have done. AMOMX, AQR's LC MOM fund has underperformed LCB measured by VOO (S&P 500) since its inception 10 years ago. Not only that but it has done so with increased volatility, higher maximum drawdown, and hence a lower Sharpe Ratio. So at least over its 10 yr. lifetime the AQR LC MOM fund looks like a loser to a cheap LCB alternative. Numbers from Portfolio Visualizer:

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

Now let us look at MOM in the small cap space where AQR's fund is ASMOX. This fund since its inception 11 years ago has done even worse relative to NAESX, the simple cheap SCB fund. It substantially underperformed with considerable more volatility, maximum drawdown, and consequently lower Sharpe ratio. In sum both of these AQR MOM funds have been unable to harvest the MOM premium for 10 and 11 years, and in fact the exact opposite of the hoped for outperformance has occurred. Numbers from Portfolio Visualizer:

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

At least MTUM on the beat its comparable cap weight index but I believe the reason why may not be because it pursued MOM but rather because MOM was driven by tech dominated LCG which was where MTUM concentrated heavily during its lifetime. It is illuminating to compare MTUM to VUG, Vanguard's Growth ETF, in this regard. VUG actually outperformed MTUM by a whisker since MTUM's inception through 7/20. Was it because LC growth dominated thee market or was it the MOM factor that produced the great results that both these funds. I confess I don't know. What I do know is that the evidence for harvesting MOM after costs in real funds is IMO unconvincing at this point. Numbers from Portfolio Visualizer:

https://www.portfoliovisualizer.com/bac ... ion3_3=100

Garland Whizzer
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Re: Small Cap Value heads Rejoice !!!

Post by rascott »

Steve Reading wrote: Thu Aug 13, 2020 6:58 pm
rascott wrote: Thu Aug 13, 2020 4:36 pm FNDC is like 36% Japan. Such is the result of Quant based investing.
I nearly spit out my water at the thought of FNDC being considered a "quant fund".
MotoTrojan wrote: Thu Aug 13, 2020 4:43 pm Got any recommendations for good reads/sources to learn more about this rigged and broken market?
Lmao links a reuters page.
rascott wrote: Thu Aug 13, 2020 5:11 pm https://www.reuters.com/article/us-japa ... SKBN21B0CX

Their central bank owns roughly 10% of the total equity market.... and they continue to grow their share.
Yeah I also don't like the BOJ. What with all of the buying of tradeable securities. I much prefer our Federal Reserve, oh wait.
Of course it's not a Quant fund in the hedge fund terminology world. But it's an index that is built upon a set of quantitative factors.

The Fed has never bought US equities. Yet.... 8-)
Last edited by rascott on Thu Aug 13, 2020 8:04 pm, edited 1 time in total.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

rascott wrote: Thu Aug 13, 2020 7:17 pm
Steve Reading wrote: Thu Aug 13, 2020 6:58 pm
rascott wrote: Thu Aug 13, 2020 4:36 pm FNDC is like 36% Japan. Such is the result of Quant based investing.
I nearly spit out my water at the thought of FNDC being considered a "quant fund".
MotoTrojan wrote: Thu Aug 13, 2020 4:43 pm Got any recommendations for good reads/sources to learn more about this rigged and broken market?
Lmao links a reuters page.
rascott wrote: Thu Aug 13, 2020 5:11 pm https://www.reuters.com/article/us-japa ... SKBN21B0CX

Their central bank owns roughly 10% of the total equity market.... and they continue to grow their share.
Yeah I also don't like the BOJ. What with all of the buying of tradeable securities. I much prefer our Federal Reserve, oh wait.
Of course it's not a Quant fund in the hedge fund terminology world. But it's an index that is built upon a set of quantitative factors.

The Fed has never bought US equities. Yet.... 8-)
Presumably you buy no US bonds?
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
rascott
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Re: Small Cap Value heads Rejoice !!!

Post by rascott »

Steve Reading wrote: Thu Aug 13, 2020 7:18 pm
rascott wrote: Thu Aug 13, 2020 7:17 pm
Steve Reading wrote: Thu Aug 13, 2020 6:58 pm
rascott wrote: Thu Aug 13, 2020 4:36 pm FNDC is like 36% Japan. Such is the result of Quant based investing.
I nearly spit out my water at the thought of FNDC being considered a "quant fund".
MotoTrojan wrote: Thu Aug 13, 2020 4:43 pm Got any recommendations for good reads/sources to learn more about this rigged and broken market?
Lmao links a reuters page.
rascott wrote: Thu Aug 13, 2020 5:11 pm https://www.reuters.com/article/us-japa ... SKBN21B0CX

Their central bank owns roughly 10% of the total equity market.... and they continue to grow their share.
Yeah I also don't like the BOJ. What with all of the buying of tradeable securities. I much prefer our Federal Reserve, oh wait.
Of course it's not a Quant fund in the hedge fund terminology world. But it's an index that is built upon a set of quantitative factors.

The Fed has never bought US equities. Yet.... 8-)
Presumably you buy no US bonds?
No.
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Ketawa
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Re: Small Cap Value heads Rejoice !!!

Post by Ketawa »

garlandwhizzer wrote: Thu Aug 13, 2020 7:15 pm There is no question that MTUM has done well during its lifetime but a lot of its success relative to VOO (S&P 500) is due to the fact that it has concentrated in LCG especially one segment mega-cap tech. First of all, finding a winner relative to the LC cap weight index with the Momentum its name does not mean the strategy works. Any investment approach used by multiple funds that depart from cap weighing will produce a bell shaped distribution of results including both winners and losers. Deciding a strategy (MOM) works needs more evidence than finding a single winner.
I brought up MTUM as an example of a momentum fund that has met it's goal of targeting a momentum factor, and hasn't been obviously impacted by the headwinds you claim momentum strategies would be destined to face, i.e. "trading and management costs, trading frictions". I mentioned the AQR factors to demonstrate that its strategy has been robust to multiple definition of momentums, and that the Fama-French factors are not missing something by leaving out quality. It's clear that it has been possible to invest in a momentum fund that successfully targets the momentum factor, and in fact this is probably the longest-running widely-available momentum fund. Now you're shifting the goalposts.
garlandwhizzer wrote: Thu Aug 13, 2020 7:15 pmKetawa mentions the AQR factor model. Let us look at how AQR MOM funds using AQR's state of the art factor insight have done. AMOMX, AQR's LC MOM fund has underperformed LCB measured by VOO (S&P 500) since its inception 10 years ago. Not only that but it has done so with increased volatility, higher maximum drawdown, and hence a lower Sharpe Ratio. So at least over its 10 yr. lifetime the AQR LC MOM fund looks like a loser to a cheap LCB alternative. Numbers from Portfolio Visualizer:

https://www.portfoliovisualizer.com/bac ... ion2_2=100
AMOMX is actually smaller cap than VOO. In fact, it has had a slightly positive size loading and is smaller than VTI. By the standards you are setting for fund comparisons, AMOMX has been virtually indistinguishable from VTI and has outperformed VTI since its inception, with a Sharpe ratio of 0.92 vs 0.94 for VTI. More concerning would be the negative alpha in Fama-French and AQR regressions for AMOMX, some of which is due to the expense ratio, but even so, AMOMX has probably managed to "harvest a momentum premium" to overcome that negative alpha and outperform VTI.
garlandwhizzer wrote: Thu Aug 13, 2020 7:15 pmNow let us look at MOM in the small cap space where AQR's fund is ASMOX. This fund since its inception 11 years ago has done even worse relative to NAESX, the simple cheap SCB fund. It substantially underperformed with considerable more volatility, maximum drawdown, and consequently lower Sharpe ratio. In sum both of these AQR MOM funds have been unable to harvest the MOM premium for 10 and 11 years, and in fact the exact opposite of the hoped for outperformance has occurred. Numbers from Portfolio Visualizer:

https://www.portfoliovisualizer.com/bac ... ion2_2=100
ASMOX is much smaller than NAESX/VB, and small caps have underperformed the total stock market since its inception, so it's not surprising that it would underperform NAESX/VB. It also has a negative alpha in a regression, which is concerning, but it has succeeded at maintaining exposure to the momentum factor.

As I pointed out earlier in this thread, my domestic SCV holding, QSMLX, is actually a multifactor fund that targets small, value, momentum, and quality, and is now ahead of plain vanilla SCV funds like VBR, IJS, RZV, and DFSVX since its inception, demonstrating the benefits of a multifactor approach. It is underperforming VB, but it is much smaller than VB. Morningstar link here.
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Curious, anyone holding SLYV (or IJS) *and* AVUV?
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Re: Small Cap Value heads Rejoice !!!

Post by Wade Garrett »

Forester wrote: Wed Aug 12, 2020 11:45 am My equities are a tri-barbell (a tribell?) Momentum, Min Vol (both MSCI), SCV (mix of VG, RAFI, WisdomTree).
The Pim Van Vliet portfolio. I like it.
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Re: Small Cap Value heads Rejoice !!!

Post by Wade Garrett »

mjuszczak wrote: Thu Aug 13, 2020 9:53 pm Curious, anyone holding SLYV (or IJS) *and* AVUV?
Yep. AVUV has deeper value exposure. VIOV (tracks same index as SLYV/IJS) has a cheaper ER. So rather than choosing one or the other for my SCV allocation I split the difference and hold both.
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Wade Garrett wrote: Thu Aug 13, 2020 10:45 pm
mjuszczak wrote: Thu Aug 13, 2020 9:53 pm Curious, anyone holding SLYV (or IJS) *and* AVUV?
Yep. AVUV has deeper value exposure. VIOV (tracks same index as SLYV/IJS) has a cheaper ER. So rather than choosing one or the other for my SCV allocation I split the difference and hold both.
That is what I’ve been doing!

I am 25% AVUV, SLYV, AVDV, DGS. I know AVDV and DGS don’t quite complement each other so I’m trying to figure out if I’m in an OK allocation.
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Re: Small Cap Value heads Rejoice !!!

Post by Wade Garrett »

mjuszczak wrote: Thu Aug 13, 2020 10:52 pm That is what I’ve been doing!
they say great minds think alike......
"I'm not an inventor. I'm an improver. I see things that are wrong, and I improve them." - Larry David, Curb Your Enthusiasm
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Wade Garrett wrote: Thu Aug 13, 2020 11:03 pm
mjuszczak wrote: Thu Aug 13, 2020 10:52 pm That is what I’ve been doing!
they say great minds think alike......
😂😊
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

mjuszczak wrote: Thu Aug 13, 2020 10:52 pm
Wade Garrett wrote: Thu Aug 13, 2020 10:45 pm
mjuszczak wrote: Thu Aug 13, 2020 9:53 pm Curious, anyone holding SLYV (or IJS) *and* AVUV?
Yep. AVUV has deeper value exposure. VIOV (tracks same index as SLYV/IJS) has a cheaper ER. So rather than choosing one or the other for my SCV allocation I split the difference and hold both.
That is what I’ve been doing!

I am 25% AVUV, SLYV, AVDV, DGS. I know AVDV and DGS don’t quite complement each other so I’m trying to figure out if I’m in an OK allocation.
Bold strategy, I like it. My SCV allocation (also hold deep-value QVAL which is mid-cap) is split between AVUV and VSIAX (VBR) but only because of 401k constraints. Outside of that I’d favor AVUV and don’t see why you’d hold both. Could use something like VFVA instead of SLYV to get some even deeper value exposure while diversifying market cap. Or perhaps even QVAL which diversifies your weighting metric (enterprise multiple).

Good luck with this ride. If you can hold on I think it’ll serve you well.
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

Wade Garrett wrote: Thu Aug 13, 2020 10:28 pm
Forester wrote: Wed Aug 12, 2020 11:45 am My equities are a tri-barbell (a tribell?) Momentum, Min Vol (both MSCI), SCV (mix of VG, RAFI, WisdomTree).
The Pim Van Vliet portfolio. I like it.
Funnily enough yes, albeit spread across three funds. His book is the only accessible work on low vol investing that I know of.
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Re: Small Cap Value heads Rejoice !!!

Post by Robert T »

garlandwhizzer wrote: Thu Aug 13, 2020 7:15 pm At least MTUM on the beat its comparable cap weight index but I believe the reason why may not be because it pursued MOM but rather because MOM was driven by tech dominated LCG which was where MTUM concentrated heavily during its lifetime. It is illuminating to compare MTUM to VUG, Vanguard's Growth ETF, in this regard. VUG actually outperformed MTUM by a whisker since MTUM's inception through 7/20. Was it because LC growth dominated thee market or was it the MOM factor that produced the great results that both these funds. I confess I don't know.
Factor loads: MTUM / VUG: May 2013 - Jun 2020
1.01 / 1.06 = Mkt
-0.11 / -0.13 = Size
-0.15 / -031 = Value
+0.29 / -0.03 = Momentum
0.03 / 0.00 = Alpha
https://www.portfoliovisualizer.com/fac ... sion=false

VUG had a higher loading to beta and growth (double the growth load) and no loading to momentum (-0.03 vs 0.29) than MTUM.

VUG currently has more tech, more communications services, and more consumer cyclicals than MTUM. While tech in MTUM is higher than the S&P500 (VFINX) [31% vs. 24%], it is similar to S&P500 for communication services and consumer cyclicals. The biggest difference is healthcare. MTUM = 30%, VFINX = 15%, VUG = 9% - so double exposure of MTUM than VFINX, and three times exposure than VUG.

Following the above, MTUM is not just a large cap growth fund (at least has not been so far), and its momentum load since May 2013 is similar to the back-tested MSCI USA Momentum Index from 1980. And it has had a lower correlation with SV than VUG (at least so far).

Obviously no guarantees. Did not want to hijack the SV thread, but just wanted to point of the above differences (so far).

And on SV, past 3 months have been better. Still quite a hill to climb. Still have a global small cap value tilt.

This figure https://www.portfoliovisualizer.com/bac ... ion2_2=100
Reminds me of this one: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Will be interesting to see what happens over the next decade.

Robert
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Re: Small Cap Value heads Rejoice !!!

Post by Elysium »

Robert T wrote: Fri Aug 14, 2020 6:42 am This figure https://www.portfoliovisualizer.com/bac ... ion2_2=100
Reminds me of this one: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Will be interesting to see what happens over the next decade.

Robert
.
Or simply this figure

Reminds me of the title of a play by Shakespeare '"Much Ado about Nothing"
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Re: Small Cap Value heads Rejoice !!!

Post by Elysium »

In 1993, if I were told there are two brilliant professors who have come up with a systemic way to achieve above market returns by investing passively in engineered portfolios designed on their groundbreaking research, only for a fee of 1% per annum to get in to this exclusive fund company that has the secret sauce, then fast forward 27 years only to see my balance tied with "dumb" S&P 500 Index available to all, and much behind when fees taken out, I sure will feel swindled.

Hope springs are eternal and so the search for perfect portfolio continues even when evidence shows it doesn't exist.
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

garlandwhizzer wrote: Thu Aug 13, 2020 1:37 pm
Forester wrote:

Worst case yes but with less lumpy returns. a smarter way to own megacap stocks. Case for low vol / mommentum barbell instead of market weight index; https://www.fortunefinancialadvisors.c ... m-barbell/
The quoted article, https://www.fortunefinancialadvisors.co ... m-barbell/, demonstrates superior returns of a 50 MOM/50 LOW VOL large cap portfolio with less risk and lower volatility than a cap weighted index like S&P 500 over the time frame 8/1994 - 1/2008. It looks like a sure long term winner. At the very end of the article in smaller print there is a disclaimer which gives the secret to this outstanding performance. These results are based not on real funds but on factor models. Factor model cost free long/short doubles the returns at no charge but it's a lot worse than that. All the trades (Momentum is a frequent trading strategy) are also cost free and there are no nasty management fees to deal with. Finally there are no trading frictions in these trades. There is no way that investors in real funds should expect these results either in this time period or going forward. Factor models are carefully designed to magnify the positives (long/short), completely neglect the negatives (trading and management costs, trading frictions) and hence to magnify slight/nonexistent market differences into what appear to be compellingly positive model results. If the real factor funds were as successful as the models that promote them, it would be nice. Unfortunately that has not typically been the case during our era of factor funds/ETFs proliferation.

There is doubt that a LOW VOL/MOM portfolio combining these 2 opposite poles of market volatility the has some theoretical appeal. Whether real funds using this approach will put money in investors pockets is a different question altogether. The paper quoted above is authored by a man whose income is derived at least in part from the thing he promotes. The most important part of the article to read carefully IMO is the disclaimer at the end which is written in small print.

Garland Whizzer
It is true the article was based partly on synthetic data. AFAIK MSCI paper traded the 2011 factor ETFs starting in 2008. MTUM & USMV are both rebalanced twice a year (unlike for example the momentum ETF QMOM which rebalances once a quarter). The obstacle with these funds IMHO would be deterioration of the factor strategy itself, rather than trading friction.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Elysium wrote: Fri Aug 14, 2020 7:23 am In 1993, if I were told there are two brilliant professors who have come up with a systemic way to achieve above market returns by investing passively in engineered portfolios designed on their groundbreaking research, only for a fee of 1% per annum to get in to this exclusive fund company that has the secret sauce, then fast forward 27 years only to see my balance tied with "dumb" S&P 500 Index available to all, and much behind when fees taken out, I sure will feel swindled.

Hope springs are eternal and so the search for perfect portfolio continues even when evidence shows it doesn't exist.
Your plot above looks fantastic to me. Yes in that moment in time the returns are equal (however the valuation spread is at a historic delta, matters to me at-least), but the time-weighted return differential is enormous; DFSVX spends nearly 2 decades with more than double the portfolio value. Time will tell, but it is silly to say this plot is the definitive "value was a scam" story.
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

You do have to question the wisdom of buying cheap stocks because they are cheap. There has to be some reason why they are cheap like they are operating in a cyclical sector like oil and gas or the company is very capital intensive or the company is run by people who don't know what they are doing. Rarely will you get good companies cheaply by doing this quant screen which I assume picks stocks based on how low the P/E,P/B is relative to Market. The good value investors like Warren Buffet don't even care about Value vs Growth stock difference and pick stocks like Amazon which don't feature in any Value index.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Anon9001 wrote: Fri Aug 14, 2020 7:50 am You do have to question the wisdom of buying cheap stocks because they are cheap. There has to be some reason why they are cheap like they are operating in a cyclical sector like oil and gas or the company is very capital intensive or the company is run by people who don't know what they are doing. Rarely will you get good companies cheaply by doing this quant screen which I assume picks stocks based on how low the P/E,P/B is relative to Market. The good value investors like Warren Buffet don't even care about Value vs Growth stock difference and pick stocks like Amazon which don't feature in any Value index.
This is EXACTLY why it has worked historically. They are junkier companies, thus riskier, introducing a risk-premium for those that believe markets are efficient. Don't believe markets are efficient? Even better! Because they seem much junkier, and it is much more exciting to invest in the Amazons of the universe, people bid the prices of Amazon irrationally higher, and value stocks irrationally lower, which eventually provides a behavioral boost as some value stocks migrate to blend/growth and growth stocks the other direction. If it worked year-after-year then it would not work at all; value investors should be pleased it is going through a rough-patch as that bodes well for a bright future.

As to Buffett, some of the highest returns of his life were made in net-net stocks which trade below their liquidation value (the deepest of deep-value, he called them cigar butts because you could only get one last puff out of them but it was a great one). Yes as he got bigger he started to incorporate quality along with value, and quality came out in the last decade as another factor style which when combined with the value factor explains a significant portion of Buffett's later returns as well.
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

MotoTrojan wrote: Fri Aug 14, 2020 7:57 am
Anon9001 wrote: Fri Aug 14, 2020 7:50 am You do have to question the wisdom of buying cheap stocks because they are cheap. There has to be some reason why they are cheap like they are operating in a cyclical sector like oil and gas or the company is very capital intensive or the company is run by people who don't know what they are doing. Rarely will you get good companies cheaply by doing this quant screen which I assume picks stocks based on how low the P/E,P/B is relative to Market. The good value investors like Warren Buffet don't even care about Value vs Growth stock difference and pick stocks like Amazon which don't feature in any Value index.
This is EXACTLY why it has worked historically. They are junkier companies, thus riskier, introducing a risk-premium for those that believe markets are efficient. Don't believe markets are efficient? Even better! Because they seem much junkier, and it is much more exciting to invest in the Amazons of the universe, people bid the prices of Amazon irrationally higher, and value stocks irrationally lower, which eventually provides a behavioral boost as some value stocks migrate to blend/growth and growth stocks the other direction. If it worked year-after-year then it would not work at all; value investors should be pleased it is going through a rough-patch as that bodes well for a bright future.

As to Buffett, some of the highest returns of his life were made in net-net stocks which trade below their liquidation value (the deepest of deep-value, he called them cigar butts because you could only get one last puff out of them but it was a great one). Yes as he got bigger he started to incorporate quality along with value, and quality came out in the last decade as another factor style which when combined with the value factor explains a significant portion of Buffett's later returns as well.
Is there any reason to believe junk companies should give you good returns in the present time? Mr.Buffet was doing that in a time where the Internet was not available. Now with the much easier way to get data on companies I doubt you could find companies like that any-more. The Fama French factors don't include low volatility although it is giving very important evidence that the higher risk companies as defined by Beta don't give higher returns than Low Beta but actually lower returns. If value was filled with junk companies the low volatility anamoly would say value will continue to under-perform. I don't trust these factors too much but the Beta factor I do trust because it actually works in real life:

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

This is with a index that includes profitability criteria. Even with the profitability criteria of the S&P 500 they still under-perform relative to market.
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

MotoTrojan wrote: Fri Aug 14, 2020 7:57 am
Anon9001 wrote: Fri Aug 14, 2020 7:50 am You do have to question the wisdom of buying cheap stocks because they are cheap. There has to be some reason why they are cheap like they are operating in a cyclical sector like oil and gas or the company is very capital intensive or the company is run by people who don't know what they are doing. Rarely will you get good companies cheaply by doing this quant screen which I assume picks stocks based on how low the P/E,P/B is relative to Market. The good value investors like Warren Buffet don't even care about Value vs Growth stock difference and pick stocks like Amazon which don't feature in any Value index.
This is EXACTLY why it has worked historically. They are junkier companies, thus riskier, introducing a risk-premium for those that believe markets are efficient. Don't believe markets are efficient? Even better! Because they seem much junkier, and it is much more exciting to invest in the Amazons of the universe, people bid the prices of Amazon irrationally higher, and value stocks irrationally lower, which eventually provides a behavioral boost as some value stocks migrate to blend/growth and growth stocks the other direction. If it worked year-after-year then it would not work at all; value investors should be pleased it is going through a rough-patch as that bodes well for a bright future.

As to Buffett, some of the highest returns of his life were made in net-net stocks which trade below their liquidation value (the deepest of deep-value, he called them cigar butts because you could only get one last puff out of them but it was a great one). Yes as he got bigger he started to incorporate quality along with value, and quality came out in the last decade as another factor style which when combined with the value factor explains a significant portion of Buffett's later returns as well.
Interesting you are talking about as he got bigger. The cigar butt investing doesn't seem to be scaling properly. If you were going to do this value factor thing you should be careful of assuming these funds could actually capture it. The real cigar butts could be very small illiquid stocks that these funds can't own and that is where most of the value factor premium is. The absence of there being a Large Value premium also supports this.
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

Robert T wrote: Fri Aug 14, 2020 6:42 am
garlandwhizzer wrote: Thu Aug 13, 2020 7:15 pm At least MTUM on the beat its comparable cap weight index but I believe the reason why may not be because it pursued MOM but rather because MOM was driven by tech dominated LCG which was where MTUM concentrated heavily during its lifetime. It is illuminating to compare MTUM to VUG, Vanguard's Growth ETF, in this regard. VUG actually outperformed MTUM by a whisker since MTUM's inception through 7/20. Was it because LC growth dominated thee market or was it the MOM factor that produced the great results that both these funds. I confess I don't know.
Factor loads: MTUM / VUG: May 2013 - Jun 2020
1.01 / 1.06 = Mkt
-0.11 / -0.13 = Size
-0.15 / -031 = Value
+0.29 / -0.03 = Momentum
0.03 / 0.00 = Alpha
https://www.portfoliovisualizer.com/fac ... sion=false

VUG had a higher loading to beta and growth (double the growth load) and no loading to momentum (-0.03 vs 0.29) than MTUM.

VUG currently has more tech, more communications services, and more consumer cyclicals than MTUM. While tech in MTUM is higher than the S&P500 (VFINX) [31% vs. 24%], it is similar to S&P500 for communication services and consumer cyclicals. The biggest difference is healthcare. MTUM = 30%, VFINX = 15%, VUG = 9% - so double exposure of MTUM than VFINX, and three times exposure than VUG.

Following the above, MTUM is not just a large cap growth fund (at least has not been so far), and its momentum load since May 2013 is similar to the back-tested MSCI USA Momentum Index from 1980. And it has had a lower correlation with SV than VUG (at least so far).

Obviously no guarantees. Did not want to hijack the SV thread, but just wanted to point of the above differences (so far).

And on SV, past 3 months have been better. Still quite a hill to climb. Still have a global small cap value tilt.

This figure https://www.portfoliovisualizer.com/bac ... ion2_2=100
Reminds me of this one: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Will be interesting to see what happens over the next decade.

Robert
.
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Re: Small Cap Value heads Rejoice !!!

Post by Elysium »

MotoTrojan wrote: Fri Aug 14, 2020 7:34 am Your plot above looks fantastic to me. Yes in that moment in time the returns are equal (however the valuation spread is at a historic delta, matters to me at-least), but the time-weighted return differential is enormous; DFSVX spends nearly 2 decades with more than double the portfolio value. Time will tell, but it is silly to say this plot is the definitive "value was a scam" story.
I do not think value stocks are a scam. I also do not think small growth stocks are a "black hole" like some claim. If you slice and dice the market into value, growth, large, small, medium, etc you would end up getting some variance and depending on the period some may look better than others, but in the long run they will all revert to the mean, this is reflected in the market.

A scam is when someone promises you secret sauce only they have to systemically capture excess returns by selecting some securities and avoiding others, charge a fee for access to this, then do this over and over again to different customers. It's an age old Wall St. technique.
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Re: Small Cap Value heads Rejoice !!!

Post by acegolfer »

Elysium wrote: Fri Aug 14, 2020 7:23 am In 1993, if I were told there are two brilliant professors who have come up with a systemic way to achieve above market returns by investing passively in engineered portfolios designed on their groundbreaking research, only for a fee of 1% per annum to get in to this exclusive fund company that has the secret sauce, then fast forward 27 years only to see my balance tied with "dumb" S&P 500 Index available to all, and much behind when fees taken out, I sure will feel swindled.

Hope springs are eternal and so the search for perfect portfolio continues even when evidence shows it doesn't exist.
That's totally unfair to those two professors. They never made such claims. It's their students who did.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Elysium wrote: Fri Aug 14, 2020 8:47 am
MotoTrojan wrote: Fri Aug 14, 2020 7:34 am Your plot above looks fantastic to me. Yes in that moment in time the returns are equal (however the valuation spread is at a historic delta, matters to me at-least), but the time-weighted return differential is enormous; DFSVX spends nearly 2 decades with more than double the portfolio value. Time will tell, but it is silly to say this plot is the definitive "value was a scam" story.
I do not think value stocks are a scam. I also do not think small growth stocks are a "black hole" like some claim. If you slice and dice the market into value, growth, large, small, medium, etc you would end up getting some variance and depending on the period some may look better than others, but in the long run they will all revert to the mean, this is reflected in the market.

A scam is when someone promises you secret sauce only they have to systemically capture excess returns by selecting some securities and avoiding others, charge a fee for access to this, then do this over and over again to different customers. It's an age old Wall St. technique.
Right on. I have looked at backtests (Jim O's What Works On Wallstreet is a great book/source) for various value metric deciles that show a monotonic increase in return as you move from the most expensive to the cheapest, even when looking at only large-caps. I believe this will be the future. I also know historically (and believe the future will repeat) that the highest returning individual stock(s) are growth stocks, hence why people still chase them for the lottery-ticket win. We can agree to disagree on what we think the future holds, but the past is the past and is pretty clear to me.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Anon9001 wrote: Fri Aug 14, 2020 8:29 am The absence of there being a Large Value premium also supports this.
I would recommend What Works on Wallstreet to you as well as there certainly has been a very healthy premium in large-caps for a number of value metrics. It hasn't worked as well with P/B especially of late (although this improves with profitability screens included) but I do agree it is easier to capture in smaller-cap funds which is why I use small-value (AVUV/FNDC) and mid-cap deep-value (QVAL/IVAL). In the case of QVAL/IVAL their inclusion of larger-cap companies allows them to screen deeper on value without running out of options, just as you say Buffett's net-nets did.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Anon9001 wrote: Fri Aug 14, 2020 8:20 am
Is there any reason to believe junk companies should give you good returns in the present time? Mr.Buffet was doing that in a time where the Internet was not available. Now with the much easier way to get data on companies I doubt you could find companies like that any-more. The Fama French factors don't include low volatility although it is giving very important evidence that the higher risk companies as defined by Beta don't give higher returns than Low Beta but actually lower returns. If value was filled with junk companies the low volatility anamoly would say value will continue to under-perform. I don't trust these factors too much but the Beta factor I do trust because it actually works in real life:

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

I'll admit I haven't done much research on low-volatility anomaly but I would wager that has more to do with behavioral premium than risk, just as I provided an example of how a behavioral component can explain the value premium. Low-volatility/beta companies are more boring and often ignored by investors, just as how lower priced companies are. Eventually the voting machine transitions to a weighting machine and their earnings can prove to be worth more than originally thought, generating a migration and ultimately outperformance.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

Anon9001 wrote: Fri Aug 14, 2020 8:20 am
MotoTrojan wrote: Fri Aug 14, 2020 7:57 am
Anon9001 wrote: Fri Aug 14, 2020 7:50 am You do have to question the wisdom of buying cheap stocks because they are cheap. There has to be some reason why they are cheap like they are operating in a cyclical sector like oil and gas or the company is very capital intensive or the company is run by people who don't know what they are doing. Rarely will you get good companies cheaply by doing this quant screen which I assume picks stocks based on how low the P/E,P/B is relative to Market. The good value investors like Warren Buffet don't even care about Value vs Growth stock difference and pick stocks like Amazon which don't feature in any Value index.
This is EXACTLY why it has worked historically. They are junkier companies, thus riskier, introducing a risk-premium for those that believe markets are efficient. Don't believe markets are efficient? Even better! Because they seem much junkier, and it is much more exciting to invest in the Amazons of the universe, people bid the prices of Amazon irrationally higher, and value stocks irrationally lower, which eventually provides a behavioral boost as some value stocks migrate to blend/growth and growth stocks the other direction. If it worked year-after-year then it would not work at all; value investors should be pleased it is going through a rough-patch as that bodes well for a bright future.

As to Buffett, some of the highest returns of his life were made in net-net stocks which trade below their liquidation value (the deepest of deep-value, he called them cigar butts because you could only get one last puff out of them but it was a great one). Yes as he got bigger he started to incorporate quality along with value, and quality came out in the last decade as another factor style which when combined with the value factor explains a significant portion of Buffett's later returns as well.
Is there any reason to believe junk companies should give you good returns in the present time? Mr.Buffet was doing that in a time where the Internet was not available. Now with the much easier way to get data on companies I doubt you could find companies like that any-more. The Fama French factors don't include low volatility although it is giving very important evidence that the higher risk companies as defined by Beta don't give higher returns than Low Beta but actually lower returns. If value was filled with junk companies the low volatility anamoly would say value will continue to under-perform. I don't trust these factors too much but the Beta factor I do trust because it actually works in real life:

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

This is with a index that includes profitability criteria. Even with the profitability criteria of the S&P 500 they still under-perform relative to market.
1) Once you control for the investment factor, Fama and French find that the low-volatility anomaly goes away and beta once again has explanatory power. In other words, high beta stocks weren't producing higher returns because they loaded negatively on investment.

2) It's perfectly reasonable for value to outperform today despite the Internet. Think about it: In the bond world, we know the lower the credit of the company, the higher the expected the returns. Bonds from Ford, yielding 8%+, clearly have a higher expected return than Apple bonds yielding ~2%. The lower the Fitch rating of the bond, the higher the risks and returns. The cost of bond capital is much higher for Ford. The cost of capital for US government bonds are the lowest, hence why they're the ones with the lowest returns for investors (and lowest risks).

It would be logical then that Ford's cost of equity capital would also be much higher (and hence, the returns on Ford stock higher than on Apple stock). Otherwise, Ford would only issue stocks, not bonds. But they DO issue bonds.

Let that sink in.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
acegolfer
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Re: Small Cap Value heads Rejoice !!!

Post by acegolfer »

Steve Reading wrote: Fri Aug 14, 2020 9:29 am The cost of capital for US government bonds are the lowest, hence why they're the ones with the lowest returns for investors (and lowest risks).
This is not a cause and effect. Low cost of debt = low expected return. If anything, the effect goes the other way. Since the investors require less return for Treasuries, the cost of debt for US government is low.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

acegolfer wrote: Fri Aug 14, 2020 9:41 am
Steve Reading wrote: Fri Aug 14, 2020 9:29 am The cost of capital for US government bonds are the lowest, hence why they're the ones with the lowest returns for investors (and lowest risks).
This is not a cause and effect. Low cost of debt = low expected return. If anything, the effect goes the other way. Since the investors require less return for Treasuries, the cost of debt for US government is low.
Yes, that.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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