Small Cap Value heads Rejoice !!!

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Massdriver
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

MotoTrojan wrote: Thu Sep 03, 2020 1:19 pm
Massdriver wrote: Thu Sep 03, 2020 1:15 pm Scooped up a small amount of AVDV and SLYV today. Feels good.
NIce! I haven't bought in a while, miss that feeling.

Perspective is still important though. AVUV for example is still nearly 65% above it's March low :twisted:.
You'll be back at it next year though! Nothing beat purchasing funds earlier this year. When I buy now, it's more about staying the course. I felt I was getting a decent price back when fund prices were off 40-50%.

I'm very pleased with Avantis so far.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Massdriver wrote: Thu Sep 03, 2020 1:53 pm
MotoTrojan wrote: Thu Sep 03, 2020 1:19 pm
Massdriver wrote: Thu Sep 03, 2020 1:15 pm Scooped up a small amount of AVDV and SLYV today. Feels good.
NIce! I haven't bought in a while, miss that feeling.

Perspective is still important though. AVUV for example is still nearly 65% above it's March low :twisted:.
You'll be back at it next year though! Nothing beat purchasing funds earlier this year. When I buy now, it's more about staying the course. I felt I was getting a decent price back when fund prices were off 40-50%.

I'm very pleased with Avantis so far.
Yes I quite enjoyed buying at the lows, maybe I'll get another chance to load up more :twisted:
nzahir
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Re: Small Cap Value heads Rejoice !!!

Post by nzahir »

MotoTrojan wrote: Thu Sep 03, 2020 12:55 pm
nzahir wrote: Thu Sep 03, 2020 12:11 pm
MotoTrojan wrote: Thu Sep 03, 2020 7:19 am
nzahir wrote: Thu Sep 03, 2020 2:10 am Good links for why some of you guys like small value over small blend? Seems kind of un-bogle-like
Small blend seems un-bogle-like to me, so if you are going to tilt you might as well go where history/theory says you'll come out ahead.

Take backtests that use index data with a grain of salt, but you can see historically that small-caps did help outperform the market (on an absolute, not risk-adjusted basis) while small-value obliterated it, even on a risk-adjusted basis.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
How so? You guys say you don't know what will go up or down, so why tilt to value and not blend
Tilting to small is no different than tilting to value in my view, both are deviations from the market. If you consider that bogleheads want to buy the haystack then both of these seems un-bogle to me. I personally don't consider myself a pure boglehead at all, I am a systematic investor with pretty strong factor tilts (size, value, quality).

Most "true" bogleheads do tilt (or solely hold) US stocks which I feel is against the spirit of the teachings as well, but it is what Bogle himself preaches so it sticks around.
Got it, I do agree with tilting a bit honestly, but also depends on age and other circumstances

I am in my young 20s, so I have a longer timeframe and may be able to tilt more to small and even tech/growth (but I wouldn't right now, feel like there has to be a swing back to small/mid and value at some point, as usual)

How much do you tilt to small value? What is your allocation if I may ask

My other personal dilemna/decision is figuring out how much I want to put in my 401k (I get my 3% match, so I do that ofc) and my Roth. I also value liquidity because my family is in real estate and I may need liquidity. Any thoughts on that?
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

nzahir wrote: Thu Sep 03, 2020 2:21 pm
MotoTrojan wrote: Thu Sep 03, 2020 12:55 pm
nzahir wrote: Thu Sep 03, 2020 12:11 pm
MotoTrojan wrote: Thu Sep 03, 2020 7:19 am
nzahir wrote: Thu Sep 03, 2020 2:10 am Good links for why some of you guys like small value over small blend? Seems kind of un-bogle-like
Small blend seems un-bogle-like to me, so if you are going to tilt you might as well go where history/theory says you'll come out ahead.

Take backtests that use index data with a grain of salt, but you can see historically that small-caps did help outperform the market (on an absolute, not risk-adjusted basis) while small-value obliterated it, even on a risk-adjusted basis.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
How so? You guys say you don't know what will go up or down, so why tilt to value and not blend
Tilting to small is no different than tilting to value in my view, both are deviations from the market. If you consider that bogleheads want to buy the haystack then both of these seems un-bogle to me. I personally don't consider myself a pure boglehead at all, I am a systematic investor with pretty strong factor tilts (size, value, quality).

Most "true" bogleheads do tilt (or solely hold) US stocks which I feel is against the spirit of the teachings as well, but it is what Bogle himself preaches so it sticks around.
Got it, I do agree with tilting a bit honestly, but also depends on age and other circumstances

I am in my young 20s, so I have a longer timeframe and may be able to tilt more to small and even tech/growth (but I wouldn't right now, feel like there has to be a swing back to small/mid and value at some point, as usual)

How much do you tilt to small value? What is your allocation if I may ask

My other personal dilemna/decision is figuring out how much I want to put in my 401k (I get my 3% match, so I do that ofc) and my Roth. I also value liquidity because my family is in real estate and I may need liquidity. Any thoughts on that?
Can't comment on the real estate stuff as that isn't my cup of tea, but I aim to max out any/all tax-advantaged accounts.

A tilt to small-value is quite different than tech/growth in my view, as there are reasons for them to outperform long-term where-as the opposite applies to tech/growth (more of a timing or macro bet), in my opinion.

My current allocation:
35% US Large Value (VVIAX, longterm intend to have this in S&P500 but making a tactical play given current valuations)
20% US Small-value (combo of VSIAX in 401k and AVUV elsewhere)
10% US Deep-value (QVAL)
25% Ex-US Small-value (FDNC)
10% Ex-US Deep-value (IVAL)

One of the more extreme tilts out there I would wager, certainly for this forum. I know of a few members with similar exposures.
Day9
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Re: Small Cap Value heads Rejoice !!!

Post by Day9 »

I am not accusing anyone here of this, but it seems a little off to celebrate our investments losing money so long as large growth loses a lot more.
I'm just a fan of the person I got my user name from
XacTactX
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Re: Small Cap Value heads Rejoice !!!

Post by XacTactX »

Hey everyone, first off congrats on a good day (DFSVX is -2.15% while VUG is -4.7%) :sharebeer

I want to get some feedback from those of you who like small value (and profitability/quality). Right now these are the investments I've picked for small value multifactor:

SMLF 54%
ISCF 34%
EMGF 12%

Now I want to get your perspective: what are your favorite small value ETFs and why? Which small value ETFs give pure exposure to small value without placing a large negative bet on profitability and momentum? I am well aware of VBR, IJS, IWN, FNDA, and AVUV, how do you feel about these ones?

Hoping I can learn from the rest of you, thanks for your time!
Last edited by XacTactX on Thu Sep 03, 2020 3:29 pm, edited 1 time in total.
SMLF | ISCF | EMGF | LendingClub | Cash
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

XacTactX wrote: Thu Sep 03, 2020 3:21 pm Hey everyone, first off congrats on a good day (DFSVX is +0.6% while VUG is -4.7%) :sharebeer

I want to get some feedback from those of you who like small value (and profitability/quality). Right now these are the investments I've picked for small value multifactor:

SMLF 54%
ISCF 34%
EMGF 12%

Now I want to get your perspective: what are your favorite small value ETFs and why? Which small value ETFs give pure exposure to small value without placing a large negative bet on profitability and momentum? I am well aware of VBR, IJS, IWN, FNDA, and AVUV, how do you feel about these ones?

Hoping I can learn from the rest of you, thanks for your time!
That was DFSVX's return yesterday. Using AVUV as a proxy you are probably looking at closer to a 2% loss.

AVUV is probably your best bet out of those for positive profitability. QVAL is another option for super pure value/quality exposure. SLYV/VIOV track the same index as IJS at 10bp cheaper.

I personally don't understand the momentum factor as much so I don't hold any multi-factor products that broad, but focus on those that combine quality (profitability) with value.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Day9 wrote: Thu Sep 03, 2020 3:10 pm I am not accusing anyone here of this, but it seems a little off to celebrate our investments losing money so long as large growth loses a lot more.
If you'd rather be down another 2-3% today, that is an option :D.

It is evidence of where the market is most upset, so it can still be a good sign for future (positive) returns, although when measured against a market-index a relative outperformance day is always welcome for me at-least.
rkhusky
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Re: Small Cap Value heads Rejoice !!!

Post by rkhusky »

MotoTrojan wrote: Thu Sep 03, 2020 9:58 am
Cantrip wrote: Thu Sep 03, 2020 9:30 am
Avantis has a really nice QDI page that they post: https://www.avantisinvestors.com/conten ... ncome.html

Makes me think that although these aren't specifically tax managed that they still make decisions with tax implications in mind. Only ETF that had non-qualified dividends was International SCV AVDV and even then it was 85.8% QDI which is alot higher than VSS which was only 47.17% in 2019 (ouch).

I'm not sure why Vanguard is so poor in comparison. Perhaps because they don't take tax considerations into account.
The reason Vanguard is "poor in comparison" is that the ETF expense ratio is deducted from non-qualified dividends. Higher expense ratio funds/etfs almost always have 100% qualified dividends.

This is the same reason why IJS is "more tax efficient" than VIOV. It is not. You are paying more for the fund.
Good point, although if you were okay paying the higher expense for some gain (factor exposure), does that not make the remaining yield more tax-efficient indeed?
Sure. They should increase the ER so that the fund is 100% QDI and then we can crow about it. Not.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

rkhusky wrote: Thu Sep 03, 2020 3:45 pm
MotoTrojan wrote: Thu Sep 03, 2020 9:58 am
Cantrip wrote: Thu Sep 03, 2020 9:30 am
Avantis has a really nice QDI page that they post: https://www.avantisinvestors.com/conten ... ncome.html

Makes me think that although these aren't specifically tax managed that they still make decisions with tax implications in mind. Only ETF that had non-qualified dividends was International SCV AVDV and even then it was 85.8% QDI which is alot higher than VSS which was only 47.17% in 2019 (ouch).

I'm not sure why Vanguard is so poor in comparison. Perhaps because they don't take tax considerations into account.
The reason Vanguard is "poor in comparison" is that the ETF expense ratio is deducted from non-qualified dividends. Higher expense ratio funds/etfs almost always have 100% qualified dividends.

This is the same reason why IJS is "more tax efficient" than VIOV. It is not. You are paying more for the fund.
Good point, although if you were okay paying the higher expense for some gain (factor exposure), does that not make the remaining yield more tax-efficient indeed?
Sure. They should increase the ER so that the fund is 100% QDI and then we can crow about it. Not.
If your factor exposure can be hit with either of these options with rest of portfolio in a 0% ER, 100% QDI fund:
10% of Fund A w/ 75% pre-expense QDI and 10bp ER
5% of Fund B w/ 75% pre-expense QDI and 20bp ER

Assumes they have equal yields.

Is it not more tax-efficient (and overall higher after-tax return) to go with the 2nd option? Same expense ratio either way, and a higher realized QDI%.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

nzahir wrote: Thu Sep 03, 2020 2:10 am Good links for why some of you guys like small value over small blend? Seems kind of un-bogle-like
Just my opinion but:

There's really no good economic or fundamental reason why small stocks should produce higher returns. In fact, it's the one factor Fama and French keep in their model that has no intuition at all; it simply is that good at explaining past returns to earn and keep its spot.

Ex: Two firms, one twice as big as the other in every way (twice as much debt, twice as much book value, etc etc). The bigger company might be allowed to borrow twice as much, but it doesn't get to borrow any cheaper just because it's bigger.

The other factors (value, quality and investment) do have strong fundamental reason for producing outperformance.

Personally, I tilt to value, quality and investment. I only tilt to size to the extent it lets me load further on those three tilts. Hence, I'd never tilt to small cap blend. But I'm happy tilting to large cap value and small cap value for instance.
"... 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
nzahir
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Re: Small Cap Value heads Rejoice !!!

Post by nzahir »

MotoTrojan wrote: Thu Sep 03, 2020 2:56 pm
nzahir wrote: Thu Sep 03, 2020 2:21 pm
MotoTrojan wrote: Thu Sep 03, 2020 12:55 pm
nzahir wrote: Thu Sep 03, 2020 12:11 pm
MotoTrojan wrote: Thu Sep 03, 2020 7:19 am

Small blend seems un-bogle-like to me, so if you are going to tilt you might as well go where history/theory says you'll come out ahead.

Take backtests that use index data with a grain of salt, but you can see historically that small-caps did help outperform the market (on an absolute, not risk-adjusted basis) while small-value obliterated it, even on a risk-adjusted basis.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
How so? You guys say you don't know what will go up or down, so why tilt to value and not blend
Tilting to small is no different than tilting to value in my view, both are deviations from the market. If you consider that bogleheads want to buy the haystack then both of these seems un-bogle to me. I personally don't consider myself a pure boglehead at all, I am a systematic investor with pretty strong factor tilts (size, value, quality).

Most "true" bogleheads do tilt (or solely hold) US stocks which I feel is against the spirit of the teachings as well, but it is what Bogle himself preaches so it sticks around.
Got it, I do agree with tilting a bit honestly, but also depends on age and other circumstances

I am in my young 20s, so I have a longer timeframe and may be able to tilt more to small and even tech/growth (but I wouldn't right now, feel like there has to be a swing back to small/mid and value at some point, as usual)

How much do you tilt to small value? What is your allocation if I may ask

My other personal dilemna/decision is figuring out how much I want to put in my 401k (I get my 3% match, so I do that ofc) and my Roth. I also value liquidity because my family is in real estate and I may need liquidity. Any thoughts on that?
Can't comment on the real estate stuff as that isn't my cup of tea, but I aim to max out any/all tax-advantaged accounts.

A tilt to small-value is quite different than tech/growth in my view, as there are reasons for them to outperform long-term where-as the opposite applies to tech/growth (more of a timing or macro bet), in my opinion.

My current allocation:
35% US Large Value (VVIAX, longterm intend to have this in S&P500 but making a tactical play given current valuations)
20% US Small-value (combo of VSIAX in 401k and AVUV elsewhere)
10% US Deep-value (QVAL)
25% Ex-US Small-value (FDNC)
10% Ex-US Deep-value (IVAL)

One of the more extreme tilts out there I would wager, certainly for this forum. I know of a few members with similar exposures.
Just heard about this
https://www.sciencedirect.com/science/a ... 5X18301326
"Size Matters if you control your junk"

So it seems like small caps make more sense when you adjust for companies that are not profitable, but what etf/funds even do this well with small ER
nzahir
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Re: Small Cap Value heads Rejoice !!!

Post by nzahir »

Steve Reading wrote: Thu Sep 03, 2020 4:49 pm
nzahir wrote: Thu Sep 03, 2020 2:10 am Good links for why some of you guys like small value over small blend? Seems kind of un-bogle-like
Just my opinion but:

There's really no good economic or fundamental reason why small stocks should produce higher returns. In fact, it's the one factor Fama and French keep in their model that has no intuition at all; it simply is that good at explaining past returns to earn and keep its spot.

Ex: Two firms, one twice as big as the other in every way (twice as much debt, twice as much book value, etc etc). The bigger company might be allowed to borrow twice as much, but it doesn't get to borrow any cheaper just because it's bigger.

The other factors (value, quality and investment) do have strong fundamental reason for producing outperformance.

Personally, I tilt to value, quality and investment. I only tilt to size to the extent it lets me load further on those three tilts. Hence, I'd never tilt to small cap blend. But I'm happy tilting to large cap value and small cap value for instance.
What small cap value fund do you like the most?
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

nzahir wrote: Thu Sep 03, 2020 5:28 pm
Steve Reading wrote: Thu Sep 03, 2020 4:49 pm
nzahir wrote: Thu Sep 03, 2020 2:10 am Good links for why some of you guys like small value over small blend? Seems kind of un-bogle-like
Just my opinion but:

There's really no good economic or fundamental reason why small stocks should produce higher returns. In fact, it's the one factor Fama and French keep in their model that has no intuition at all; it simply is that good at explaining past returns to earn and keep its spot.

Ex: Two firms, one twice as big as the other in every way (twice as much debt, twice as much book value, etc etc). The bigger company might be allowed to borrow twice as much, but it doesn't get to borrow any cheaper just because it's bigger.

The other factors (value, quality and investment) do have strong fundamental reason for producing outperformance.

Personally, I tilt to value, quality and investment. I only tilt to size to the extent it lets me load further on those three tilts. Hence, I'd never tilt to small cap blend. But I'm happy tilting to large cap value and small cap value for instance.
What small cap value fund do you like the most?
I'm happy with VBR/VSIAX. I tax-loss harvest with VIOV. And I think AVUV is good as well.
"... 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
muffins14
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Re: Small Cap Value heads Rejoice !!!

Post by muffins14 »

Steve Reading wrote: Thu Sep 03, 2020 4:49 pm [
Ex: Two firms, one twice as big as the other in every way (twice as much debt, twice as much book value, etc etc). The bigger company might be allowed to borrow twice as much, but it doesn't get to borrow any cheaper just because it's bigger.
This surprises me. My intuition would be that Google could access capital much cheaper than a small company with much lower revenue-generation capability, no?
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

muffins14 wrote: Thu Sep 03, 2020 5:39 pm
Steve Reading wrote: Thu Sep 03, 2020 4:49 pm Ex: Two firms, one twice as big as the other in every way (twice as much debt, twice as much book value, etc etc). The bigger company might be allowed to borrow twice as much, but it doesn't get to borrow any cheaper just because it's bigger.
This surprises me. My intuition would be that Google could access capital much cheaper than a small company with much lower revenue-generation capability, no?
Ehm ok it's hard to explain over messaging. But let me repeat the core tenet: All fundamentals equal (same P/B, same gross profits over price, etc), a smaller or a bigger company should not produce higher or lower returns (which, in other words, means it should not pay more or less to raise equity capital or borrow).

Ex: Say Google is $1T. Now say there is some other company XYZ. This company is basically mini-Google, but simply 1000th the size in fundamentals. It has 1000th as much cash on hand. It has 1000th as much revenue and expenses. It's got 1000th the book value. It also has the same fundamental ratios (same P/E, same P/B, etc). So everything the same, but scaled down.

Now XYZ is about to IPO. What should be the market cap of this company?

Obviously, if the earnings are 1000th of Google and it has the same P/E, then its market cap should be $1B.

So this company, which is 1/1000th the size of Google in every fundamental measure, was able to obtain 1/1000th of cash for its IPO by selling the same number of shares. So it effectively raised equity capital at the same cost as Google did.


Historically, we don't see the above. Which means that historically, firms like XYZ, identical to their large cap peers in every fundamental way, actually had brighter and more profitable futures, yet their market caps weren't reflecting it (i.e. they still only raised $1B). And that's how small caps, even once you control for fundamental factors, still outperformed.
"... 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 rkhusky »

Steve Reading wrote: Thu Sep 03, 2020 4:49 pm
There's really no good economic or fundamental reason why small stocks should produce higher returns. In fact, it's the one factor Fama and French keep in their model that has no intuition at all; it simply is that good at explaining past returns to earn and keep its spot.
Just because a factor is useful for explaining returns does not mean that you should tilt towards it. If small-big has a negative premium, it would be equally good at explaining returns, as if it had a positive premium.
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Re: Small Cap Value heads Rejoice !!!

Post by Robert T »

.
From an earlier Research Affiliates article.

Image

On risk differences between large caps and small caps, the table seems self explanatory.
.
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Re: Small Cap Value heads Rejoice !!!

Post by abuss368 »

Jack Bogle, no surprise, is correct again. That is, simply stop looking for the needle in the haystack and own the haystack.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Small Cap Value heads Rejoice !!!

Post by AZAttorney11 »

abuss368 wrote: Thu Sep 03, 2020 7:22 pm Jack Bogle, no surprise, is correct again. That is, simply stop looking for the needle in the haystack and own the haystack.
It's getting comical at this point. Taylor makes a statement with lots of quotes and alleged authority, ignores contradictory evidence, and then you swoop in and tell him how great he is and how great Bogle is.

P.S. Bogle endorsed a book by Bernstein that argues for a SCV tilt in the appropriate circumstance.
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Re: Small Cap Value heads Rejoice !!!

Post by Day9 »

Folks here may be interested in this new 1 hour, 22 minute webinar by Larry Swedroe titled "What to Do When an Investment Strategy Performs Poorly".

https://www.youtube.com/watch?v=qcQM81HLthc
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Re: Small Cap Value heads Rejoice !!!

Post by muffins14 »

Steve Reading wrote: Thu Sep 03, 2020 6:24 pm ...
Got it, thanks. I guess what was in my mind was something more like the interest rate at which it could obtain debt via corporate bonds. In that case I would have personally imagined a company with a larger revenue stream would be able to access cheaper debt.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

Robert T wrote: Thu Sep 03, 2020 7:11 pm .
From an earlier Research Affiliates article.

Image

On risk differences between large caps and small caps, the table seems self explanatory.
.
First of all, correlation ("small stocks are less credit worthy") does not imply causation ("small stocks are less credit worthy because they are smaller").

And secondly, even IF being a smaller company automatically made you less credit worthy, my point is that once you control for such fundamental factors (i.e., look at small vs large firms with similar distress and profitability), you shouldn't see a size premium any more. But historically, you still see it. Which is a most unintuitive finding. It's similar to momentum, another factor that really has no economic intuition yet is very robust.
"... 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 »

AZAttorney11 wrote: Thu Sep 03, 2020 7:25 pm
abuss368 wrote: Thu Sep 03, 2020 7:22 pm Jack Bogle, no surprise, is correct again. That is, simply stop looking for the needle in the haystack and own the haystack.
It's getting comical at this point. Taylor makes a statement with lots of quotes and alleged authority, ignores contradictory evidence, and then you swoop in and tell him how great he is and how great Bogle is.

P.S. Bogle endorsed a book by Bernstein that argues for a SCV tilt in the appropriate circumstance.
Our forum is titled "investing advice inspired by Jack Bogle"! Owning the haystack is the best approach and what Jack has taught all of us.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Small Cap Value heads Rejoice !!!

Post by 000 »

I wonder what this thread will look like in five years if SCV continues to underperform Total US Stock Market.
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Re: Small Cap Value heads Rejoice !!!

Post by donaldfair71 »

abuss368 wrote: Thu Sep 03, 2020 7:55 pm
AZAttorney11 wrote: Thu Sep 03, 2020 7:25 pm
abuss368 wrote: Thu Sep 03, 2020 7:22 pm Jack Bogle, no surprise, is correct again. That is, simply stop looking for the needle in the haystack and own the haystack.
It's getting comical at this point. Taylor makes a statement with lots of quotes and alleged authority, ignores contradictory evidence, and then you swoop in and tell him how great he is and how great Bogle is.

P.S. Bogle endorsed a book by Bernstein that argues for a SCV tilt in the appropriate circumstance.
Our forum is titled "investing advice inspired by Jack Bogle"! Owning the haystack is the best approach and what Jack has taught all of us.
I mean, how dare you?
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Re: Small Cap Value heads Rejoice !!!

Post by Robert T »

Steve Reading wrote: Thu Sep 03, 2020 7:50 pm ...once you control for such fundamental factors (i.e., look at small vs large firms with similar distress and profitability), you shouldn't see a size premium any more. But historically, you still see it. Which is a most unintuitive finding.
Perhaps a "neighborhood" effect (in a small cap "neighborhood" where the average credit rating is lower (default risk higher) than the average for large caps). If this is indeed true, you would think the 'premium' would be arbed away for these types of companies.
.
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

Cantrip wrote: Thu Sep 03, 2020 9:30 am
Avantis has a really nice QDI page that they post: https://www.avantisinvestors.com/conten ... ncome.html

Makes me think that although these aren't specifically tax managed that they still make decisions with tax implications in mind. Only ETF that had non-qualified dividends was International SCV AVDV and even then it was 85.8% QDI which is alot higher than VSS which was only 47.17% in 2019 (ouch).

I'm not sure why Vanguard is so poor in comparison. Perhaps because they don't take tax considerations into account.
The reason Vanguard is "poor in comparison" is that the ETF expense ratio is deducted from non-qualified dividends. Higher expense ratio funds/etfs almost always have 100% qualified dividends.

This is the same reason why IJS is "more tax efficient" than VIOV. It is not. You are paying more for the fund.
Avantis isn't that much more expensive than Vanguard. The small ER difference doesn't explain the large QDI difference.
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Re: Small Cap Value heads Rejoice !!!

Post by Day9 »

000 wrote: Thu Sep 03, 2020 8:04 pm I wonder what this thread will look like in five years if SCV continues to underperform Total US Stock Market.
I can see it now. Facebook, Amazon, Apple, Google, and Microsoft together make up over two thirds of the US market cap. Vanguard Emerging Market index fund VWO is 15% each of the Chinese tech giants Tencent and Baidu. Bogleheads justify a total market approach by citing the past where a handful of railroads dominated the stock market, or the even more distant past when companies like South Sea and East India dominated. Almost all small cap value investors silently capitulate and put all their stock allocation in VT Vanguard Total World index and tell themselves they are doing it for simplicity, so their heirs can manage the portfolio after they inherit it. Avantis changes their funds to focus more on momentum and other new factors. This thread gets bumped less and less frequently and goes away with a whimper not a bang.

Wake me up from that nightmare.
I'm just a fan of the person I got my user name from
000
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Re: Small Cap Value heads Rejoice !!!

Post by 000 »

Day9 wrote: Thu Sep 03, 2020 9:39 pm
000 wrote: Thu Sep 03, 2020 8:04 pm I wonder what this thread will look like in five years if SCV continues to underperform Total US Stock Market.
I can see it now. Facebook, Amazon, Apple, Google, and Microsoft together make up over two thirds of the US market cap. Vanguard Emerging Market index fund VWO is 15% each of the Chinese tech giants Tencent and Baidu. Bogleheads justify a total market approach by citing the past where a handful of railroads dominated the stock market, or the even more distant past when companies like South Sea and East India dominated. Almost all small cap value investors silently capitulate and put all their stock allocation in VT Vanguard Total World index and tell themselves they are doing it for simplicity, so their heirs can manage the portfolio after they inherit it. Avantis changes their funds to focus more on momentum and other new factors. This thread gets bumped less and less frequently and goes away with a whimper not a bang.

Wake me up from that nightmare.
You should write dystopian fiction! :shock:
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Re: Small Cap Value heads Rejoice !!!

Post by fennewaldaj »

MotoTrojan wrote: Thu Sep 03, 2020 8:54 am
nedsaid wrote: Thu Sep 03, 2020 8:42 am re tax efficient than VBR.
Vanguard Small Cap Value Index ETF (VBR) has been very tax efficient as I recall, I own it within an IRA so that doesn't matter.
~70% QDI in 2019 vs. @77% for S&P600 value; much closer than I thought but maybe a 1-off year as I recall S&P600 being much higher. Either way, in 2019 neither was very efficient.

https://advisors.vanguard.com/VGApp/iip ... endfigures
[/quote]

IN some tax brackets QDI is not the hugest deal anyway. Like I am in the 22% bracket so we are really only talking about a 7 % difference.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

nzahir wrote: Thu Sep 03, 2020 5:27 pm
Just heard about this
https://www.sciencedirect.com/science/a ... 5X18301326
"Size Matters if you control your junk"

So it seems like small caps make more sense when you adjust for companies that are not profitable, but what etf/funds even do this well with small ER
IJS/SLYV/VIOV (S&P600 Value) all indirectly do a pretty good job at it because the S&P has earnings requirements for inclusion, hence it has way less of the zombie-companies the Russell 2000 Value index has.

AVUV takes this a step further by adding a profitability screen onto the P/B screen, and weighting based on expected return.

QVAL has a higher ER and is more of a mid/deep-value fund but it's use of EBIT/TEV naturally tilts to some quality, along with an additional quality screen.

I think AVUV is the best bang-for-your-buck.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

000 wrote: Thu Sep 03, 2020 8:04 pm I wonder what this thread will look like in five years if SCV continues to underperform Total US Stock Market.
Depends, have fundamentals for SCV collapsed relative to US market, or are valuations just at even greater extremes? Big difference.
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Re: Small Cap Value heads Rejoice !!!

Post by LadyGeek »

On the previous page, I removed an off-topic post and several replies. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters.
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000
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Re: Small Cap Value heads Rejoice !!!

Post by 000 »

MotoTrojan wrote: Fri Sep 04, 2020 7:30 am
000 wrote: Thu Sep 03, 2020 8:04 pm I wonder what this thread will look like in five years if SCV continues to underperform Total US Stock Market.
Depends, have fundamentals for SCV collapsed relative to US market, or are valuations just at even greater extremes? Big difference.
I guess the most likely situation is for a little of both? There is some correlation between the two, i.e. large firms taking market share from smaller ones moves the valuations of both large and small firms.
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Re: Small Cap Value heads Rejoice !!!

Post by Robert T »

.
Small cap value tends to avoid "bubble" stocks - the 'boom' and 'bust' of large cap growth. Indeed, the avoidance of "bubbles in large caps" is one of the reasons Mel prefers midcaps.

Some point to the last 10 years of small value compared to large caps, calling it a failure of small value. But the returns of the last 10 years for IJS (iShares S&P Small Cap 600 Value) have been better than its lifetime returns. 9.7% vs. 8.4%, and its lifetime returns have been better than IVV (iShares S&P500) that had a similar inception date 8.4% vs. 6.4%.

Breaking it up into time periods.

August 2001 to Dec 2009 -annualized returns: [post 1999 'bubble']
  • +7.4% = IJS (iShares S&P Small Cap 600 Value)
    -0.8% = IVV (iShares S&P500)
Jan 2010 to Aug 2020 - annualized returns
  • +9.4% = IJS (iShares S&P Small Cap 600 Value)
    13.6% = IVV (iShares S&P500)
Which had the more consistent returns over these two time periods?
Are we again getting back to 'bubble-like' territory for some of the largest cap stocks in the S&P500?
.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Robert T wrote: Fri Sep 04, 2020 8:04 am .
Small cap value tends to avoid "bubble" stocks - the 'boom' and 'bust' of large cap growth. Indeed, the avoidance of "bubbles in large caps" is one of the reasons Mel prefers midcaps.

Some point to the last 10 years of small value compared to large caps, calling it a failure of small value. But the returns of the last 10 years for IJS (iShares S&P Small Cap 600 Value) have been better than its lifetime returns. 9.7% vs. 8.4%, and its lifetime returns have been better than IVV (iShares S&P500) that had a similar inception date 8.4% vs. 6.4%.

Breaking it up into time periods.

August 2001 to Dec 2009 -annualized returns: [post 1999 'bubble']
  • +7.4% = IJS (iShares S&P Small Cap 600 Value)
    -0.8% = IVV (iShares S&P500)
Jan 2010 to Aug 2020 - annualized returns
  • +9.4% = IJS (iShares S&P Small Cap 600 Value)
    13.6% = IVV (iShares S&P500)
Which had the more consistent returns over these two time periods?
Are we again getting back to 'bubble-like' territory for some of the largest cap stocks in the S&P500?
.
This trait made a huge difference in safe withdrawal rates. Completely ignored the lost decade.
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Re: Small Cap Value heads Rejoice !!!

Post by rkhusky »

MotoTrojan wrote: Thu Sep 03, 2020 3:59 pm If your factor exposure can be hit with either of these options with rest of portfolio in a 0% ER, 100% QDI fund:
10% of Fund A w/ 75% pre-expense QDI and 10bp ER
5% of Fund B w/ 75% pre-expense QDI and 20bp ER

Assumes they have equal yields.

Is it not more tax-efficient (and overall higher after-tax return) to go with the 2nd option? Same expense ratio either way, and a higher realized QDI%.
Perhaps in that example, but it is not clear if those numbers hold generally.

I look at it this way: Funds A & B provide $1000 in dividends - $500 QDI and $500 NQDI. Fund A expenses take $100 and Fund B expenses take $500. Would I want $500 QDI and $400 NQDI or $500 QDI and $0 NQDI, even though the taxes are less on the latter?
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

rkhusky wrote: Fri Sep 04, 2020 8:35 am
MotoTrojan wrote: Thu Sep 03, 2020 3:59 pm If your factor exposure can be hit with either of these options with rest of portfolio in a 0% ER, 100% QDI fund:
10% of Fund A w/ 75% pre-expense QDI and 10bp ER
5% of Fund B w/ 75% pre-expense QDI and 20bp ER

Assumes they have equal yields.

Is it not more tax-efficient (and overall higher after-tax return) to go with the 2nd option? Same expense ratio either way, and a higher realized QDI%.
Perhaps in that example, but it is not clear if those numbers hold generally.

I look at it this way: Funds A & B provide $1000 in dividends - $500 QDI and $500 NQDI. Fund A expenses take $100 and Fund B expenses take $500. Would I want $500 QDI and $400 NQDI or $500 QDI and $0 NQDI, even though the taxes are less on the latter?
We aren't comparing funds that take 500% more in expenses. I wouldn't want a 1% ER SCV fund regardless of how tax efficient it is.
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Re: Small Cap Value heads Rejoice !!!

Post by Day9 »

Yesterday I said it seemed off to celebrate our investments going down so long as large growth went down more. This morning I don't have that dilemma. I wonder how it will go as we approach the 3 day weekend. Of course 1-2% in 1 day is noise but what else do we talk about.

Image
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

That ^ looked good, but it's looking worse by the minute. Close to yesterday.
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Re: Small Cap Value heads Rejoice !!!

Post by AZAttorney11 »

abuss368 wrote: Thu Sep 03, 2020 7:55 pm
AZAttorney11 wrote: Thu Sep 03, 2020 7:25 pm
abuss368 wrote: Thu Sep 03, 2020 7:22 pm Jack Bogle, no surprise, is correct again. That is, simply stop looking for the needle in the haystack and own the haystack.
It's getting comical at this point. Taylor makes a statement with lots of quotes and alleged authority, ignores contradictory evidence, and then you swoop in and tell him how great he is and how great Bogle is.

P.S. Bogle endorsed a book by Bernstein that argues for a SCV tilt in the appropriate circumstance.
Our forum is titled "investing advice inspired by Jack Bogle"! Owning the haystack is the best approach and what Jack has taught all of us.
Except when the haystack involves international stocks, right?

And Bogle's investing advice was much more broad than you and Taylor purport on multiple posts. Here's an example:

https://www.amazon.com/Intelligent-Asse ... 1260026647

Yep, that's one of Bernstein's books arguing for portfolios beyond "owning the haystacks" and Bogle himself, on the front cover, said, "This is a GREAT book!" (emphasis Mr. Bogle's, not mine).

Please make sure you tell Mel and the followers of the "Mel's Unloved Mid Caps" what grave mistakes they are making as well.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Day9 wrote: Fri Sep 04, 2020 9:01 am Yesterday I said it seemed off to celebrate our investments going down so long as large growth went down more. This morning I don't have that dilemma. I wonder how it will go as we approach the 3 day weekend. Of course 1-2% in 1 day is noise but what else do we talk about.

Image
Day9 you just had to open your mouth... :wink:.
nzahir
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Re: Small Cap Value heads Rejoice !!!

Post by nzahir »

MotoTrojan wrote: Fri Sep 04, 2020 7:24 am
nzahir wrote: Thu Sep 03, 2020 5:27 pm
Just heard about this
https://www.sciencedirect.com/science/a ... 5X18301326
"Size Matters if you control your junk"

So it seems like small caps make more sense when you adjust for companies that are not profitable, but what etf/funds even do this well with small ER
IJS/SLYV/VIOV (S&P600 Value) all indirectly do a pretty good job at it because the S&P has earnings requirements for inclusion, hence it has way less of the zombie-companies the Russell 2000 Value index has.

AVUV takes this a step further by adding a profitability screen onto the P/B screen, and weighting based on expected return.

QVAL has a higher ER and is more of a mid/deep-value fund but it's use of EBIT/TEV naturally tilts to some quality, along with an additional quality screen.

I think AVUV is the best bang-for-your-buck.
Why AVUV?

Just came out
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

nzahir wrote: Fri Sep 04, 2020 10:54 am
MotoTrojan wrote: Fri Sep 04, 2020 7:24 am
nzahir wrote: Thu Sep 03, 2020 5:27 pm
Just heard about this
https://www.sciencedirect.com/science/a ... 5X18301326
"Size Matters if you control your junk"

So it seems like small caps make more sense when you adjust for companies that are not profitable, but what etf/funds even do this well with small ER
IJS/SLYV/VIOV (S&P600 Value) all indirectly do a pretty good job at it because the S&P has earnings requirements for inclusion, hence it has way less of the zombie-companies the Russell 2000 Value index has.

AVUV takes this a step further by adding a profitability screen onto the P/B screen, and weighting based on expected return.

QVAL has a higher ER and is more of a mid/deep-value fund but it's use of EBIT/TEV naturally tilts to some quality, along with an additional quality screen.

I think AVUV is the best bang-for-your-buck.
Why AVUV?

Just came out
This document goes over their process well. I also trust the team as they mostly came from DFA, one of the earliest leaders in factor products.

https://www.avantisinvestors.com/conten ... esting.pdf

Major things that I like relative to the indexed options (VBR/SLYV):
They include profitability as a component in their screen.
They do not use market-cap weight but rather use an expected return weighting based on value/profitability composite (this allows a deeper exposure to the value/size factors without holding less overall stocks).
They include momentum in their trading decision (will hold something moving up, and wait to buy something going down).
They aren't bound to rebalancing schedules (can trade every day to help maintain factor exposure uniformly).

My only major con is that their value weight only uses P/B which there are some concerns with, although the profitability screen helps offset that. If it used TEV/EBIT (like QVAL) it would be my dream fund, but that is why I hold some QVAL too (also gives some sector diversification as AVUV has lots of financials, and QVAL has none).
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

*SCV underperforms every day*
*SCV outperforms just ONE day*

Me to me: Why what an excellent choice my SCV tilt has been indeed.
"... 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
nzahir
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Re: Small Cap Value heads Rejoice !!!

Post by nzahir »

MotoTrojan wrote: Fri Sep 04, 2020 11:02 am
nzahir wrote: Fri Sep 04, 2020 10:54 am
MotoTrojan wrote: Fri Sep 04, 2020 7:24 am
nzahir wrote: Thu Sep 03, 2020 5:27 pm
Just heard about this
https://www.sciencedirect.com/science/a ... 5X18301326
"Size Matters if you control your junk"

So it seems like small caps make more sense when you adjust for companies that are not profitable, but what etf/funds even do this well with small ER
IJS/SLYV/VIOV (S&P600 Value) all indirectly do a pretty good job at it because the S&P has earnings requirements for inclusion, hence it has way less of the zombie-companies the Russell 2000 Value index has.

AVUV takes this a step further by adding a profitability screen onto the P/B screen, and weighting based on expected return.

QVAL has a higher ER and is more of a mid/deep-value fund but it's use of EBIT/TEV naturally tilts to some quality, along with an additional quality screen.

I think AVUV is the best bang-for-your-buck.
Why AVUV?

Just came out
This document goes over their process well. I also trust the team as they mostly came from DFA, one of the earliest leaders in factor products.

https://www.avantisinvestors.com/conten ... esting.pdf

Major things that I like relative to the indexed options (VBR/SLYV):
They include profitability as a component in their screen.
They do not use market-cap weight but rather use an expected return weighting based on value/profitability composite (this allows a deeper exposure to the value/size factors without holding less overall stocks).
They include momentum in their trading decision (will hold something moving up, and wait to buy something going down).
They aren't bound to rebalancing schedules (can trade every day to help maintain factor exposure uniformly).

My only major con is that their value weight only uses P/B which there are some concerns with, although the profitability screen helps offset that. If it used TEV/EBIT (like QVAL) it would be my dream fund, but that is why I hold some QVAL too (also gives some sector diversification as AVUV has lots of financials, and QVAL has none).
Hmm, I'll read more, but not so sure if active management is needed in the US. But it can be argued for small cap more easily b/c many companies have no real earnings.

.25% expense..meh
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

nzahir wrote: Fri Sep 04, 2020 11:22 am
Hmm, I'll read more, but not so sure if active management is needed in the US. But it can be argued for small cap more easily b/c many companies have no real earnings.

.25% expense..meh
25bp is pretty cheap for the exposure (same as IJS) in my view.

I don't consider AVUV active management any more than any of the small-value index funds, it simply has different systematic rules than them.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

Robert T wrote: Fri Sep 04, 2020 8:04 am August 2001 to Dec 2009 -annualized returns: [post 1999 'bubble']
  • +7.4% = IJS (iShares S&P Small Cap 600 Value)
    -0.8% = IVV (iShares S&P500)
Jan 2010 to Aug 2020 - annualized returns
  • +9.4% = IJS (iShares S&P Small Cap 600 Value)
    13.6% = IVV (iShares S&P500)
This was very interesting. SCV performance has been bashed so much that I didn't realise performance has held up so well.
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Borrowing Money: Big companies vs. Small companies?

Post by Taylor Larimore »

Steve Reading wrote: Thu Sep 03, 2020 4:49 pm Ex: Two firms, one twice as big as the other in every way (twice as much debt, twice as much book value, etc etc). The bigger company might be allowed to borrow twice as much, but it doesn't get to borrow any cheaper just because it's bigger.
Sorry, Steve, I believe you are incorrect about big companies not being able to borrow "cheaper."

I am a CCL (Certified Commercial Lender) and once taught "Commercial Lending" to the loan officers in the largest bank in Miami. I can firmly state from experience that big companies can borrow at "cheaper" rates than small companies when other factors are the same.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "One of the seemingly indestructible myths of investing is that stocks with small market capitalizations outpace stocks with large market capitalizations over time."
"Simplicity is the master key to financial success." -- Jack Bogle
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