Small Cap Value heads Rejoice !!!

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
caklim00
Posts: 2284
Joined: Mon May 26, 2008 10:09 am

Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

kolder wrote: Thu Oct 01, 2020 10:57 am ER for new DFA ETFs:

DFAU - DFA US Core Equity ETF: 0.12%
DFAI - DFA Int Core Equity ETF: 0.18%
DFAE - DFA EM Core Equity ETF: 0.35%

https://www.sec.gov/Archives/edgar/data ... tfn1aa.htm

US/Int a bit lower than Avantis, EM a bit higher.

Interested to see where they stand in terms of tilt, but I imagine they will be pretty similar to the Avantis equity funds.
Good deal. Definitely have my tax loss harvest partner for AVEM now. Ball is in Avantis' court now to see if they will end up cutting their fees.
absolute zero
Posts: 582
Joined: Thu Dec 29, 2016 4:59 pm

Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

caklim00 wrote: Thu Oct 01, 2020 3:52 pm
kolder wrote: Thu Oct 01, 2020 10:57 am ER for new DFA ETFs:

DFAU - DFA US Core Equity ETF: 0.12%
DFAI - DFA Int Core Equity ETF: 0.18%
DFAE - DFA EM Core Equity ETF: 0.35%

https://www.sec.gov/Archives/edgar/data ... tfn1aa.htm

US/Int a bit lower than Avantis, EM a bit higher.

Interested to see where they stand in terms of tilt, but I imagine they will be pretty similar to the Avantis equity funds.
Good deal. Definitely have my tax loss harvest partner for AVEM now. Ball is in Avantis' court now to see if they will end up cutting their fees.
Why would Avantis need to cut AVEMs fees? They are cheaper (at 33 bps) than the DFA equivalent will be.
absolute zero
Posts: 582
Joined: Thu Dec 29, 2016 4:59 pm

Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

I got briefly excited about these funds until I realized that they are not small value funds. Darn. For a second, a small value international fund at 0.18% seemed too good to be true (it was).

I don't know that I really understand the purpose of a "core equity" fund. Very mild tilt to small and value, for a high price tag.
rlangford
Posts: 45
Joined: Thu Jun 09, 2016 11:53 am

Re: Small Cap Value heads Rejoice !!!

Post by rlangford »

absolute zero wrote: Thu Oct 01, 2020 4:08 pm I got briefly excited about these funds until I realized that they are not small value funds. Darn. For a second, a small value international fund at 0.18% seemed too good to be true (it was).

I don't know that I really understand the purpose of a "core equity" fund. Very mild tilt to small and value, for a high price tag.
Are they large cap core funds or large cap value funds?
User avatar
Uncorrelated
Posts: 1149
Joined: Sun Oct 13, 2019 3:16 pm

Re: Small Cap Value heads Rejoice !!!

Post by Uncorrelated »

If the factor loadings from other DFA core funds are comparable (DFEOX and DFQTX, DFA US Core Equity 1/2 I), a 100% allocation to these core funds is rhoughly comparable to a 6/7 allocation to total stock market and 1/7 allocation to VFMF. That is quite useless if you are targeting a noticable tilt.

I guess they don't want to give away their money printer.
kolder
Posts: 44
Joined: Mon Sep 07, 2020 3:54 pm

Re: Small Cap Value heads Rejoice !!!

Post by kolder »

Seems many people don't understand the purpose of these core funds.

They are meant to replace funds such as vti/vxus etc, not to be used to achieve a heavy tilt to factors. I don't think there are very many people who will put all of their money into small cap value, so these funds are designed achieve much greater diversification while moderately overweighting stocks with higher expected returns. It's up to you to decide if the moderate tilt is worth it, considering the higher ER over vti/vxus etc. Seems that many people don't, which is fine.
dml130
Posts: 75
Joined: Wed Sep 02, 2020 11:40 am

Re: Small Cap Value heads Rejoice !!!

Post by dml130 »

If I already own an s&p 400 (mid cap) value fund, is this suitable as a "small cap value" holding for all intents and purposes, or should I think of this more as a "large value" tilt? I'm thinking the former (small value) but curious if others think I'm wrong on that.
absolute zero
Posts: 582
Joined: Thu Dec 29, 2016 4:59 pm

Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

kolder wrote: Thu Oct 01, 2020 5:03 pm Seems many people don't understand the purpose of these core funds.

They are meant to replace funds such as vti/vxus etc, not to be used to achieve a heavy tilt to factors. I don't think there are very many people who will put all of their money into small cap value, so these funds are designed achieve much greater diversification while moderately overweighting stocks with higher expected returns. It's up to you to decide if the moderate tilt is worth it, considering the higher ER over vti/vxus etc. Seems that many people don't, which is fine.
You can get that same tilt for much lower expenses by holding a total market fund (eg VTI, ER = 3 bps) combined with a small cap value fund (eg VIOV, ER = 15bps). As an example, holding those funds in an 80/20 ratio gives you an effective ER of 5.4 bps, vs DFA’s core equity fund which is 18 bps.
kolder
Posts: 44
Joined: Mon Sep 07, 2020 3:54 pm

Re: Small Cap Value heads Rejoice !!!

Post by kolder »

absolute zero wrote: Thu Oct 01, 2020 7:41 pm
kolder wrote: Thu Oct 01, 2020 5:03 pm Seems many people don't understand the purpose of these core funds.

They are meant to replace funds such as vti/vxus etc, not to be used to achieve a heavy tilt to factors. I don't think there are very many people who will put all of their money into small cap value, so these funds are designed achieve much greater diversification while moderately overweighting stocks with higher expected returns. It's up to you to decide if the moderate tilt is worth it, considering the higher ER over vti/vxus etc. Seems that many people don't, which is fine.
You can get that same tilt for much lower expenses by holding a total market fund (eg VTI, ER = 3 bps) combined with a small cap value fund (eg VIOV, ER = 15bps). As an example, holding those funds in an 80/20 ratio gives you an effective ER of 5.4 bps, vs DFA’s core equity fund which is 18 bps.
You could also just buy the smallest 10 stocks with the lowest BtM (disregarding that these stocks would change on a daily basis) and have the other 95% (or w/e it would need to be) of your portfolio be VTI, and get the same tilt. But nobody does that because it doesn't give you well diversified positive factor exposure.

With the core equity funds you get better diversification across factors, as opposed to factor-neutral diversification from owning something like VTI.

If there's 3000 stocks and 1000 of them have higher expected returns, 1000 have neutral expected returns & 1000 have lower expected returns, why bet on only the 500 stocks with the highest expected returns to show a premium, with the rest of your portfolio being factor neutral? You are missing out on "tilting" towards the remaining 500 stocks which have higher expected returns as well, just not as high. Instead you could just buy more of the 1000 with the highest expected returns & less of the next 1000 with neutral expected returns & even less of the 1000 with the lowest expected returns to achieve the same tilt while being better diversified across positive factor exposure. The real question is if you think that added factor diversification is worth the extra ER.
caklim00
Posts: 2284
Joined: Mon May 26, 2008 10:09 am

Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

absolute zero wrote: Thu Oct 01, 2020 7:41 pm
kolder wrote: Thu Oct 01, 2020 5:03 pm Seems many people don't understand the purpose of these core funds.

They are meant to replace funds such as vti/vxus etc, not to be used to achieve a heavy tilt to factors. I don't think there are very many people who will put all of their money into small cap value, so these funds are designed achieve much greater diversification while moderately overweighting stocks with higher expected returns. It's up to you to decide if the moderate tilt is worth it, considering the higher ER over vti/vxus etc. Seems that many people don't, which is fine.
You can get that same tilt for much lower expenses by holding a total market fund (eg VTI, ER = 3 bps) combined with a small cap value fund (eg VIOV, ER = 15bps). As an example, holding those funds in an 80/20 ratio gives you an effective ER of 5.4 bps, vs DFA’s core equity fund which is 18 bps.
Except that DFA US Core is 12bps and will have less transaction costs than 80/20 combo. Agree though that you could split into components,
absolute zero
Posts: 582
Joined: Thu Dec 29, 2016 4:59 pm

Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

kolder wrote: Thu Oct 01, 2020 8:37 pm
absolute zero wrote: Thu Oct 01, 2020 7:41 pm
kolder wrote: Thu Oct 01, 2020 5:03 pm Seems many people don't understand the purpose of these core funds.

They are meant to replace funds such as vti/vxus etc, not to be used to achieve a heavy tilt to factors. I don't think there are very many people who will put all of their money into small cap value, so these funds are designed achieve much greater diversification while moderately overweighting stocks with higher expected returns. It's up to you to decide if the moderate tilt is worth it, considering the higher ER over vti/vxus etc. Seems that many people don't, which is fine.
You can get that same tilt for much lower expenses by holding a total market fund (eg VTI, ER = 3 bps) combined with a small cap value fund (eg VIOV, ER = 15bps). As an example, holding those funds in an 80/20 ratio gives you an effective ER of 5.4 bps, vs DFA’s core equity fund which is 18 bps.
You could also just buy the smallest 10 stocks with the lowest BtM (disregarding that these stocks would change on a daily basis) and have the other 95% (or w/e it would need to be) of your portfolio be VTI, and get the same tilt. But nobody does that because it doesn't give you well diversified positive factor exposure.

With the core equity funds you get better diversification across factors, as opposed to factor-neutral diversification from owning something like VTI.

If there's 3000 stocks and 1000 of them have higher expected returns, 1000 have neutral expected returns & 1000 have lower expected returns, why bet on only the 500 stocks with the highest expected returns to show a premium, with the rest of your portfolio being factor neutral?
Because, as I mentioned, holding 500 stocks with highest expected return coupled with a cheap beta fund like VTI gives you way lower expenses than the DFA core equity fund.
kolder wrote: Thu Oct 01, 2020 8:37 pm You are missing out on "tilting" towards the remaining 500 stocks which have higher expected returns as well, just not as high. Instead you could just buy more of the 1000 with the highest expected returns & less of the next 1000 with neutral expected returns & even less of the 1000 with the lowest expected returns to achieve the same tilt while being better diversified across positive factor exposure. The real question is if you think that added factor diversification is worth the extra ER.
If we were talking about the difference between 50 stocks vs 100 stocks, I'd probably say the diversification was worth it. But 500 stocks vs 1000?? No way. At that point, there's no idiosyncratic risk left. Besides, if this was a legitimate concern than an investor could just hold something like VBR. That would reduce their expenses even more than the example that I gave.
absolute zero
Posts: 582
Joined: Thu Dec 29, 2016 4:59 pm

Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

caklim00 wrote: Thu Oct 01, 2020 8:45 pm
absolute zero wrote: Thu Oct 01, 2020 7:41 pm
kolder wrote: Thu Oct 01, 2020 5:03 pm Seems many people don't understand the purpose of these core funds.

They are meant to replace funds such as vti/vxus etc, not to be used to achieve a heavy tilt to factors. I don't think there are very many people who will put all of their money into small cap value, so these funds are designed achieve much greater diversification while moderately overweighting stocks with higher expected returns. It's up to you to decide if the moderate tilt is worth it, considering the higher ER over vti/vxus etc. Seems that many people don't, which is fine.
You can get that same tilt for much lower expenses by holding a total market fund (eg VTI, ER = 3 bps) combined with a small cap value fund (eg VIOV, ER = 15bps). As an example, holding those funds in an 80/20 ratio gives you an effective ER of 5.4 bps, vs DFA’s core equity fund which is 18 bps.
Except that DFA US Core is 12bps and will have less transaction costs than 80/20 combo. Agree though that you could split into components,
Ahh. I looked too quickly and saw the 18, which was for international, not US.

5 bps vs 12 bps is still a big difference (to me), but yes I could see that some investors would find that ER difference to be worth it to have a lower number of funds.
Last edited by absolute zero on Thu Oct 01, 2020 8:55 pm, edited 1 time in total.
dcabler
Posts: 1587
Joined: Wed Feb 19, 2014 11:30 am

Re: Small Cap Value heads Rejoice !!!

Post by dcabler »

dml130 wrote: Thu Oct 01, 2020 7:12 pm If I already own an s&p 400 (mid cap) value fund, is this suitable as a "small cap value" holding for all intents and purposes, or should I think of this more as a "large value" tilt? I'm thinking the former (small value) but curious if others think I'm wrong on that.
First of all there is no set definition of large mid or small. However when you compare the S&P midcaps against other indices like Russell or CRSP you see that it straddles the cutoff points between small and mid. In other words it's largest caps are towards the bottom of other indices midcaps and it's smallest caps are towards the top of other indices small caps. It's a fine choice.
kolder
Posts: 44
Joined: Mon Sep 07, 2020 3:54 pm

Re: Small Cap Value heads Rejoice !!!

Post by kolder »

absolute zero wrote: Thu Oct 01, 2020 8:49 pm If we were talking about the difference between 50 stocks vs 100 stocks, I'd probably say the diversification was worth it. But 500 stocks vs 1000?? No way. At that point, there's no idiosyncratic risk left. Besides, if this was a legitimate concern than an investor could just hold something like VBR. That would reduce their expenses even more than the example that I gave.
If you don't think it's worth the ER that's totally fine, and I actually would agree with you. But that is the idea at least, and maybe some people find that diversification to be worth it. You do end up taking a larger bet that the factors will persist in the future as well, which is likely another reason people are less inclined to use such funds instead of TSM.

It's sort of a similar debate over going US only or diversifying into international. Holding International is more expensive, but provides better diversification, so you have to ask yourself is the diversification worth the extra cost?
dml130
Posts: 75
Joined: Wed Sep 02, 2020 11:40 am

Re: Small Cap Value heads Rejoice !!!

Post by dml130 »

dcabler wrote: Thu Oct 01, 2020 8:53 pm
dml130 wrote: Thu Oct 01, 2020 7:12 pm If I already own an s&p 400 (mid cap) value fund, is this suitable as a "small cap value" holding for all intents and purposes, or should I think of this more as a "large value" tilt? I'm thinking the former (small value) but curious if others think I'm wrong on that.
First of all there is no set definition of large mid or small. However when you compare the S&P midcaps against other indices like Russell or CRSP you see that it straddles the cutoff points between small and mid. In other words it's largest caps are towards the bottom of other indices midcaps and it's smallest caps are towards the top of other indices small caps. It's a fine choice.
That makes sense. Thank you.
Mrvtmn
Posts: 19
Joined: Fri Jan 03, 2020 8:35 am

Re: Small Cap Value heads Rejoice !!!

Post by Mrvtmn »

What is this? Small caps up today and most everything else down. The beginning of a small cap surge. :mrgreen:
User avatar
Steve Reading
Posts: 2521
Joined: Fri Nov 16, 2018 10:20 pm

Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

Steve Reading wrote: Fri Sep 04, 2020 11:04 am *SCV underperforms every day*
*SCV outperforms just ONE day*

Me to me: Why what an excellent choice my SCV tilt has been indeed.
This seems relevant today.
"... 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
sycamore
Posts: 1341
Joined: Tue May 08, 2018 12:06 pm

Re: Small Cap Value heads Rejoice !!!

Post by sycamore »

Steve Reading wrote: Fri Oct 02, 2020 2:27 pm
Steve Reading wrote: Fri Sep 04, 2020 11:04 am *SCV underperforms every day*
*SCV outperforms just ONE day*

Me to me: Why what an excellent choice my SCV tilt has been indeed.
This seems relevant today.
Indeed. VBR up 1.49% and IJS up 1.71%.

Meanwhile VTI (total stock) down 0.78% and VUG (large growth) down 1.88%
kolder
Posts: 44
Joined: Mon Sep 07, 2020 3:54 pm

Re: Small Cap Value heads Rejoice !!!

Post by kolder »

Steve Reading wrote: Fri Oct 02, 2020 2:27 pm
Steve Reading wrote: Fri Sep 04, 2020 11:04 am *SCV underperforms every day*
*SCV outperforms just ONE day*

Me to me: Why what an excellent choice my SCV tilt has been indeed.
This seems relevant today.
Me to me: Looking at the historical data going back one day, the SCV premium is clearly persistent
Cantrip
Posts: 98
Joined: Fri Oct 16, 2015 7:21 am

Re: Small Cap Value heads Rejoice !!!

Post by Cantrip »

Paul Merriman, Larry Swedroe, and Rick Ferri will be together to talk about investing next week on October 7th at 7:30cst. It is free and the link is: https://www.choosefi.com/events/money-t ... nifer-mah/ . Respond on this thread if you can figure out how to sign up.
Angst
Posts: 2505
Joined: Sat Jun 09, 2007 11:31 am

Re: Small Cap Value heads Rejoice !!!

Post by Angst »

Cantrip wrote: Fri Oct 02, 2020 4:26 pm Paul Merriman, Larry Swedroe, and Rick Ferri will be together to talk about investing next week on October 7th at 7:30cst. It is free and the link is: https://www.choosefi.com/events/money-t ... nifer-mah/ . Respond on this thread if you can figure out how to sign up.
At the page you link, if you click the big orange box that says "Facebook Live - Watch Now or Catch Replay", it'll take you (or at least it took me) to this FB page: https://www.facebook.com/ChooseFi/posts/2682050978680148

You do have to be logged into FB. I don't think there's any "signing up" ahead of time - it looks like you just show up next Wed evening at the link and then you'll be able to join in at that time. I'm no FB live expert, but that's my interpretation.

EDIT: Ok, so at that fb page there's a "reminder" link to get sent a reminder. I clicked it, that was it... but now I have an email from fb that includes a link to "Get on the Guest List".
caklim00
Posts: 2284
Joined: Mon May 26, 2008 10:09 am

Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

wow, what an awesome day. AVUV up 2.36%
stocknoob4111
Posts: 1593
Joined: Sun Jan 07, 2018 12:52 pm

Re: Small Cap Value heads Rejoice !!!

Post by stocknoob4111 »

wow, what a day... SML up 1.05%, S&P 500 down 1%... I had to do a double take because I don't see this often...
fennewaldaj
Posts: 979
Joined: Sun Oct 22, 2017 11:30 pm

Re: Small Cap Value heads Rejoice !!!

Post by fennewaldaj »

dml130 wrote: Thu Oct 01, 2020 7:12 pm If I already own an s&p 400 (mid cap) value fund, is this suitable as a "small cap value" holding for all intents and purposes, or should I think of this more as a "large value" tilt? I'm thinking the former (small value) but curious if others think I'm wrong on that.
the S+P 400 is only a little bigger than vanguard's small value fund. I think you are fine considering this small value.
dcabler
Posts: 1587
Joined: Wed Feb 19, 2014 11:30 am

Re: Small Cap Value heads Rejoice !!!

Post by dcabler »

YRT70 wrote: Thu Oct 01, 2020 5:36 am I thought this was an interesting chart from this Paul Merriman presentation. Value tilted US portfolio vs. S&P500.

Image

The rest of the video covers performance of several common portfolio's, how important it is to be patient, and some other points.
https://www.youtube.com/watch?v=_6SEeYwlaKw&t=932s
Too bad it doesn't also show the number of years of sequential out-performance as well.
dml130
Posts: 75
Joined: Wed Sep 02, 2020 11:40 am

Re: Small Cap Value heads Rejoice !!!

Post by dml130 »

fennewaldaj wrote: Fri Oct 02, 2020 10:30 pm
dml130 wrote: Thu Oct 01, 2020 7:12 pm If I already own an s&p 400 (mid cap) value fund, is this suitable as a "small cap value" holding for all intents and purposes, or should I think of this more as a "large value" tilt? I'm thinking the former (small value) but curious if others think I'm wrong on that.
the S+P 400 is only a little bigger than vanguard's small value fund. I think you are fine considering this small value.
Thanks! 👍
kolder
Posts: 44
Joined: Mon Sep 07, 2020 3:54 pm

Re: Small Cap Value heads Rejoice !!!

Post by kolder »

Webcast from DFA "Value vs. Growth: Past, Present, and Future"

https://videos.dimensional.com/share/v/1_q43cr2o2

Nothing too groundbreaking here and the gist of it is mostly "stay the course". It is Interesting to see that the last 3 years has been the largest 3-year underperformance of value compared to growth in researched history (~95 years). I think it's a good reminder that what has happened historically does not necessarily provide an upper or lower bound for can happen in the future, and the best or worst times are possibly yet to come.

Also a nice post and recent paper about intangibles:

https://www.dimensional.com/us-en/insig ... ntangibles

https://papers.ssrn.com/sol3/papers.cfm ... id=3697452

Abstract:
Intangible assets have always been part of the economic landscape. In this study we examine the impact of intangibles, both internally developed and externally acquired, on our ability to identify differences in expected stock returns. Our research does not find compelling evidence that we should include estimates of internally developed intangibles in company fundamentals such as book equity. The estimation of internally developed intangibles contains a lot of noise. Perhaps due to this high level of noise, we find that estimated internally developed intangibles provide little additional information about future firm cash flows beyond what is contained in current cash flows. Moreover, capitalizing estimates of internally developed intangibles does not yield consistently higher value and profitability premiums. We also find no compelling performance benefit of excluding externally acquired intangibles from fundamentals. Therefore, we believe investors are better off continuing to incorporate externally acquired intangibles reported on the balance sheet and not adding noisy estimates of internally developed intangibles to value and profitability metrics.
Random Walker
Posts: 4631
Joined: Fri Feb 23, 2007 8:21 pm

Re: Small Cap Value heads Rejoice !!!

Post by Random Walker »

RovenSkyfall wrote: Tue Sep 29, 2020 10:21 am
Random Walker wrote: Tue Sep 29, 2020 8:17 am
texasfight wrote: Fri Sep 25, 2020 1:26 pm To everyone obsessed with tilting.

https://www.portfoliovisualizer.com/bac ... tion4_3=75

Go simple, and create an efficient portfolio with the 2 most important assets in the world
Hard to argue with you. And impossible to argue with you over the given time frame, 2007-2020. But important to appreciate that this last decade has been quite extraordinary for S&P 500. The gains have been spectacular with spectacularly low volatility. The below article puts the S&P500 behavior in some historic context.

Dave

http://multifactorworld.com/the-sp-500-goes-supernova/
Thank you for the article and interesting perspective. Would be great to have a comparison to SCV. It makes me wonder if all the people who are currently pointing to the last decade as to why one ought to avoid SCV are unaware of the rarity of the situation they are referencing.
Certainly that’s what I’m thinking with my big SCV bets. In looking at past data, I think it’s important to look at different time periods. The longest time periods can be most meaningful, but circumstances can change, and shorter more recent time periods might be more relevant to the present. 10 years can just be noise. Hard not to be a fan of the S&P 500- largest most successful companies at rock bottom cost.
A good indicator of how extraordinary the last decade has been for S&P 500 comes from the above example from portfolio visualizer. The Sharpe ratios for the simple 2 fund portfolios are very high. 0.93 for 60/40 two fund portfolio and 1.02 for 40/60 two fund portfolio are pretty amazing.

Dave
User avatar
nedsaid
Posts: 13955
Joined: Fri Nov 23, 2012 12:33 pm

Re: Small Cap Value heads Rejoice !!!

Post by nedsaid »

kolder wrote: Sat Oct 03, 2020 5:07 pm Webcast from DFA "Value vs. Growth: Past, Present, and Future"

https://videos.dimensional.com/share/v/1_q43cr2o2

Nothing too groundbreaking here and the gist of it is mostly "stay the course". It is Interesting to see that the last 3 years has been the largest 3-year underperformance of value compared to growth in researched history (~95 years). I think it's a good reminder that what has happened historically does not necessarily provide an upper or lower bound for can happen in the future, and the best or worst times are possibly yet to come.

Also a nice post and recent paper about intangibles:

https://www.dimensional.com/us-en/insig ... ntangibles

https://papers.ssrn.com/sol3/papers.cfm ... id=3697452

Abstract:
Intangible assets have always been part of the economic landscape. In this study we examine the impact of intangibles, both internally developed and externally acquired, on our ability to identify differences in expected stock returns. Our research does not find compelling evidence that we should include estimates of internally developed intangibles in company fundamentals such as book equity. The estimation of internally developed intangibles contains a lot of noise. Perhaps due to this high level of noise, we find that estimated internally developed intangibles provide little additional information about future firm cash flows beyond what is contained in current cash flows. Moreover, capitalizing estimates of internally developed intangibles does not yield consistently higher value and profitability premiums. We also find no compelling performance benefit of excluding externally acquired intangibles from fundamentals. Therefore, we believe investors are better off continuing to incorporate externally acquired intangibles reported on the balance sheet and not adding noisy estimates of internally developed intangibles to value and profitability metrics.
Great post. I will have to check out the links you provided. I have posted a lot about book value and my opinion that it has less and less importance as the importance of intangibles has risen and the importance of such things as property, plant, and equipment has fallen. The accountants have struggled and failed to put a value on internally developed intangibles, the market has to do that. In my posts, I have used the example of Microsoft, a stock that I own individually. Pretty much, I have posted about the "death of book value" and it sounds like DFA is saying that book value ain't dead. So this is a good counter point to my posts on this subject.

Okay, I will say it. Maybe I was w-w-w-w. I'll try it again. Maybe I was w-w-w-w-w-w-w-w-w. Okay, one more time. Maybe I was w-w-w-w-w-w-w-w-w-w-w-w-w-w-r-o-o-n-g. Maybe I was wrong. I feel better now. :wink:
A fool and his money are good for business.
kolder
Posts: 44
Joined: Mon Sep 07, 2020 3:54 pm

Re: Small Cap Value heads Rejoice !!!

Post by kolder »

nedsaid wrote: Sun Oct 04, 2020 9:13 am
kolder wrote: Sat Oct 03, 2020 5:07 pm Webcast from DFA "Value vs. Growth: Past, Present, and Future"

https://videos.dimensional.com/share/v/1_q43cr2o2

Nothing too groundbreaking here and the gist of it is mostly "stay the course". It is Interesting to see that the last 3 years has been the largest 3-year underperformance of value compared to growth in researched history (~95 years). I think it's a good reminder that what has happened historically does not necessarily provide an upper or lower bound for can happen in the future, and the best or worst times are possibly yet to come.

Also a nice post and recent paper about intangibles:

https://www.dimensional.com/us-en/insig ... ntangibles

https://papers.ssrn.com/sol3/papers.cfm ... id=3697452

Abstract:
Intangible assets have always been part of the economic landscape. In this study we examine the impact of intangibles, both internally developed and externally acquired, on our ability to identify differences in expected stock returns. Our research does not find compelling evidence that we should include estimates of internally developed intangibles in company fundamentals such as book equity. The estimation of internally developed intangibles contains a lot of noise. Perhaps due to this high level of noise, we find that estimated internally developed intangibles provide little additional information about future firm cash flows beyond what is contained in current cash flows. Moreover, capitalizing estimates of internally developed intangibles does not yield consistently higher value and profitability premiums. We also find no compelling performance benefit of excluding externally acquired intangibles from fundamentals. Therefore, we believe investors are better off continuing to incorporate externally acquired intangibles reported on the balance sheet and not adding noisy estimates of internally developed intangibles to value and profitability metrics.
Great post. I will have to check out the links you provided. I have posted a lot about book value and my opinion that it has less and less importance as the importance of intangibles has risen and the importance of such things as property, plant, and equipment has fallen. The accountants have struggled and failed to put a value on internally developed intangibles, the market has to do that. In my posts, I have used the example of Microsoft, a stock that I own individually. Pretty much, I have posted about the "death of book value" and it sounds like DFA is saying that book value ain't dead. So this is a good counter point to my posts on this subject.

Okay, I will say it. Maybe I was w-w-w-w. I'll try it again. Maybe I was w-w-w-w-w-w-w-w-w. Okay, one more time. Maybe I was w-w-w-w-w-w-w-w-w-w-w-w-w-w-r-o-o-n-g. Maybe I was wrong. I feel better now. :wink:
I wouldn't say you're wrong. My takeaway is that there just doesn't seem to be a good way to account for internal intangibles currently that provides a significant benefit over straight book value. Doesn't mean that internal intangibles aren't part of the reason that value has underperformed recently.
User avatar
Taylor Larimore
Advisory Board
Posts: 30040
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

"Maybe I was wrong. I feel better now."

Post by Taylor Larimore »

nedsaid" wrote:Okay, I will say it. Maybe I was w-w-w-w. I'll try it again. Maybe I was w-w-w-w-w-w-w-w-w. Okay, one more time. Maybe I was w-w-w-w-w-w-w-w-w-w-w-w-w-w-r-o-o-n-g. Maybe I was wrong. I feel better now.
nedsaid:

Congratulations and best wishes!
Taylor
Jack Bogle's Words of Wisdom: "“Owning the stock market over the long term is a winner’s game, but attempting to beat the market is a loser’s game.”
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
nedsaid
Posts: 13955
Joined: Fri Nov 23, 2012 12:33 pm

Re: "Maybe I was wrong. I feel better now."

Post by nedsaid »

Taylor Larimore wrote: Sun Oct 04, 2020 11:06 am
nedsaid" wrote:Okay, I will say it. Maybe I was w-w-w-w. I'll try it again. Maybe I was w-w-w-w-w-w-w-w-w. Okay, one more time. Maybe I was w-w-w-w-w-w-w-w-w-w-w-w-w-w-r-o-o-n-g. Maybe I was wrong. I feel better now.
nedsaid:

Congratulations and best wishes!
Taylor
Jack Bogle's Words of Wisdom: "“Owning the stock market over the long term is a winner’s game, but attempting to beat the market is a loser’s game.”
For your information, this came from a Happy Days episode. Fonzi tried to admit he was wrong about something but couldn't get the words out. Maybe somebody can find a clip out there on YouTube.

I have always said that I am only right about anything around here every six months or so. :wink:
A fool and his money are good for business.
User avatar
nedsaid
Posts: 13955
Joined: Fri Nov 23, 2012 12:33 pm

Re: Small Cap Value heads Rejoice !!!

Post by nedsaid »

And here it is. Fonzie just couldn't get the word out.

https://www.youtube.com/watch?v=WkqgDoo_eZE

[OT comment removed by admin LadyGeek]
A fool and his money are good for business.
000
Posts: 3339
Joined: Thu Jul 23, 2020 12:04 am

Re: Small Cap Value heads Rejoice !!!

Post by 000 »

Is is possible the historical value premium is due to the overall market preferring capital gains to dividends, especially before qualified dividends and share buybacks existed? Also, consider that most ex-US still prohibits share buybacks, which is perhaps another reason for the recent ex-US SCV premium.

i.e. do the SCV studies account for after-tax returns?
kolder
Posts: 44
Joined: Mon Sep 07, 2020 3:54 pm

Re: Small Cap Value heads Rejoice !!!

Post by kolder »

000 wrote: Sun Oct 04, 2020 6:55 pm Is is possible the historical value premium is due to the overall market preferring capital gains to dividends, especially before qualified dividends and share buybacks existed? Also, consider that most ex-US still prohibits share buybacks, which is perhaps another reason for the recent ex-US SCV premium.

i.e. do the SCV studies account for after-tax returns?
I believe the dividend premium has been much smaller than the value premium and not statistically significant. My understanding is that stocks that pay higher dividends tend to be stocks with lower P/B ratios, so the dividend premium is explained by exposure to value, but the value premium is not explained by the exposure to dividends. Consider that while dividends are less "preferable" from a logical standpoint, dividend stocks have tended to be preferred by investors for psychological reasons and is a known anomaly. Also, historically dividends had the advantage of avoiding transaction costs (compared to a "self-made" dividend), when they used to exist.
RovenSkyfall
Posts: 106
Joined: Wed Apr 01, 2020 11:40 am

Re: Small Cap Value heads Rejoice !!!

Post by RovenSkyfall »

dcabler wrote: Sat Oct 03, 2020 6:04 am
YRT70 wrote: Thu Oct 01, 2020 5:36 am I thought this was an interesting chart from this Paul Merriman presentation. Value tilted US portfolio vs. S&P500.

Image

The rest of the video covers performance of several common portfolio's, how important it is to be patient, and some other points.
https://www.youtube.com/watch?v=_6SEeYwlaKw&t=932s
Too bad it doesn't also show the number of years of sequential out-performance as well.
Is this what you are talking about? https://youtu.be/_6SEeYwlaKw?t=2033
dcabler
Posts: 1587
Joined: Wed Feb 19, 2014 11:30 am

Re: Small Cap Value heads Rejoice !!!

Post by dcabler »

RovenSkyfall wrote: Mon Oct 05, 2020 10:08 am
dcabler wrote: Sat Oct 03, 2020 6:04 am
YRT70 wrote: Thu Oct 01, 2020 5:36 am I thought this was an interesting chart from this Paul Merriman presentation. Value tilted US portfolio vs. S&P500.

Image

The rest of the video covers performance of several common portfolio's, how important it is to be patient, and some other points.
https://www.youtube.com/watch?v=_6SEeYwlaKw&t=932s
Too bad it doesn't also show the number of years of sequential out-performance as well.
Is this what you are talking about? https://youtu.be/_6SEeYwlaKw?t=2033
Yes - different point in the same video - thanks!
RovenSkyfall
Posts: 106
Joined: Wed Apr 01, 2020 11:40 am

Re: Small Cap Value heads Rejoice !!!

Post by RovenSkyfall »

dcabler wrote: Mon Oct 05, 2020 11:11 am
RovenSkyfall wrote: Mon Oct 05, 2020 10:08 am
dcabler wrote: Sat Oct 03, 2020 6:04 am
YRT70 wrote: Thu Oct 01, 2020 5:36 am I thought this was an interesting chart from this Paul Merriman presentation. Value tilted US portfolio vs. S&P500.

Image

The rest of the video covers performance of several common portfolio's, how important it is to be patient, and some other points.
https://www.youtube.com/watch?v=_6SEeYwlaKw&t=932s
Too bad it doesn't also show the number of years of sequential out-performance as well.
Is this what you are talking about? https://youtu.be/_6SEeYwlaKw?t=2033
Yes - different point in the same video - thanks!
No problem, I found that slide particularly helpful. Now we just need someone to do that same chart with SCV vs SP500. Any programming savvy takers?
dcabler
Posts: 1587
Joined: Wed Feb 19, 2014 11:30 am

Re: Small Cap Value heads Rejoice !!!

Post by dcabler »

RovenSkyfall wrote: Mon Oct 05, 2020 11:43 am
dcabler wrote: Mon Oct 05, 2020 11:11 am
RovenSkyfall wrote: Mon Oct 05, 2020 10:08 am
dcabler wrote: Sat Oct 03, 2020 6:04 am
YRT70 wrote: Thu Oct 01, 2020 5:36 am I thought this was an interesting chart from this Paul Merriman presentation. Value tilted US portfolio vs. S&P500.

Image

The rest of the video covers performance of several common portfolio's, how important it is to be patient, and some other points.
https://www.youtube.com/watch?v=_6SEeYwlaKw&t=932s
Too bad it doesn't also show the number of years of sequential out-performance as well.
Is this what you are talking about? https://youtu.be/_6SEeYwlaKw?t=2033
Yes - different point in the same video - thanks!
No problem, I found that slide particularly helpful. Now we just need someone to do that same chart with SCV vs SP500. Any programming savvy takers?
Simba's spreadsheet, available here on BH, can do this.

Cheers
manlymatt83
Posts: 200
Joined: Tue Jan 30, 2018 8:23 am

Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Going to unsubscribe from this thread, let my portfolio bake for a few years, and enjoy life :)

70% VT
12% AVUV
12% AVDV
6% AVEM

Good luck with SCV everyone!
RovenSkyfall
Posts: 106
Joined: Wed Apr 01, 2020 11:40 am

Re: Small Cap Value heads Rejoice !!!

Post by RovenSkyfall »

dcabler wrote: Mon Oct 05, 2020 11:50 am ....clipped

Simba's spreadsheet, available here on BH, can do this.

Cheers
Where is that located?
User avatar
LadyGeek
Site Admin
Posts: 67334
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Small Cap Value heads Rejoice !!!

Post by LadyGeek »

Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Massdriver
Posts: 113
Joined: Tue Jan 02, 2018 12:05 pm

Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

manlymatt83 wrote: Mon Oct 05, 2020 11:53 am Going to unsubscribe from this thread, let my portfolio bake for a few years, and enjoy life :)

70% VT
12% AVUV
12% AVDV
6% AVEM

Good luck with SCV everyone!
Good luck and stay the course! :sharebeer
muffins14
Posts: 384
Joined: Wed Oct 26, 2016 4:14 am

Re: Small Cap Value heads Rejoice !!!

Post by muffins14 »

Anyone rejoicing today? S&P 600 value / SLYV up 1.6% and total market / VTI up 0.05%

Similar story Friday and Monday
absolute zero
Posts: 582
Joined: Thu Dec 29, 2016 4:59 pm

Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

Question for the group - how do most value investors think about momentum? In particular for those of us invested in IJS/VIOV which do not have one of those fancy momentum screens. Is there a way to get a sense for how much of the small/value premium gets offset by the negative momentum exposure?
caklim00
Posts: 2284
Joined: Mon May 26, 2008 10:09 am

Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

muffins14 wrote: Tue Oct 06, 2020 11:21 am Anyone rejoicing today? S&P 600 value / SLYV up 1.6% and total market / VTI up 0.05%

Similar story Friday and Monday
Still down, but down less, so yes.
User avatar
Steve Reading
Posts: 2521
Joined: Fri Nov 16, 2018 10:20 pm

Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

absolute zero wrote: Tue Oct 06, 2020 9:09 pm Question for the group - how do most value investors think about momentum? In particular for those of us invested in IJS/VIOV which do not have one of those fancy momentum screens. Is there a way to get a sense for how much of the small/value premium gets offset by the negative momentum exposure?
The index VIOV tracks historically has had a modest momentum load of about -0.07. How much that offsets the returns of the fund depends on the momentum premium itself. The momentum premium changes wildly based on time periods. Since the mid 1990s, it has been near zero. But in more recent times (say, since 2010), it has produced a premium closer to 4%. This certainly wasn't helpful to value tilters who disregarded it.
"... 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
User avatar
Forester
Posts: 1623
Joined: Sat Jan 19, 2019 2:50 pm
Location: UK

Re: Small Cap Value heads Rejoice !!!

Post by Forester »

absolute zero wrote: Tue Oct 06, 2020 9:09 pm Question for the group - how do most value investors think about momentum? In particular for those of us invested in IJS/VIOV which do not have one of those fancy momentum screens. Is there a way to get a sense for how much of the small/value premium gets offset by the negative momentum exposure?
After reading this series of articles https://fortunefinancialadvisors.com/b ... m-barbell/ and High Returns From Low Risk by Pim Van Vliet I decided to split my equities evenly threeways between momentum, min vol & value/SCV. In some markets, min vol will be the most defensive strategy (2008) in others SCV will hold up best (70s, Dotcom).

Overall with this split I should be underexposed to expensive downtrending stocks (the worst of all stocks to own), relative to a TSM approach.
occambogle
Posts: 592
Joined: Thu Dec 12, 2019 4:58 am

Re: Small Cap Value heads Rejoice !!!

Post by occambogle »

Forester wrote: Wed Oct 07, 2020 4:20 am After reading this series of articles https://fortunefinancialadvisors.com/b ... m-barbell/ and High Returns From Low Risk by Pim Van Vliet I decided to split my equities evenly threeways between momentum, min vol & value/SCV. In some markets, min vol will be the most defensive strategy (2008) in others SCV will hold up best (70s, Dotcom).
Isn't this what multi-factor ETFs like iShares MSCI Intl Small-Cap Multifactor ETF (ISCF) are for? Covering different factors in different markets?
Genuine question... am trying to understand.
User avatar
Forester
Posts: 1623
Joined: Sat Jan 19, 2019 2:50 pm
Location: UK

Re: Small Cap Value heads Rejoice !!!

Post by Forester »

occambogle wrote: Thu Oct 08, 2020 4:16 am
Forester wrote: Wed Oct 07, 2020 4:20 am After reading this series of articles https://fortunefinancialadvisors.com/b ... m-barbell/ and High Returns From Low Risk by Pim Van Vliet I decided to split my equities evenly threeways between momentum, min vol & value/SCV. In some markets, min vol will be the most defensive strategy (2008) in others SCV will hold up best (70s, Dotcom).
Isn't this what multi-factor ETFs like iShares MSCI Intl Small-Cap Multifactor ETF (ISCF) are for? Covering different factors in different markets?
Genuine question... am trying to understand.
Possibly but my fear is a multifactor fund would be "weak beer" and end up performing like a midcap blend fund. At least with the MSCI factors, or QVAL or whatever, I can study the methodology and the out-performance or under-performance vs TSM can be understood. Vs a multifactor fund which is more "black box" and inscrutable.
Post Reply