Small Cap Value heads Rejoice !!!

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Taylor Larimore
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Re: Small Cap Value Heads: A Lesson Learned.

Post by Taylor Larimore » Wed Sep 11, 2019 7:58 pm

whodidntante wrote:
Wed Sep 11, 2019 5:49 pm
Taylor Larimore wrote:
Wed Sep 11, 2019 3:52 pm
The lesson is clear: It is dangerous to bet on one corner of the stock market.
Just so no one gets misled by Taylor's comment, the Vanguard Total Stock Market fund that is part of the three-fund portfolio is risky and has suffered large drawdowns in the recent past. It is likely that this same fund will suffer large drawdowns in the future.
Bogleheads:

whodidntante is right. Stocks are risky. This is why knowledgeable investors include safe fixed-income securities in their portfolio.

One of the important benefits of the Vanguard Total Stock Market (VTSAX) is that it has never had below average returns since its inception. Total Stock Market investors sleep well. :happy

Investors are catching on. Vanguard Total Stock Market Index Fund is now the largest mutual fund in the world.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "My preferred index fund happens to be the total stock market which includes large, medium, and small stocks."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Small Cap Value Heads: A Lesson Learned.

Post by deltaneutral83 » Thu Sep 12, 2019 8:07 am

Taylor Larimore wrote:
Wed Sep 11, 2019 4:48 pm


For your information:

http://news.morningstar.com/index/indexReturn.html

Best wishes.
Taylor
I may be missing the context, but that link has 5 years as the furthest time period out. No one who looks to any tilt of any kind expects out performance each and every five year period, if so, one would have missed the point. Moreover, this particular tilt has under performed for more 2.5-2.75 years, not really the entire 5 year period. Again, I may be missing something. Quotes from Bogle on simplicity are certainly worthwhile, but he also had zero international which is an opinion the majority doesn't hold?

Elysium
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Re: Small Cap Value Heads: A Lesson Learned.

Post by Elysium » Thu Sep 12, 2019 9:19 am

deltaneutral83 wrote:
Thu Sep 12, 2019 8:07 am
Quotes from Bogle on simplicity are certainly worthwhile, but he also had zero international which is an opinion the majority doesn't hold?
Zero in international may be perfectly fine, and up to 20% is okay as per Bogle if you must have it. International performance typically corresponds with weakening dollar, which makes it more of a currency play rather than the strength of the equity markets overseas. This was most certainly the case when International performed well last time around 2003-07 or so. Anywhere from 15% to 20% looks fine to me.

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305pelusa
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Re: Small Cap Value Heads: A Lesson Learned.

Post by 305pelusa » Thu Sep 12, 2019 9:42 am

Elysium wrote:
Thu Sep 12, 2019 9:19 am
deltaneutral83 wrote:
Thu Sep 12, 2019 8:07 am
Quotes from Bogle on simplicity are certainly worthwhile, but he also had zero international which is an opinion the majority doesn't hold?
Zero in international may be perfectly fine, and up to 20% is okay as per Bogle if you must have it. International performance typically corresponds with weakening dollar, which makes it more of a currency play rather than the strength of the equity markets overseas. This was most certainly the case when International performed well last time around 2003-07 or so. Anywhere from 15% to 20% looks fine to me.
The fact that some BHs are so against any US investment strategy that is not market-cap weighted (like factors) while simultaneously claiming zero International holdings is "perfectly fine" is astounding to me.

Back to the topic:
Critics of SCV are quick to point out underperformance (even though that's the whole point of "risk"). I see a new Taylor thread on this just about every 6 months. Serious question, how much outperformance would need to occur for even the most ardent of critics like Taylor to concede that perhaps there is something about diversifying into other factors of risk?

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Re: Small Cap Value Heads: A Lesson Learned.

Post by Elysium » Thu Sep 12, 2019 9:54 am

305pelusa wrote:
Thu Sep 12, 2019 9:42 am
Elysium wrote:
Thu Sep 12, 2019 9:19 am
deltaneutral83 wrote:
Thu Sep 12, 2019 8:07 am
Quotes from Bogle on simplicity are certainly worthwhile, but he also had zero international which is an opinion the majority doesn't hold?
Zero in international may be perfectly fine, and up to 20% is okay as per Bogle if you must have it. International performance typically corresponds with weakening dollar, which makes it more of a currency play rather than the strength of the equity markets overseas. This was most certainly the case when International performed well last time around 2003-07 or so. Anywhere from 15% to 20% looks fine to me.
The fact that some BHs are so against any US investment strategy that is not market-cap weighted (like factors) while simultaneously claiming zero International holdings is "perfectly fine" is astounding to me.
Why would that be? There is no inconsistency there. The market capitalization weighting of securities to determine the market as whole is different from whether a US investor needs to invest in foreign markets. We do not live as a world citizen, who has expenses in multiple currencies, sleeps in one country one day and wake up in another next day. We do not speak multiple languages every day, we have different tax systems and corporate laws, so on. The market cap weighting or CAPM based asset pricing model is a well accepted standard and one can accept that while rejecting factor tilting and the need to get exposure to foreign markets. I am not advocating a ZERO Intl allocation to be clear, just saying it is perfectly fine if one were to do so, and probably fine to do up to 20%.

Elysium
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Re: Small Cap Value Heads: A Lesson Learned.

Post by Elysium » Thu Sep 12, 2019 9:58 am

305pelusa wrote:
Thu Sep 12, 2019 9:42 am
Elysium wrote:
Thu Sep 12, 2019 9:19 am
deltaneutral83 wrote:
Thu Sep 12, 2019 8:07 am
Quotes from Bogle on simplicity are certainly worthwhile, but he also had zero international which is an opinion the majority doesn't hold?
Zero in international may be perfectly fine, and up to 20% is okay as per Bogle if you must have it. International performance typically corresponds with weakening dollar, which makes it more of a currency play rather than the strength of the equity markets overseas. This was most certainly the case when International performed well last time around 2003-07 or so. Anywhere from 15% to 20% looks fine to me.
Back to the topic:
Critics of SCV are quick to point out underperformance (even though that's the whole point of "risk"). I see a new Taylor thread on this just about every 6 months. Serious question, how much outperformance would need to occur for even the most ardent of critics like Taylor to concede that perhaps there is something about diversifying into other factors of risk?
Taylor and others believe that you are already diversified into all factors when you invest in the broad markets, and this is technically correct. The broad market contains all the securities in their appropriate weight as determined by the sum of all economic activities, at least for public traded companies. When you factor tilt in fact you are less diversified, and random movement of equity prices during short periods is not indicative of a long term outperformance.

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305pelusa
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Re: Small Cap Value Heads: A Lesson Learned.

Post by 305pelusa » Thu Sep 12, 2019 10:30 am

Elysium wrote:
Thu Sep 12, 2019 9:54 am
We do not live as a world citizen, who has expenses in multiple currencies, sleeps in one country one day and wake up in another next day. We do not speak multiple languages every day, we have different tax systems and corporate laws, so on.
Astounding I tell you.
Elysium wrote:
Thu Sep 12, 2019 9:58 am
305pelusa wrote:
Thu Sep 12, 2019 9:42 am
Elysium wrote:
Thu Sep 12, 2019 9:19 am
deltaneutral83 wrote:
Thu Sep 12, 2019 8:07 am
Quotes from Bogle on simplicity are certainly worthwhile, but he also had zero international which is an opinion the majority doesn't hold?
Zero in international may be perfectly fine, and up to 20% is okay as per Bogle if you must have it. International performance typically corresponds with weakening dollar, which makes it more of a currency play rather than the strength of the equity markets overseas. This was most certainly the case when International performed well last time around 2003-07 or so. Anywhere from 15% to 20% looks fine to me.
Back to the topic:
Critics of SCV are quick to point out underperformance (even though that's the whole point of "risk"). I see a new Taylor thread on this just about every 6 months. Serious question, how much outperformance would need to occur for even the most ardent of critics like Taylor to concede that perhaps there is something about diversifying into other factors of risk?
Taylor and others believe that you are already diversified into all factors when you invest in the broad markets, and this is technically correct. The broad market contains all the securities in their appropriate weight as determined by the sum of all economic activities, at least for public traded companies. When you factor tilt in fact you are less diversified, and random movement of equity prices during short periods is not indicative of a long term outperformance.
Yeah that's cool and all but will you answer my question? Or is the implication that no amount of outperformance would prove to you that other factors aside from beta are at play in the market?

Elysium
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Re: Small Cap Value Heads: A Lesson Learned.

Post by Elysium » Thu Sep 12, 2019 10:37 am

305pelusa wrote:
Thu Sep 12, 2019 10:30 am
Elysium wrote:
Thu Sep 12, 2019 9:54 am
We do not live as a world citizen, who has expenses in multiple currencies, sleeps in one country one day and wake up in another next day. We do not speak multiple languages every day, we have different tax systems and corporate laws, so on.
Astounding I tell you.
Elysium wrote:
Thu Sep 12, 2019 9:58 am
305pelusa wrote:
Thu Sep 12, 2019 9:42 am
Elysium wrote:
Thu Sep 12, 2019 9:19 am
deltaneutral83 wrote:
Thu Sep 12, 2019 8:07 am
Quotes from Bogle on simplicity are certainly worthwhile, but he also had zero international which is an opinion the majority doesn't hold?
Zero in international may be perfectly fine, and up to 20% is okay as per Bogle if you must have it. International performance typically corresponds with weakening dollar, which makes it more of a currency play rather than the strength of the equity markets overseas. This was most certainly the case when International performed well last time around 2003-07 or so. Anywhere from 15% to 20% looks fine to me.
Back to the topic:
Critics of SCV are quick to point out underperformance (even though that's the whole point of "risk"). I see a new Taylor thread on this just about every 6 months. Serious question, how much outperformance would need to occur for even the most ardent of critics like Taylor to concede that perhaps there is something about diversifying into other factors of risk?
Taylor and others believe that you are already diversified into all factors when you invest in the broad markets, and this is technically correct. The broad market contains all the securities in their appropriate weight as determined by the sum of all economic activities, at least for public traded companies. When you factor tilt in fact you are less diversified, and random movement of equity prices during short periods is not indicative of a long term outperformance.
Yeah that's cool and all but will you answer my question? Or is the implication that no amount of outperformance would prove to you that other factors aside from beta are at play in the market?
I am sure there are several factors at work in the market. It is like asking how many stars are in the galaxy. I am hearing from the academics that there are over 300 factors at play, and Eugene Fama pointed out in an interview these are evolving ideas, indicating there would be new discoveries and when we find something we will include them. That makes me skeptical whether one can profit consistently from one or more factors through tilting, as market keeps shifting. You will get the output of all factors from the market, so there is no need to disagree whether factors other than beta contribute. The disagreement is whether to overweight them, and doing so will result in long term outperformance.

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Re: Small Cap Value Heads: A Lesson Learned.

Post by Forester » Thu Sep 12, 2019 11:16 am

Elysium wrote:
Thu Sep 12, 2019 9:58 am
When you factor tilt in fact you are less diversified, and random movement of equity prices during short periods is not indicative of a long term outperformance.
On the tech bubble;

"An average (401k) participant with $100,000 invested in a Standard & Poor's (S&P) 500 Index Fund lost more than $45,000 in those 30 bleak months, almost $4,000 of which was lost on Cisco alone." - Arnott, 2008

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Re: Small Cap Value heads Rejoice !!!

Post by robertmcd » Thu Sep 12, 2019 11:40 am

IMO the reason for the value rally was simply due to the duration unwind and some lagging inflation. I see no rebound in growth/higher interest rates that should help value in the long run. Even lower growth in the next business cycle, with even lower interest rates. The inflation we are seeing is none other than lagging inflation just like what occurred before the last recession. I do think that value and small value holders should hold more long duration treasuries than a total market investor.

Elysium
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Re: Small Cap Value Heads: A Lesson Learned.

Post by Elysium » Thu Sep 12, 2019 1:12 pm

Forester wrote:
Thu Sep 12, 2019 11:16 am
Elysium wrote:
Thu Sep 12, 2019 9:58 am
When you factor tilt in fact you are less diversified, and random movement of equity prices during short periods is not indicative of a long term outperformance.
On the tech bubble;

"An average (401k) participant with $100,000 invested in a Standard & Poor's (S&P) 500 Index Fund lost more than $45,000 in those 30 bleak months, almost $4,000 of which was lost on Cisco alone." - Arnott, 2008
I am not sure what he means "lost", what he meant to say is price decline. You don't lose unless you sell. We have to remember no one actually landed from space on December 31st 1999 with millions of dollars to invest and plonked it all down on S&P 500 Index then not put a penny into it for next decade for them to have trailed T-Bills. Most people invest incrementally over period of time and build up their position. They also re-balance into bonds as the S&P 500 Index went up quite a bit from 1996 on. Then they continued buying as the price dropped in the 3 years that followed, and again in 2008.

Money weighted returns would tell you that an investor who continued to buy & hold over a 20 year period actually made more than the time weighted returns would show. Similarly, MWR would also show SCV investment declined in value when TMR would show appreciation. This could be reversed if S&P 500 declines in price now and SCV appreciates.

The fact is SCV is 2% of the market and we have people saying in order to reduce fat tails risk you need to own 100% of your equity in that. Okay, for someone whose lifestyle will not be impacted by decline in value of their entire equity investments, that may make sense, but not for the rest.

AHTFY
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Re: Small Cap Value Heads: A Lesson Learned.

Post by AHTFY » Thu Sep 12, 2019 1:23 pm

Elysium wrote:
Thu Sep 12, 2019 1:12 pm
The fact is SCV is 2% of the market and we have people saying in order to reduce fat tails risk you need to own 100% of your equity in that. Okay, for someone whose lifestyle will not be impacted by decline in value of their entire equity investments, that may make sense, but not for the rest.
This is what I keep coming back to when I think about tilting to SCV. SCV is ~3% of the market, so I already own that. Maybe I should double my exposure to 6%, but the potential gains in doing that are so small (3% of a 2% excess return is 0.06%) it's not worth the hassle. On the other hand, I could put 25% of my equity money in SCV, as many do, but now I have 8 times the exposure to these stocks. I may in theory be diversifying across the so-called risk factors, but I'm concentrating my risk and return on a small segment of the equity market.

Elysium
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Re: Small Cap Value Heads: A Lesson Learned.

Post by Elysium » Thu Sep 12, 2019 1:30 pm

AHTFY wrote:
Thu Sep 12, 2019 1:23 pm
Elysium wrote:
Thu Sep 12, 2019 1:12 pm
The fact is SCV is 2% of the market and we have people saying in order to reduce fat tails risk you need to own 100% of your equity in that. Okay, for someone whose lifestyle will not be impacted by decline in value of their entire equity investments, that may make sense, but not for the rest.
This is what I keep coming back to when I think about tilting to SCV. SCV is ~3% of the market, so I already own that. Maybe I should double my exposure to 6%, but the potential gains in doing that are so small (3% of a 2% excess return is 0.06%) it's not worth the hassle. On the other hand, I could put 25% of my equity money in SCV, as many do, but now I have 8 times the exposure to these stocks. I may in theory be diversifying across the so-called risk factors, but I'm concentrating my risk and return on a small segment of the equity market.
Exactly. In other words, when they try to do that it is an attempt at exceeding market returns by a large margin. Another form of trying to beat the market. All the discussion about diversification and minimizing fat tails risk wouldn't exist if the back tested data did not show a juicy 4% SV premium. Unfortunately though everyone started looking at this as a free lunch, and tried grab a piece of that free lunch action to boost their client portfolio returns. Try to stay passive thereby showing affiliation to customers interest, get market beating returns, charge client 1% in AUM, a great deal indeed, if only it stayed that way.

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Re: Small Cap Value heads Rejoice !!!

Post by whodidntante » Thu Sep 12, 2019 1:41 pm

robertmcd wrote:
Thu Sep 12, 2019 11:40 am
IMO the reason for the value rally was simply due to the duration unwind and some lagging inflation. I see no rebound in growth/higher interest rates that should help value in the long run. Even lower growth in the next business cycle, with even lower interest rates. The inflation we are seeing is none other than lagging inflation just like what occurred before the last recession. I do think that value and small value holders should hold more long duration treasuries than a total market investor.
I guess it's easy to pick winners if you can predict the timing and conditions of the business cycle, inflation, growth, and how all of that will impact financial markets. :twisted:

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Re: Small Cap Value Heads: A Lesson Learned.

Post by Alchemist » Thu Sep 12, 2019 1:48 pm

305pelusa wrote:
Thu Sep 12, 2019 9:42 am
Back to the topic:
Critics of SCV are quick to point out underperformance (even though that's the whole point of "risk"). I see a new Taylor thread on this just about every 6 months. Serious question, how much outperformance would need to occur for even the most ardent of critics like Taylor to concede that perhaps there is something about diversifying into other factors of risk?
I would say consistency in outperformance. SCV outperformance is supposed to come in bursts. Since publication and since DFSVX and other SCV funds went live dating aback to 1993 there has been one such occurrence from 2000-2002. Since 2002 DFSVX has essentially matched VTSAX (trailed by something like 20 bps) but at much higher levels of volatility and larger drawdowns. Over the last 15 years, DFSVX has underperformed VTSAX by 2%. So we have a 26 year history (1993-2019) of SCV being investable as a mutual fund with a two year period where it out performed giving it a 1.09% edge over TSM for the entire post-publication period. Not bad, but also far from definitive. If there were three such 'bursts' of out performance I think I would be convinced enough for a small tilt. Two such burst would be highly interesting. One? There is no way to distinguish this from luck or randomness.

As for international vs US, that is a completely different topic beat to death in other threads.

2002-2019 Data:
https://www.portfoliovisualizer.com/bac ... 0&total3=0

2004-2019 Data:
https://www.portfoliovisualizer.com/bac ... 0&total3=0

1993-2019 Data:
https://www.portfoliovisualizer.com/bac ... 0&total3=0
Forester wrote:
Thu Sep 12, 2019 11:16 am
Elysium wrote:
Thu Sep 12, 2019 9:58 am
When you factor tilt in fact you are less diversified, and random movement of equity prices during short periods is not indicative of a long term outperformance.
On the tech bubble;

"An average (401k) participant with $100,000 invested in a Standard & Poor's (S&P) 500 Index Fund lost more than $45,000 in those 30 bleak months, almost $4,000 of which was lost on Cisco alone." - Arnott, 2008
Investors in S&P 500 index funds have been far better off than investing in Arnott's funds....just saying....

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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Thu Sep 12, 2019 2:04 pm

A bit sad I am in VSIAX via my 401k and not VIOV... but the replacement for VIOV in my Roth has a >90% XIRR currently so I think I'll survive :twisted: .

schismal
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Re: Small Cap Value heads Rejoice !!!

Post by schismal » Thu Sep 12, 2019 2:13 pm

MotoTrojan wrote:
Thu Sep 12, 2019 2:04 pm
A bit sad I am in VSIAX via my 401k and not VIOV... but the replacement for VIOV in my Roth has a >90% XIRR currently so I think I'll survive :twisted: .
PSSIX is the best I can do in my 403, but it's still had a decent week.

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Re: Small Cap Value Heads: A Lesson Learned.

Post by Forester » Thu Sep 12, 2019 2:18 pm

Alchemist wrote:
Thu Sep 12, 2019 1:48 pm

Investors in S&P 500 index funds have been far better off than investing in Arnott's funds....just saying....
March 9th 2009 to present, total return

RAFI US +493%

S&P 500 +445%

and the RAFI fund is sitting on cheaper PE, PB as it looks like value is on an uptick.

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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Thu Sep 12, 2019 4:35 pm

schismal wrote:
Thu Sep 12, 2019 2:13 pm
MotoTrojan wrote:
Thu Sep 12, 2019 2:04 pm
A bit sad I am in VSIAX via my 401k and not VIOV... but the replacement for VIOV in my Roth has a >90% XIRR currently so I think I'll survive :twisted: .
PSSIX is the best I can do in my 403, but it's still had a decent week.
I believe I have access to the Vanguard Tax-managed Small-cap in mine which tracks the S&P600, but bypassing the value component feels wrong so I stick with the VSIAX. Hoping I'll get a big taxable windfall I can put into VIOV and then my 401k can just be Total US & Total Int :).

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Re: Small Cap Value Heads: A Lesson Learned.

Post by Alchemist » Thu Sep 12, 2019 6:36 pm

Forester wrote:
Thu Sep 12, 2019 2:18 pm
Alchemist wrote:
Thu Sep 12, 2019 1:48 pm

Investors in S&P 500 index funds have been far better off than investing in Arnott's funds....just saying....
March 9th 2009 to present, total return

RAFI US +493%

S&P 500 +445%

and the RAFI fund is sitting on cheaper PE, PB as it looks like value is on an uptick.
That is a bizarrely specific date you chose. You did not give a ticker, but I presume the fund you are referencing is PRF, the Invesco RAFI US 1000 ETF.

Since inception in Jan 2006, PRF has underperformed VFIAX (The Vanguard S&P 500 Index Fund). The S&P 500 index fund returned 8.36% vs 8.28% for the RAFI fund. This doesn't sound too bad until you find out it also had higher SD of 16.26% vs VFIAX's 14.27%. Most amusingly, the 'bubble protection' fund fell harder during the Great Financial crisis with a max drawdown of more than 55% compared to the 50% of the S&P 500 fund.

Source: https://www.portfoliovisualizer.com/bac ... 0&total3=0

I tried to replicate your March 9th, 2009 till present date but Portfolio visualizer only does round months. But March 2009 through August 2019 shows that PRF did slightly edge out the S&P 500 fund with a return of 16.92% vs 16.46%. But again this was with higher SD and deeper drawdowns with its worst year being twice as bad as VFIAX.

Source: https://www.portfoliovisualizer.com/bac ... 0&total3=0

I stand by my original statement that investors were better off avoiding Arnott's funds. For a real stinker take a look at his latest "multi-factor" funds vs TSM. Though in fairness they have only been around for less than 5 years.

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Re: Small Cap Value Heads: A Lesson Learned.

Post by stlutz » Thu Sep 12, 2019 7:35 pm

Alchemist wrote:
Thu Sep 12, 2019 6:36 pm
That is a bizarrely specific date you chose. You did not give a ticker, but I presume the fund you are referencing is PRF, the Invesco RAFI US 1000 ETF.
The RAFI indices got very lucky with the timing of rebalancing back in 2009. They rebalance their portfolio in March. That year, their approach caused them to load up on bank stocks right at the very bottom of the market, and of course the banks came roaring back. Rebalance in June and it would have been good but not quite as dramatic.

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Re: Small Cap Value Heads: A Lesson Learned.

Post by Forester » Fri Sep 13, 2019 1:59 am

Alchemist wrote:
Thu Sep 12, 2019 6:36 pm
Forester wrote:
Thu Sep 12, 2019 2:18 pm
Alchemist wrote:
Thu Sep 12, 2019 1:48 pm

Investors in S&P 500 index funds have been far better off than investing in Arnott's funds....just saying....
March 9th 2009 to present, total return

RAFI US +493%

S&P 500 +445%

and the RAFI fund is sitting on cheaper PE, PB as it looks like value is on an uptick.
That is a bizarrely specific date you chose. You did not give a ticker, but I presume the fund you are referencing is PRF, the Invesco RAFI US 1000 ETF.

Since inception in Jan 2006, PRF has underperformed VFIAX (The Vanguard S&P 500 Index Fund). The S&P 500 index fund returned 8.36% vs 8.28% for the RAFI fund. This doesn't sound too bad until you find out it also had higher SD of 16.26% vs VFIAX's 14.27%. Most amusingly, the 'bubble protection' fund fell harder during the Great Financial crisis with a max drawdown of more than 55% compared to the 50% of the S&P 500 fund.

Source: https://www.portfoliovisualizer.com/bac ... 0&total3=0

I tried to replicate your March 9th, 2009 till present date but Portfolio visualizer only does round months. But March 2009 through August 2019 shows that PRF did slightly edge out the S&P 500 fund with a return of 16.92% vs 16.46%. But again this was with higher SD and deeper drawdowns with its worst year being twice as bad as VFIAX.

Source: https://www.portfoliovisualizer.com/bac ... 0&total3=0

I stand by my original statement that investors were better off avoiding Arnott's funds. For a real stinker take a look at his latest "multi-factor" funds vs TSM. Though in fairness they have only been around for less than 5 years.
I don't really disagree and personally I would probably prefer VOO over a "black box" fancy factor fund, as this is a core holding product where an investor should play it safe. Arnott is correct that it's wise not to have all one's eggs in the megacap basket, but this could be achieved with owning a market cap weighted MCV or SCV fund alongside the S&P rather than rejecting entirely the wisdom of the crowd with his fundamental index.

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Re: Small Cap Value heads Rejoice !!!

Post by schismal » Fri Sep 13, 2019 3:50 am

MotoTrojan wrote:
Thu Sep 12, 2019 4:35 pm
schismal wrote:
Thu Sep 12, 2019 2:13 pm
MotoTrojan wrote:
Thu Sep 12, 2019 2:04 pm
A bit sad I am in VSIAX via my 401k and not VIOV... but the replacement for VIOV in my Roth has a >90% XIRR currently so I think I'll survive :twisted: .
PSSIX is the best I can do in my 403, but it's still had a decent week.
I believe I have access to the Vanguard Tax-managed Small-cap in mine which tracks the S&P600, but bypassing the value component feels wrong so I stick with the VSIAX. Hoping I'll get a big taxable windfall I can put into VIOV and then my 401k can just be Total US & Total Int :).
I am actively petitioning our 403b committee for VSMVX (the mutual fund version of VIOV) after getting shot down on PSLDX. :D

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Re: Small Cap Value Heads Rejoice!

Post by YRT70 » Fri Sep 13, 2019 8:00 am

AHTFY wrote:
Thu Sep 12, 2019 1:23 pm
This is what I keep coming back to when I think about tilting to SCV. SCV is ~3% of the market, so I already own that. Maybe I should double my exposure to 6%, but the potential gains in doing that are so small (3% of a 2% excess return is 0.06%) it's not worth the hassle. On the other hand, I could put 25% of my equity money in SCV, as many do, but now I have 8 times the exposure to these stocks. I may in theory be diversifying across the so-called risk factors, but I'm concentrating my risk and return on a small segment of the equity market.
I hear you. I initially felt the same. Then I looked at in portfolio visualiser: a portfolio with 25% in SLYV (SCV) and the other 75% in VTSMX (total market) has had a 0.99 correlation with the US market. Much more than I thought. In factor regression VTSMX only has significant exposure to the market factor, the tilted portfolio has significant exposure to market, size and value factor. Here's what it looked like performance wise, since inception. I was surprised by how similar the pattern was.

Image

Advocates of small cap value investing like Larry Swedroe and Paul Merriman don't recommend only investing in the US market though, they recommend also investing in International and Emerging Markets. Even an 100% small cap value internationally diversified portfolio had 0.91 correlation with US market. Here's are an example of performance since inception.

Image

For someone that doesn't have access to DFA funds one could use SLYV, DLS, DGS as alternative. Here's how it fared since inception. US market correlation for this portfolio was 0.95.

Image

typical.investor
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Re: Small Cap Value Heads: A Lesson Learned.

Post by typical.investor » Fri Sep 13, 2019 8:29 am

Forester wrote:
Fri Sep 13, 2019 1:59 am
I stand by my original statement that investors were better off avoiding Arnott's funds. For a real stinker take a look at his latest "multi-factor" funds vs TSM. Though in fairness they have only been around for less than 5 years.
Since inception, they have outperformed total market.

VT (Vanguard Total World Stock ETF) 4.32% CAGR
RAFI multifactor 4.64% CAGR

That is based on global market cap weighting:
MFDX PIMCO RAFI Dyn Multi-Factor Intl Eq ETF 35.00%
MFUS PIMCO RAFI Dyn Multi-Factor US Eq ETF 55.00%
MFEM PIMCO RAFI Dyn Mlt-Fctr Emrg Mkts Eq ETF 10.00%

https://www.portfoliovisualizer.com/bac ... 0&total3=0

And your point was what? Huh?

Elysium
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Re: Small Cap Value Heads Rejoice!

Post by Elysium » Fri Sep 13, 2019 8:38 am

YRT70 wrote:
Fri Sep 13, 2019 8:00 am
AHTFY wrote:
Thu Sep 12, 2019 1:23 pm
This is what I keep coming back to when I think about tilting to SCV. SCV is ~3% of the market, so I already own that. Maybe I should double my exposure to 6%, but the potential gains in doing that are so small (3% of a 2% excess return is 0.06%) it's not worth the hassle. On the other hand, I could put 25% of my equity money in SCV, as many do, but now I have 8 times the exposure to these stocks. I may in theory be diversifying across the so-called risk factors, but I'm concentrating my risk and return on a small segment of the equity market.
I hear you. I initially felt the same. Then I looked at in portfolio visualiser: a portfolio with 25% in SLYV (SCV) and the other 75% in VTSMX (total market) has had a 0.99 correlation with the US market. Much more than I thought. In factor regression VTSMX only has significant exposure to the market factor, the tilted portfolio has significant exposure to market, size and value factor. Here's what it looked like performance wise, since inception. I was surprised by how similar the pattern was.

Image

Advocates of small cap value investing like Larry Swedroe and Paul Merriman don't recommend only investing in the US market though, they recommend also investing in International and Emerging Markets. Even an 100% small cap value internationally diversified portfolio had 0.91 correlation with US market. Here's are an example of performance since inception.

Image

For someone that doesn't have access to DFA funds one could use SLYV, DLS, DGS as alternative. Here's how it fared since inception. US market correlation for this portfolio was 0.95.

Image
Those charts do not tell the full story. You cannot eat past performance, unless you landed on earth in the year 2000 with a few millions to invest in Portfolio 2 and a crystal ball that told you to do so, with not a dime to add since then.

The Great Recession of 2008 has made some fundamental shifts to the market and economy, we do not know how long these will last and where we go from here. If you move the time periods to beginning of the recovery since 2009, you would see that Portfolio 1 performed better, and if you move it to 2016 you will see Portfolio 1 has almost double the returns of Portfolio 2, and if you further advance to 2017 just last 3 years you will see nearly 10% excess of Portfolio 1 while Portfolio 2 returned nearly zero.

No one knows how long these trends last, all we know is Value/Growth cycles come and go. A heavy tilt will only result in massive underperformance and/or outperformance as the cycles shift.

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Re: Small Cap Value Heads Rejoice!

Post by MotoTrojan » Fri Sep 13, 2019 8:53 am

YRT70 wrote:
Fri Sep 13, 2019 8:00 am
AHTFY wrote:
Thu Sep 12, 2019 1:23 pm
This is what I keep coming back to when I think about tilting to SCV. SCV is ~3% of the market, so I already own that. Maybe I should double my exposure to 6%, but the potential gains in doing that are so small (3% of a 2% excess return is 0.06%) it's not worth the hassle. On the other hand, I could put 25% of my equity money in SCV, as many do, but now I have 8 times the exposure to these stocks. I may in theory be diversifying across the so-called risk factors, but I'm concentrating my risk and return on a small segment of the equity market.
I hear you. I initially felt the same. Then I looked at in portfolio visualiser: a portfolio with 25% in SLYV (SCV) and the other 75% in VTSMX (total market) has had a 0.99 correlation with the US market. Much more than I thought. In factor regression VTSMX only has significant exposure to the market factor, the tilted portfolio has significant exposure to market, size and value factor. Here's what it looked like performance wise, since inception. I was surprised by how similar the pattern was.

Advocates of small cap value investing like Larry Swedroe and Paul Merriman don't recommend only investing in the US market though, they recommend also investing in International and Emerging Markets. Even an 100% small cap value internationally diversified portfolio had 0.91 correlation with US market. Here's are an example of performance since inception.


For someone that doesn't have access to DFA funds one could use SLYV, DLS, DGS as alternative. Here's how it fared since inception. US market correlation for this portfolio was 0.95.
Why does correlation matter? Just look at US vs. International; correlations have been pretty tight, but returns are vastly different. It is equally (if not more) important to have assets that perform better/worse out of sync with each other, even if their correlation is high (or even perfect).

Random Walker
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Re: Small Cap Value Heads Rejoice!

Post by Random Walker » Fri Sep 13, 2019 9:15 am

MotoTrojan wrote:
Fri Sep 13, 2019 8:53 am
YRT70 wrote:
Fri Sep 13, 2019 8:00 am
AHTFY wrote:
Thu Sep 12, 2019 1:23 pm
This is what I keep coming back to when I think about tilting to SCV. SCV is ~3% of the market, so I already own that. Maybe I should double my exposure to 6%, but the potential gains in doing that are so small (3% of a 2% excess return is 0.06%) it's not worth the hassle. On the other hand, I could put 25% of my equity money in SCV, as many do, but now I have 8 times the exposure to these stocks. I may in theory be diversifying across the so-called risk factors, but I'm concentrating my risk and return on a small segment of the equity market.
I hear you. I initially felt the same. Then I looked at in portfolio visualiser: a portfolio with 25% in SLYV (SCV) and the other 75% in VTSMX (total market) has had a 0.99 correlation with the US market. Much more than I thought. In factor regression VTSMX only has significant exposure to the market factor, the tilted portfolio has significant exposure to market, size and value factor. Here's what it looked like performance wise, since inception. I was surprised by how similar the pattern was.

Advocates of small cap value investing like Larry Swedroe and Paul Merriman don't recommend only investing in the US market though, they recommend also investing in International and Emerging Markets. Even an 100% small cap value internationally diversified portfolio had 0.91 correlation with US market. Here's are an example of performance since inception.


For someone that doesn't have access to DFA funds one could use SLYV, DLS, DGS as alternative. Here's how it fared since inception. US market correlation for this portfolio was 0.95.
Why does correlation matter? Just look at US vs. International; correlations have been pretty tight, but returns are vastly different. It is equally (if not more) important to have assets that perform better/worse out of sync with each other, even if their correlation is high (or even perfect).
I have only had the simplest of statistics classes, but I think the relevant metric is covariance. Correlations measure the likelihood of one investment to perform above or below its mean when the other performs above or below its mean. Covariance, I think, accounts for the amplitude of the effect too.

Dave

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Re: Small Cap Value Heads Rejoice!

Post by AHTFY » Fri Sep 13, 2019 11:08 am

YRT70 wrote:
Fri Sep 13, 2019 8:00 am
I hear you. I initially felt the same. Then I looked at in portfolio visualiser: a portfolio with 25% in SLYV (SCV) and the other 75% in VTSMX (total market) has had a 0.99 correlation with the US market. Much more than I thought. In factor regression VTSMX only has significant exposure to the market factor, the tilted portfolio has significant exposure to market, size and value factor. Here's what it looked like performance wise, since inception. I was surprised by how similar the pattern was.

Image
Of course, 2000 is a great year to start SCV investing. If you use DFA US Small Cap Value I (DFSVX) and go back to 1994, which is as far back as you can go, you'll see that DFSVX does better nominally than SPY but at significantly more risk.
Image
Image

YRT70
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Re: Small Cap Value Heads Rejoice!

Post by YRT70 » Fri Sep 13, 2019 11:15 am

Elysium wrote:
Fri Sep 13, 2019 8:38 am
Those charts do not tell the full story. You cannot eat past performance, unless you landed on earth in the year 2000 with a few millions to invest in Portfolio 2 and a crystal ball that told you to do so, with not a dime to add since then.
Sure, that's what backtesting does. By the way, the first charted started in 2000 at inception of SLYV, the last one in 2007 at the inception of DGS.

I could have replaced SLYV by DFSVX, then it would have started at 1993, the inception of DFSVX. So then we've got 3 different starting dates. Here's what it looks like.

Image

YRT70
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Re: Small Cap Value Heads Rejoice!

Post by YRT70 » Fri Sep 13, 2019 11:21 am

AHTFY wrote:
Fri Sep 13, 2019 11:08 am
Of course, 2000 is a great year to start SCV investing. If you use DFA US Small Cap Value I (DFSVX) and go back to 1994, which is as far back as you can go, you'll see that DFSVX does better nominally than SPY but at significantly more risk.
2000 is the starting date of SLYV. Above I included a comparison with DFSVX. I personally prefer to compare this portfolio with total stock market, I think that's the default BH recommendation. And you're right that the S&P500 has had a great run, while SCV has been said to underperform. Will be interesting to see what happens in the next decade.

PS. Personally I'd also prefer to include international diversification. In that sense including small cap value has done better.
Last edited by YRT70 on Fri Sep 13, 2019 11:24 am, edited 2 times in total.

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Re: Small Cap Value Heads Rejoice!

Post by YRT70 » Fri Sep 13, 2019 11:22 am

MotoTrojan wrote:
Fri Sep 13, 2019 8:53 am
Why does correlation matter? Just look at US vs. International; correlations have been pretty tight, but returns are vastly different. It is equally (if not more) important to have assets that perform better/worse out of sync with each other, even if their correlation is high (or even perfect).
You're right. This is why I also included the performance in PV.

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Forester
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Re: Small Cap Value Heads: A Lesson Learned.

Post by Forester » Fri Sep 13, 2019 11:27 am

typical.investor wrote:
Fri Sep 13, 2019 8:29 am
Forester wrote:
Fri Sep 13, 2019 1:59 am
I stand by my original statement that investors were better off avoiding Arnott's funds. For a real stinker take a look at his latest "multi-factor" funds vs TSM. Though in fairness they have only been around for less than 5 years.
Since inception, they have outperformed total market.

VT (Vanguard Total World Stock ETF) 4.32% CAGR
RAFI multifactor 4.64% CAGR

That is based on global market cap weighting:
MFDX PIMCO RAFI Dyn Multi-Factor Intl Eq ETF 35.00%
MFUS PIMCO RAFI Dyn Multi-Factor US Eq ETF 55.00%
MFEM PIMCO RAFI Dyn Mlt-Fctr Emrg Mkts Eq ETF 10.00%

https://www.portfoliovisualizer.com/bac ... 0&total3=0

And your point was what? Huh?
You misquoted me, that was the other guy. I posted that the RAFI fund was neck-and-neck with the S&P, and sat today on much cheaper valuation.

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Re: Small Cap Value Heads Rejoice!

Post by AHTFY » Fri Sep 13, 2019 11:28 am

YRT70 wrote:
Fri Sep 13, 2019 11:21 am
AHTFY wrote:
Fri Sep 13, 2019 11:08 am
Of course, 2000 is a great year to start SCV investing. If you use DFA US Small Cap Value I (DFSVX) and go back to 1994, which is as far back as you can go, you'll see that DFSVX does better nominally than SPY but at significantly more risk.
2000 is the starting date of SLYV. Above I included a comparison with DFSVX. I personally prefer to compare this portfolio with total stock market, I think that's the default BH recommendation. And you're right that the S&P500 has had a great run, while SCV has been said to underperform. Will be interesting to see what happens in the next decade.

PS. Personally I'd also prefer to include international diversification. In that sense including small cap value has done better.
My mistake. I thought VTSMX didn't go back that far so chose SPY instead. In the end, SPY and VTSMX had virtually identical performances, so it didn't really matter which one you choose.
It's hard to see in these results what the benefit of SCV has been. One could argue that this happened to be a historically bad period for SCV, which may be true. But showing how SCV outperformed since 2000 was just misleading.

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Re: Small Cap Value Heads Rejoice!

Post by YRT70 » Fri Sep 13, 2019 11:44 am

AHTFY wrote:
Fri Sep 13, 2019 11:28 am
But showing how SCV outperformed since 2000 was just misleading.
I didn't choose 2000 as a starting year, it just happens to be the inception date of SLYV, an open accessible SCV fund that's been around nearly 20 years. I also included another chart starting from 2007.

Here's another chart. Just happens to start in 1999 because that's the inception of VTMGX. If you know a Vanguard INT fund that's been around longer let me know, I can use that one instead.

Image

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Re: Small Cap Value Heads: A Lesson Learned.

Post by Alchemist » Fri Sep 13, 2019 11:54 am

typical.investor wrote:
Fri Sep 13, 2019 8:29 am
Forester wrote:
Fri Sep 13, 2019 1:59 am
I stand by my original statement that investors were better off avoiding Arnott's funds. For a real stinker take a look at his latest "multi-factor" funds vs TSM. Though in fairness they have only been around for less than 5 years.
Since inception, they have outperformed total market.

VT (Vanguard Total World Stock ETF) 4.32% CAGR
RAFI multifactor 4.64% CAGR

That is based on global market cap weighting:
MFDX PIMCO RAFI Dyn Multi-Factor Intl Eq ETF 35.00%
MFUS PIMCO RAFI Dyn Multi-Factor US Eq ETF 55.00%
MFEM PIMCO RAFI Dyn Mlt-Fctr Emrg Mkts Eq ETF 10.00%

https://www.portfoliovisualizer.com/bac ... 0&total3=0

And your point was what? Huh?
That was me, not Forester, who made that statement. I was referencing U.S. TSM, but even your global portfolio has basically a tie over less than two years.

For the U.S. Total Market it is also basically a tie, with TSM just a few bps ahead.

MFUS PIMCO RAFI Dyn Multi-Factor US Eq ETF: 9.42%

VTI Vanguard Total U.S. Stock Market: 9.46%

Source: https://www.portfoliovisualizer.com/bac ... 0&total3=0

This data only goes back to October 2017. So we have 22 months of performance data. These are much newer than the funds I was thinking of which I think were actually the AQR Multi-Factor funds that are trailing the market by about 3% currently. None the less Arnott talks a lot about how much smart beta can deliver for investors without actually delivering anything a simple, cheap index fund can do better.

I stand by my original statement. Arnott's funds have failed to out perform and they have failed to provide any downside protection in drawdowns. In fact a holder of his funds during 2008 saw an even bigger drawdown than a TSM or S&P 500 index fund.

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Re: Small Cap Value Heads Rejoice!

Post by pdavi21 » Fri Sep 13, 2019 11:55 am

YRT70 wrote:
Fri Sep 13, 2019 11:44 am
Here's another chart. Just happens to start in 1999 because that's the inception of VTMGX. If you know a Vanguard INT fund that's been around longer let me know, I can use that one instead.
VGTSX (Total INTL ex-US Investor Shares) Inception 1996
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: Small Cap Value Heads Rejoice!

Post by YRT70 » Fri Sep 13, 2019 12:01 pm

pdavi21 wrote:
Fri Sep 13, 2019 11:55 am
YRT70 wrote:
Fri Sep 13, 2019 11:44 am
Here's another chart. Just happens to start in 1999 because that's the inception of VTMGX. If you know a Vanguard INT fund that's been around longer let me know, I can use that one instead.
VGTSX (Total INTL ex-US Investor Shares) Inception 1996
Thanks. If I use that one the starting date becomes 1998 because that's the inception of DEMSX, DFA Emerging Markets Small Cap I.

Results stay quite similar to the previous chart: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Elysium
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Re: Small Cap Value Heads Rejoice!

Post by Elysium » Fri Sep 13, 2019 12:52 pm

YRT70 wrote:
Fri Sep 13, 2019 11:15 am
Elysium wrote:
Fri Sep 13, 2019 8:38 am
Those charts do not tell the full story. You cannot eat past performance, unless you landed on earth in the year 2000 with a few millions to invest in Portfolio 2 and a crystal ball that told you to do so, with not a dime to add since then.
Sure, that's what backtesting does. By the way, the first charted started in 2000 at inception of SLYV, the last one in 2007 at the inception of DGS.

I could have replaced SLYV by DFSVX, then it would have started at 1993, the inception of DFSVX. So then we've got 3 different starting dates. Here's what it looks like.

Image
Plug in Small Growth (VISGX) to that and post the results.

BTW, I had owned DFSVX for a while when I had access to it back in the days 2003 to around 2013 and then it became DFFVX in another plan. There is nothing magical about the fund, it just goes up and down like all the other funds. Sometimes it makes money, sometimes other funds makes money. That's the way it goes. I wouldn't bet my entire portfolio on it, or make it large enough for an overall value tilt to the portfolio which remains very much like broad market exposure.

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Past Performance

Post by Taylor Larimore » Fri Sep 13, 2019 5:44 pm

Bogleheads:

We must never forget:
American Association of Individual Investors: "Top Performance lists are dangerous."

Frank Armstrong, financial author: "Rating services such as Morningstar's 'Star Awards' or the 'Forbes Honor Roll' attest to the futility of applying past performance to tomorrow."

Arnott and Bernstein (2002, p. 64): “The investment management industry thrives on the expedient of forecasting the future by extrapolating the past."

Barra Research: "There is no persistence of equity fund performance."

Christine Benz, Morningstar Director of Personal Finance: "When we look at our data, at the factors that are most predictive of good performance going forward, low costs are a much better predictor than is great past performance."

Wm. Bernstein, author of The Four Pillars of Investing: "For the 20 years from 1970 to 1989, the best performing stock assets were Japanese stocks, U.S. small stocks, and gold stocks. These turned out to be the worst performing assets over the next decade."

Jack Bogle: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."

Bogleheads' Guide to Investing: "Using past performance to pick tomorrow's winning mutual funds is such a bad idea that the government requires a statement similar to this: "Past performance is no guarantee of future performance." Believe it!"

Jack Brennan, former Vanguard CEO: "Fund ranking is meaningless when based primarily on past performance, as most are."

Burns Advisory tracked the performance of Morningstar's five-star rated stock funds beginning January 1, 1999. Of the 248 stock funds, just four still kept that rank after ten years.

Ben Carlson, author of A Wealth of Common Sense : "Dow Jones looked at nearly 2,900 active mutual funds. Only 2 funds in the top quartile stayed in the top quartile of performance over the next four 1-year periods."

Andrew Clarke, author: "By the time an investment reaches the top of the performance tables, there's a good chance that its run is over. The past is not prologue."

Jonathan Clements, author & former Wall Street Journal columnist: "Suppose you picked stock funds that ranked in their category's top 25% over the past five years. A regular updated study suggests that less than a quarter of these funds will remain in the top 25% over the next five years--even worse than the result you would expect based purely on chance."

Prof. John Cochrane, author: "Past performance has almost no information about future performance."

S.T.Coleridge: "History is a lantern over the stern. It shows where you've been but not where you're going"

Dow Jones Indices Report, June 2015: "The data shows a stronger likelihood for the best-performing funds to become the worst performing funds than vice versa." -- June 2016: "Only 3.7% of large-cap funds maintained top-half performance over five-consecutive 12-month periods. For midcap funds, the comparable figure was 5.79%, and for small-cap funds, it was 7.82%."

Charles D. Ellis, author of 16 financial books: "Sadly, investors who rely on performance records are relying on useless data."

Eugene Fama, Nobel Laureate: "Our research on individual mutual funds says that it's impossible to identify true winners on a reliable basis, even if one ignores the costs that active funds impose on investors."

Forbes (2/2/04 issue): "Over the past decade, Morningstar's five-star equity funds have earned an average 5.7% against a 10.3% return for the Wilshire 5000 (Total Stock Market)."

Gensler & Bear, co-authors of The Great Mutual Fund Trap: "Of the fifty top-performing funds in 2000, not a single one appeared on the list in either 1999 or 1998."

Ken Hebner's CGM Focus Fund was the top U.S. equity fund in 2007. In November 2009, it ranked in the bottom 1% of its category.

Mark Hulbert (12-31-2014): "Consider a hypothetical portfolio that each year followed the investment newsletter portfolio that, among the more than 500 tracked by The Hulbert Financial Digest, had the best record during the previous calendar year. Over the past 20 years, that portfolio would have been a disaster, producing an annualized loss of more than -17%."

Mark Hebner, President, Index Fund Advisors: "From 1998 through 2013 only about 8 funds remained in the top 100 the following year."

JPMorgan Chase claimed that 97% of their alternate-asset mutual funds beat their benchmark during the 10-year period ending December, 2013. Morningstar reported that only 33% beat their benchmark during the same period (past-performance calculations differ).

Arthur Levitt, SEC Commissioner: "A mutual fund's past performance, which is the first feature that investors consider when choosing a fund, doesn't predict future performance."

Peter Lynch's Fidelity Magellan Fund (FMAGX), once the world's largest and most successful mutual fund, is now (Feb. 9, 2018) in the bottom 11% of its category for 15-year annualized return

Burton Malkiel, author of the classic Random Walk Down Wall Street: "I have examined the lack of persistency in fund returns over periods from the 1960s through the early 2000s.--There is no persistency to good performance. It is as random as the market."

Mercer Investment Consulting from a study of over 12,000 institutional managers: "Excellent recent performance not only doesn't guarantee future results but generally leads to under-performance in the subsequent period."

Bill Miller, former manager of Legg Mason Value Trust (LMVTX), was the only manager to outperform The S&P 500 Index for 15 consecutive years. On 9/7/2016 Miller’s fund is in the bottom 1% for 15 year returns.

Mark Miller, financial author and journalist: "Only 7.33% of domestic equity funds that were in the top quartile of performance in March 2014 were still there two years later."

Morningstar: "Over the long term, there is no meaningful relationship between past and future fund performance."

Ron Ross, author of The Unbeatable Market: "Extensive studies by Davis, Brown & Groetzman, Ibbotson, Elton et al, all confirmed there is no significant persistence in mutual fund performance. -- Wall Street’s favorite scam is pretending that luck is skill.”

S&P Global: "There’s a stronger likelihood that a top performing fund will become one of the worst performers in a subsequent period than that it will stay a top performer."

Bill Schultheis, adviser and author of The Coffeehouse Investor: "Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea."

Sequoia Fund was the top performing large-cap growth fund at the end of 2015 according to Morningstar. On 4/21/2017 it ranked in the bottom 1% for five year returns.

Standard & Poor's Persistence Scorecard (Dec-2014): "The data show a stronger likelihood for the best-performing funds to become the worst-performing funds than vice versa. Of 421 funds that were in the bottom quartile, 14.45% moved to the top quartile over the five year horizon, while 27.08% of the 421 funds that were in the top quartile moved into the bottom quartile during the same period."

Larry Swedroe, author of many finance books: "The 44 Wall Street Fund was the top performing fund over the decade of the 1970s. It ranked as the single worst performing fund of the 1980's losing 73%. -- If you are going to use past performance to predict the future winners, the evidence is strong that your approach is highly likely to fail."

David Swensen, Yale's Chief Investment Officer: "Chasing performance is the biggest mistake investors make. If anything, it is a perverse indicator."

Tweddell & Pierce, co-authors of Winning With Mutual Funds: "Numerous studies have shown that using superior past performance is no better than random selection."

Eric Tyson, author of Mutual Funds for Dummies (2010 edition): "Of the number one top-performing stock and bond funds in each of the last 20 years, a whopping 80% of them subsequently performed worse than the average fund in their peer group over the next 5 to 10 years! Some of these former #1 funds actually went on to become the worst-performing funds in their particular category."

Value Line selected Garret Van Wagoner "Mutual fund Manager of the Year" in 1999. In August 2009, Van Wagoner's Emerging Growth Fund was the worst performing U.S. stock fund over the past 10 years.

Vanguard Study: "Persistence of performance among past winners is no more predictable than a flip of a coin."

Jason Zweig, author and Wall Street Journal columnist: "Buying funds based purely on their past performance is one of the stupidest things an investor can do."
Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "There is simply no way under the sun to forecast a fund's future absolute returns based on its past record."
"Simplicity is the master key to financial success." -- Jack Bogle

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hdas
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Re: Small Cap Value heads Rejoice !!!

Post by hdas » Sat Sep 14, 2019 6:44 am

It’s interesting to note that the best value funds this week were (in order):

BOSVX
VFVA
VIOV / IJS
QVAL
ZIG

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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foosball
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Re: Small Cap Value heads Rejoice !!!

Post by foosball » Sat Sep 14, 2019 7:00 am

caklim00 wrote:
Wed Sep 11, 2019 8:32 am
My IRAs are just SLYV and ISCF besides my small stake in the hedgefundie excellent adventure.

I hold some VIOV (and previously IJS) in taxable but now I put most taxable contributions to VFMF instead since it appears to be more tax efficient.
I arrived at a similar strategy, FWIW. A few months ago I moved from VBR to VIOV in my Roth. In taxable, I'm using VFMF.
Tilterati

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abuss368
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Re: Small Cap Value heads Rejoice !!!

Post by abuss368 » Sat Sep 14, 2019 7:14 am

Not sure of all these ticker symbols and not fund names.
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Forester
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Re: Small Cap Value heads Rejoice !!!

Post by Forester » Sat Sep 14, 2019 7:37 am

hdas wrote:
Sat Sep 14, 2019 6:44 am
It’s interesting to note that the best value funds this week were (in order):

BOSVX
VFVA
VIOV / IJS
QVAL
ZIG

Cheers :greedy
also iShares FOVL which is their answer to QVAL

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hdas
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Re: Small Cap Value heads Rejoice !!!

Post by hdas » Sat Sep 14, 2019 5:28 pm

Forester wrote:
Sat Sep 14, 2019 7:37 am
hdas wrote:
Sat Sep 14, 2019 6:44 am
It’s interesting to note that the best value funds this week were (in order):

BOSVX
VFVA
VIOV / IJS
QVAL
ZIG

Cheers :greedy
also iShares FOVL which is their answer to QVAL
Good find!!

Also notice how Momentum (MTUM, QMOM) got crushed this week, however midcap momentum XMMO not so much. Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: Small Cap Value heads Rejoice !!!

Post by stlutz » Sat Sep 14, 2019 5:29 pm


caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 » Sat Sep 14, 2019 5:49 pm

foosball wrote:
Sat Sep 14, 2019 7:00 am
caklim00 wrote:
Wed Sep 11, 2019 8:32 am
My IRAs are just SLYV and ISCF besides my small stake in the hedgefundie excellent adventure.

I hold some VIOV (and previously IJS) in taxable but now I put most taxable contributions to VFMF instead since it appears to be more tax efficient.
I arrived at a similar strategy, FWIW. A few months ago I moved from VBR to VIOV in my Roth. In taxable, I'm using VFMF.
I would just keep my VIOV, but for new Roth contributions you can use SLYV which is .05 cheaper + slightly more liquid. Here's to hoping the VFMF turns out to be a good long term investment. If VIOV had 100% QDI like VFMF I probably would have just stuck with VIOV in taxable.

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Re: Small Cap Value heads Rejoice !!!

Post by Wyodoc » Sat Sep 14, 2019 6:06 pm

caklim00 wrote:
Sat Sep 14, 2019 5:49 pm
[quote=foosball post_id=4748492 time=<a href="tel:1568462437">1568462437</a> user_id=110128]
[quote=caklim00 post_id=4743905 time=<a href="tel:1568208758">1568208758</a> user_id=8122]
My IRAs are just SLYV and ISCF besides my small stake in the hedgefundie excellent adventure.

I hold some VIOV (and previously IJS) in taxable but now I put most taxable contributions to VFMF instead since it appears to be more tax efficient.
I arrived at a similar strategy, FWIW. A few months ago I moved from VBR to VIOV in my Roth. In taxable, I'm using VFMF.
[/quote]
I would just keep my VIOV, but for new Roth contributions you can use SLYV which is .05 cheaper + slightly more liquid. Here's to hoping the VFMF turns out to be a good long term investment. If VIOV had 100% QDI like VFMF I probably would have just stuck with VIOV in taxable.
[/quote]

VIOV/IJS are quite tax efficient. More than VTI when I plug into triceratops tax sheet. If you want small value, not sure why you’d replace that with VFMF? Nothing wrong with it but certainly a different fund.

illumination
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Re: Small Cap Value heads Rejoice !!!

Post by illumination » Sat Sep 14, 2019 8:12 pm

Most of my small caps are SLYV. I like the lower expense ratio, and it trades for free at my brokerage. At least according to the backtesting, it outperforms VIOV and IJS to as far back as they all 3 go (but it's a pretty trivial the amount)

If I could do it all over again, I probably would have just stuck with something like Total market instead of this slight tilt. I just don't think it's worth the volatility and the potential long term under performance to maybe get a few extra tenths of a percent in return on my total portfolio.

If small caps outperform like they did in the past (and I think the reasoning on why they do is sound) it's just not enough to move the needle enough in my case as it's a small tilt. So with my tilt, if the slight outperformance continues, it's like .2% greater return. Just not a huge amount. If you had the courage to go "all in", the difference could be profound over a lifetime of investing, but I'm not going to do that.

It just seems to my "common sense" meter that taking a bet on small cap value should pay more than it does. I like to look at it through the lens of lending. I "demand" more interest (because of the greater risk) if I lend to a company like Fiesta Restaurant Group (an actual holding of small cap value) than say Microsoft. And there is a premium, but not that much. It would be like a loan to Fiesta would pay 5.3% and a loan to Microsoft would pay 4%. It just seems it should be a much bigger spread for the risk.

typical.investor
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Re: Small Cap Value heads Rejoice !!!

Post by typical.investor » Sat Sep 14, 2019 8:46 pm

hdas wrote:
Sat Sep 14, 2019 6:44 am
It’s interesting to note that the best value funds this week were (in order):

BOSVX
VFVA
VIOV / IJS
QVAL
ZIG

Cheers :greedy
Just curious. Are these funds actually targeting value, or are they simple tilts to value sectors?
within-industry component of HML—i.e., the portfolio that buys the stock of firms which have a high book-to-market ratio relative to the industry mean– earns a large premium. In contrast, the second component, which buys high book-to-market industries and sells low book-to-market industries, earns approximately zero premium

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