Small Cap Value heads Rejoice !!!

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vineviz
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

HippoSir wrote: Thu Jan 14, 2021 9:43 pm
langlands wrote: Thu Jan 14, 2021 9:19 pm Yep, it was great and quite thoroughly debunks the notion that value investing and growth investing are mutually exclusive, which was a fallacy that used to drive me crazy (because it seemed everyone, even well-respected investors were doing it).
Did the Morningstar "Style Box" start that or was it just a victim of the times?

From the Morningstar "Style Box" methodology document:

"The value score is subtracted from the growth score.
If the result is strongly negative, the stock’s style is value;
if the result is strongly positive, the stock is classified as
growth. If the scores for value and growth are not
substantially different, the stock is classified as “core.”"

I wish I could go back in time to understand what on earth they were thinking in defining value/growth in this way. :oops:

Not only does it mislead investors into thinking value/growth are opposites, there are entire funds designed around this methodology (the older value indexes come to mind)!
To be fair to Morningstar, "value" and "growth" were mutual fund categories long before the 3x3 "style box" grid was adopted.

As much as I dislike the idea that value and growth are opposite styles, it was likely the most sensible way to adopt the new (in 1992) factor research without making the Morningstar reports incomprehensible the audience at the time.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
HippoSir
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

langlands wrote: Thu Jan 14, 2021 9:53 pm In the academic finance world, value and growth really are opposites because to first order, value is just defined as low P/E and growth is defined as high P/E. So it really is just sorting stocks along various different metrics and calling stocks on one end of the spectrum "value" and those on the other end of the spectrum "growth." I assume Morningstar is using the academic finance definition.
The above is actually what I'm arguing is incorrect! High P/E is not defined as "growth" by academic finance, it is defined as glamour.

Growth is an entirely different thing defined by actual earnings growth unrelated to value factor (and value's actual opposite, glamour).
JamesDean44
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Re: Small Cap Value heads Rejoice !!!

Post by JamesDean44 »

manlymatt83 wrote: Thu Jan 14, 2021 9:46 pm
JamesDean44 wrote: Thu Jan 14, 2021 9:40 pm
manlymatt83 wrote: Thu Jan 14, 2021 4:54 pm I just got access to more tax advantaged space for 2021 (SEP IRA).

For now, all of my AVUV/AVDV/AVEM is in taxable. My only other major holding is VT, which makes up most of my traditional IRA (alongside some PSLDX).

Given that AVUV/AVDV/AVEM might have higher dividends than VT, would it make sense to put some (or all) of it in my tax advantaged space?

Or my preference: just hold all 4 tickers in both accounts. Have some VTI/VXUS/AVUV/AVDV/AVEM in taxable and VT/AVUV/AVDV/AVEM in tax advantaged. This way maybe rebalancing is easier long term and I have an option to sell some before retirement if I want to.
I don't really like VT in taxable because you can't really harvest losses of the constituent pieces. Also, I personally try to avoid holding the same ETFs in taxable and tax advantaged accounts, so I don't need to worry about wash sale rules and complications with dividend reinvestment (but you can work around those issues if desired).
Hmm... So perhaps it makes sense to migrate my Avantis funds to my tax advantaged space + VT, and just keep VTI / VXUS in taxable.
I think that's a good idea. Although I personally wouldn't sell the Avantis ETFs in taxable if there's a taxable gain.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

JamesDean44 wrote: Thu Jan 14, 2021 10:26 pm
manlymatt83 wrote: Thu Jan 14, 2021 9:46 pm
JamesDean44 wrote: Thu Jan 14, 2021 9:40 pm
manlymatt83 wrote: Thu Jan 14, 2021 4:54 pm I just got access to more tax advantaged space for 2021 (SEP IRA).

For now, all of my AVUV/AVDV/AVEM is in taxable. My only other major holding is VT, which makes up most of my traditional IRA (alongside some PSLDX).

Given that AVUV/AVDV/AVEM might have higher dividends than VT, would it make sense to put some (or all) of it in my tax advantaged space?

Or my preference: just hold all 4 tickers in both accounts. Have some VTI/VXUS/AVUV/AVDV/AVEM in taxable and VT/AVUV/AVDV/AVEM in tax advantaged. This way maybe rebalancing is easier long term and I have an option to sell some before retirement if I want to.
I don't really like VT in taxable because you can't really harvest losses of the constituent pieces. Also, I personally try to avoid holding the same ETFs in taxable and tax advantaged accounts, so I don't need to worry about wash sale rules and complications with dividend reinvestment (but you can work around those issues if desired).
Hmm... So perhaps it makes sense to migrate my Avantis funds to my tax advantaged space + VT, and just keep VTI / VXUS in taxable.
I think that's a good idea. Although I personally wouldn't sell the Avantis ETFs in taxable if there's a taxable gain.
There is :( Which is where my whole holding them in two accounts comes.

I think I'll just put new contributions in tax advantaged and just remind myself that if for some reason I ever sell the taxable holdings for a loss, to make sure I don't buy in tax advantaged for 30 days.
IPS: 100% VTWAX until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
JamesDean44
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Re: Small Cap Value heads Rejoice !!!

Post by JamesDean44 »

Just wanted to gripe about something: my spouse's 403(b) is getting rid of DFEVX (DFA EM value, currently 8.76 Price/Earnings) and replacing any funds invested in DFEVX with JEMW (JPMorgan Emerging Markets Equity Fund, ER .79, Large Growth, currently 25.39 Price/Earnings). Skating to the where the puck was. There is no other EM equity fund available in the 403(b). I can make changes in other tax advantaged and non-advantaged accounts to compensate, but I won't be able to keep the same factor exposure I was shooting for. So irritating.
JamesDean44
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Re: Small Cap Value heads Rejoice !!!

Post by JamesDean44 »

manlymatt83 wrote: Thu Jan 14, 2021 10:31 pm
JamesDean44 wrote: Thu Jan 14, 2021 10:26 pm
manlymatt83 wrote: Thu Jan 14, 2021 9:46 pm
JamesDean44 wrote: Thu Jan 14, 2021 9:40 pm
manlymatt83 wrote: Thu Jan 14, 2021 4:54 pm I just got access to more tax advantaged space for 2021 (SEP IRA).

For now, all of my AVUV/AVDV/AVEM is in taxable. My only other major holding is VT, which makes up most of my traditional IRA (alongside some PSLDX).

Given that AVUV/AVDV/AVEM might have higher dividends than VT, would it make sense to put some (or all) of it in my tax advantaged space?

Or my preference: just hold all 4 tickers in both accounts. Have some VTI/VXUS/AVUV/AVDV/AVEM in taxable and VT/AVUV/AVDV/AVEM in tax advantaged. This way maybe rebalancing is easier long term and I have an option to sell some before retirement if I want to.
I don't really like VT in taxable because you can't really harvest losses of the constituent pieces. Also, I personally try to avoid holding the same ETFs in taxable and tax advantaged accounts, so I don't need to worry about wash sale rules and complications with dividend reinvestment (but you can work around those issues if desired).
Hmm... So perhaps it makes sense to migrate my Avantis funds to my tax advantaged space + VT, and just keep VTI / VXUS in taxable.
I think that's a good idea. Although I personally wouldn't sell the Avantis ETFs in taxable if there's a taxable gain.
There is :( Which is where my whole holding them in two accounts comes.

I think I'll just put new contributions in tax advantaged and just remind myself that if for some reason I ever sell the taxable holdings for a loss, to make sure I don't buy in tax advantaged for 30 days.
Makes sense! Just one more suggestion that you've probably already thought of--just be careful with automatic dividend reinvestment.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

JamesDean44 wrote: Thu Jan 14, 2021 10:38 pm
manlymatt83 wrote: Thu Jan 14, 2021 10:31 pm
JamesDean44 wrote: Thu Jan 14, 2021 10:26 pm
manlymatt83 wrote: Thu Jan 14, 2021 9:46 pm
JamesDean44 wrote: Thu Jan 14, 2021 9:40 pm

I don't really like VT in taxable because you can't really harvest losses of the constituent pieces. Also, I personally try to avoid holding the same ETFs in taxable and tax advantaged accounts, so I don't need to worry about wash sale rules and complications with dividend reinvestment (but you can work around those issues if desired).
Hmm... So perhaps it makes sense to migrate my Avantis funds to my tax advantaged space + VT, and just keep VTI / VXUS in taxable.
I think that's a good idea. Although I personally wouldn't sell the Avantis ETFs in taxable if there's a taxable gain.
There is :( Which is where my whole holding them in two accounts comes.

I think I'll just put new contributions in tax advantaged and just remind myself that if for some reason I ever sell the taxable holdings for a loss, to make sure I don't buy in tax advantaged for 30 days.
Makes sense! Just one more suggestion that you've probably already thought of--just be careful with automatic dividend reinvestment.
I hadn't thought about that. Thanks! I think I'll just triple quadruple check everything if I decide to sell any AVUV/AVDV/AVEM in taxable. My assumption is that will be a one or two time thing, and hopefully not for a loss :)
IPS: 100% VTWAX until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
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nedsaid
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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid »

JamesDean44 wrote: Thu Jan 14, 2021 10:36 pm Just wanted to gripe about something: my spouse's 403(b) is getting rid of DFEVX (DFA EM value, currently 8.76 Price/Earnings) and replacing any funds invested in DFEVX with JEMW (JPMorgan Emerging Markets Equity Fund, ER .79, Large Growth, currently 25.39 Price/Earnings). Skating to the where the puck was. There is no other EM equity fund available in the 403(b). I can make changes in other tax advantaged and non-advantaged accounts to compensate, but I won't be able to keep the same factor exposure I was shooting for. So irritating.
Just buy the Avantis Emerging Market ETF in one of your other accounts.
A fool and his money are good for business.
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

nedsaid wrote: Thu Jan 14, 2021 10:57 pm
JamesDean44 wrote: Thu Jan 14, 2021 10:36 pm Just wanted to gripe about something: my spouse's 403(b) is getting rid of DFEVX (DFA EM value, currently 8.76 Price/Earnings) and replacing any funds invested in DFEVX with JEMW (JPMorgan Emerging Markets Equity Fund, ER .79, Large Growth, currently 25.39 Price/Earnings). Skating to the where the puck was. There is no other EM equity fund available in the 403(b). I can make changes in other tax advantaged and non-advantaged accounts to compensate, but I won't be able to keep the same factor exposure I was shooting for. So irritating.
Just buy the Avantis Emerging Market ETF in one of your other accounts.
Probably the best decision to make. Its Core instead of Value only but beggars can't be choosers. I also use DFEVX for EM but have started adding on with AVEM.
langlands
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Re: Small Cap Value heads Rejoice !!!

Post by langlands »

HippoSir wrote: Thu Jan 14, 2021 10:08 pm
langlands wrote: Thu Jan 14, 2021 9:53 pm In the academic finance world, value and growth really are opposites because to first order, value is just defined as low P/E and growth is defined as high P/E. So it really is just sorting stocks along various different metrics and calling stocks on one end of the spectrum "value" and those on the other end of the spectrum "growth." I assume Morningstar is using the academic finance definition.
The above is actually what I'm arguing is incorrect! High P/E is not defined as "growth" by academic finance, it is defined as glamour.

Growth is an entirely different thing defined by actual earnings growth unrelated to value factor (and value's actual opposite, glamour).
Are you sure? Maybe we're reading different papers. I just double checked with the paper "Value versus Growth: The International Evidence" and they define value as the top 30% and growth the bottom 30% according to various metrics. I've seen the term glamour used, but not very frequently. At least in the context where I've seen it, it seems to be synonymous with "hot" or "popular." The canonical example would be TSLA right now. But I've never seen a technical definition of it.

The way you define growth is similar to the way the Graham and Buffett school of investing define it. I agree that in the lingo of this school, growth and value have basically nothing to do with each other.
JamesDean44
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Re: Small Cap Value heads Rejoice !!!

Post by JamesDean44 »

nedsaid wrote: Thu Jan 14, 2021 10:57 pm
JamesDean44 wrote: Thu Jan 14, 2021 10:36 pm Just wanted to gripe about something: my spouse's 403(b) is getting rid of DFEVX (DFA EM value, currently 8.76 Price/Earnings) and replacing any funds invested in DFEVX with JEMW (JPMorgan Emerging Markets Equity Fund, ER .79, Large Growth, currently 25.39 Price/Earnings). Skating to the where the puck was. There is no other EM equity fund available in the 403(b). I can make changes in other tax advantaged and non-advantaged accounts to compensate, but I won't be able to keep the same factor exposure I was shooting for. So irritating.
Just buy the Avantis Emerging Market ETF in one of your other accounts.
That's what I'll be doing. But I'm unable to buy sufficient AVEM while also maintaining my other allocation targets because at this point my tax-advantaged accounts are significantly larger and have fewer options available than my taxable accounts.
HippoSir
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

langlands wrote: Thu Jan 14, 2021 11:06 pm Are you sure? Maybe we're reading different papers. I just double checked with the paper "Value versus Growth: The International Evidence" and they define value as the top 30% and growth the bottom 30% according to various metrics. I've seen the term glamour used, but not very frequently. At least in the context where I've seen it, it seems to be synonymous with "hot" or "popular." The canonical example would be TSLA right now. But I've never seen a technical definition of it.
I'm absolutely not sure. :D

I see a variety of definitions in different papers, as you said, no consistent definition. I've been largely going off how the alphaarchitect guys define "glamour":

https://alphaarchitect.com/2019/06/11/v ... developed/

US Value = Top Decile EBIT/TEV (1)
US Glamour = Bottom Decile EBIT/TEV (10)

But clearly this is just one of many different definitions of it. Financial "science" is unlike any science I've seen before in that widely used terms are redefined ad-hoc by those who use them (including me apparently!).
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Curious, what percentage is everyone’s tilts? :beer
IPS: 100% VTWAX until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
JamesDean44
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Re: Small Cap Value heads Rejoice !!!

Post by JamesDean44 »

manlymatt83 wrote: Thu Jan 14, 2021 11:50 pm Curious, what percentage is everyone’s tilts? :beer
I don't have my factor targets handy, but here is % tilted holdings:
US: 1/3 SCV
Int'l Developed: 2/3 SCV
EM: 1/2 LV + 1/2 EM sovereign Bonds
RamblinDoc
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Re: Small Cap Value heads Rejoice !!!

Post by RamblinDoc »

manlymatt83 wrote: Thu Jan 14, 2021 11:50 pm Curious, what percentage is everyone’s tilts? :beer
7.5% tilt to small caps
7.5% tilt to REITs
Otherwise basically a Bogleheads 3-fund for the rest
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

RamblinDoc wrote: Fri Jan 15, 2021 1:11 am
manlymatt83 wrote: Thu Jan 14, 2021 11:50 pm Curious, what percentage is everyone’s tilts? :beer
7.5% tilt to small caps
7.5% tilt to REITs
Otherwise basically a Bogleheads 3-fund for the rest
How did you get to 7.5%?
IPS: 100% VTWAX until Vanguard’s test says otherwise. IRA I don’t contribute to anymore set aside separately as “play” fund, which is 3% of net worth.
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

imak wrote: Thu Jan 14, 2021 8:54 pm Howard Marks published new memo this week, titled "Something of Value".
It is an excellent and insightful take on the (seemingly) contrasting approaches of growth versus value, portfolio rebalancing versus never selling, traditional value managers' irrational aversion to tech stocks, intrinsic assumptions of mean reversion in valuations, and related topics.
I think it is one of his best memos recently.

Full article PDF:
https://www.oaktreecapital.com/docs/def ... -value.pdf
I think many people here should take he said about "A More Efficient World" seriously and not do this tilting anymore at least in Developed Markets. Maybe Emerging/Frontier Markets. If you want higher return for higher risk leverage should do the job. The factor research was all data-mined before the Internet was widespread and there was some mispricing involved. I would not have any faith in these things continue to work going forward in Developed Markets. If anyone is arguing there is a diversification benefit to owning this let me remind them that correlations are not constant and in a crisis correlations can and probably will go to 1 so if you are hoping for a diversification benefit to owning this I am sorry there is none. Maybe if a bubble happens it will not drop as hard.
Last edited by Anon9001 on Fri Jan 15, 2021 1:53 am, edited 1 time in total.
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RamblinDoc
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Re: Small Cap Value heads Rejoice !!!

Post by RamblinDoc »

manlymatt83 wrote: Fri Jan 15, 2021 1:30 am
RamblinDoc wrote: Fri Jan 15, 2021 1:11 am
manlymatt83 wrote: Thu Jan 14, 2021 11:50 pm Curious, what percentage is everyone’s tilts? :beer
7.5% tilt to small caps
7.5% tilt to REITs
Otherwise basically a Bogleheads 3-fund for the rest
How did you get to 7.5%?

Nothing magical. Everyone says 5% or less of something in your portfolio doesn’t make a difference, so I upped it to 7.5% :P Actually, I tend to push the tilts near 10% (my rebalance band is 5-10%)
pascalwager
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Re: Small Cap Value heads Rejoice !!!

Post by pascalwager »

Large value 11%
Microcap/small value 11%
Intl small co/intl small value 11%
Emerging markets 11%

A mixture of DFA and Vanguard, in taxable. The rest (56%) divided between TSM and TISM. I'm going to portfolio rebalance between US and intl only using the total market US/intl funds in my Roth IRA.

Starting from scratch today, I'd be inclined to go with:

VTI 15%
VIOV 35%
VSS 30%
VWO 20%

Or:

VTI 33%
VIOV 17%
VXUS 33%
VWO 17%
Last edited by pascalwager on Fri Jan 15, 2021 8:08 am, edited 2 times in total.
16% TSM | 16% TISM | 7% LV | 7% SV/SC | 7% ISV/ISC | 7% EM | 20% TIPS | 20% STIG | Bonds 9.1 years duration
BabaWawa
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Re: Small Cap Value heads Rejoice !!!

Post by BabaWawa »

RamblinDoc wrote: Fri Jan 15, 2021 1:52 am
manlymatt83 wrote: Fri Jan 15, 2021 1:30 am
RamblinDoc wrote: Fri Jan 15, 2021 1:11 am
manlymatt83 wrote: Thu Jan 14, 2021 11:50 pm Curious, what percentage is everyone’s tilts? :beer
7.5% tilt to small caps
7.5% tilt to REITs
Otherwise basically a Bogleheads 3-fund for the rest
How did you get to 7.5%?

Nothing magical. Everyone says 5% or less of something in your portfolio doesn’t make a difference, so I upped it to 7.5% :P Actually, I tend to push the tilts near 10% (my rebalance band is 5-10%)
I guess it's all relative. My 5% to emerging markets makes a difference, just not a big one. Seems what doesn't make much of a difference is going from 5 to 7.5%. I try to resist tweaking allocations over time in search of the "perfect portfolio."
JamesDean44
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Re: Small Cap Value heads Rejoice !!!

Post by JamesDean44 »

Anon9001 wrote: Fri Jan 15, 2021 1:48 am
imak wrote: Thu Jan 14, 2021 8:54 pm Howard Marks published new memo this week, titled "Something of Value".
It is an excellent and insightful take on the (seemingly) contrasting approaches of growth versus value, portfolio rebalancing versus never selling, traditional value managers' irrational aversion to tech stocks, intrinsic assumptions of mean reversion in valuations, and related topics.
I think it is one of his best memos recently.

Full article PDF:
https://www.oaktreecapital.com/docs/def ... -value.pdf
I think many people here should take he said about "A More Efficient World" seriously and not do this tilting anymore at least in Developed Markets. Maybe Emerging/Frontier Markets. If you want higher return for higher risk leverage should do the job. The factor research was all data-mined before the Internet was widespread and there was some mispricing involved. I would not have any faith in these things continue to work going forward in Developed Markets. If anyone is arguing there is a diversification benefit to owning this let me remind them that correlations are not constant and in a crisis correlations can and probably will go to 1 so if you are hoping for a diversification benefit to owning this I am sorry there is none. Maybe if a bubble happens it will not drop as hard.
I think it is worthwhile to reexamine whether a particular premium is capable of being arbitraged away and consider whether a backtested, historical premium that isn't appearing will actually persist or has been overbought. Check out the following link for a quick read https://investresolve.com/are-we-living ... tor-world/. Cliff Asness has obviously blogged about the issue too, among many others.

Check out p. 38 from Vanguard's 2021 market outlook for a brief discussion regarding the purported death of value.

"A key market theme of the post-global financial crisis era has been the outperformance of growth stocks (particularly large-caps) versus value in the U.S. Many explanations have been proposed, ranging from value definitions to industry concentration, and have even led some to question the existence of the value premium. Our research indicates that a value premium does exist[.]" https://institutional.vanguard.com/VGAp ... O;20201215

I think the value premium will persist. And I think it provides diversification benefits. Just because correlations may get close to 1 during certain market conditions doesn't mean there isn't a diversification benefit. Think about covariance. Or years when int'l outperforms U.S. There is a diversification and rebalancing benefit even though globalization has lead to markets being much more entwined.

But this discussion has already occurred numerous times during this thread. :D
YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

pascalwager wrote: Fri Jan 15, 2021 2:46 am VTI 33%
VIOV 17%
VXUS 33%
VWO 17%
As you probably know VXUS already contains EM. So I guess you're trying to overweigh EM with VWO? Curious what your motivation is. VWO is about 44% China. VXUS is 11% China. Seems like a lot.
absolute zero
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Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

YRT70 wrote: Fri Jan 15, 2021 12:04 pm
pascalwager wrote: Fri Jan 15, 2021 2:46 am VTI 33%
VIOV 17%
VXUS 33%
VWO 17%
As you probably know VXUS already contains EM. So I guess you're trying to overweigh EM with VWO? Curious what your motivation is. VWO is about 44% China. VXUS is 11% China. Seems like a lot.
Instead of holding ~4% of his equities in China (market cap weight), he’s holding roughly 11%. Doesn’t sound too wild to me, but to each his own I guess.
YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

absolute zero wrote: Fri Jan 15, 2021 12:15 pm
YRT70 wrote: Fri Jan 15, 2021 12:04 pm
pascalwager wrote: Fri Jan 15, 2021 2:46 am VTI 33%
VIOV 17%
VXUS 33%
VWO 17%
As you probably know VXUS already contains EM. So I guess you're trying to overweigh EM with VWO? Curious what your motivation is. VWO is about 44% China. VXUS is 11% China. Seems like a lot.
Instead of holding ~4% of his equities in China (market cap weight), he’s holding roughly 11%. Doesn’t sound too wild to me, but to each his own I guess.
Yeah I'm not saying it's too wild. I'm curious what his motivation is.
pascalwager
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Re: Small Cap Value heads Rejoice !!!

Post by pascalwager »

YRT70 wrote: Fri Jan 15, 2021 12:20 pm
absolute zero wrote: Fri Jan 15, 2021 12:15 pm
YRT70 wrote: Fri Jan 15, 2021 12:04 pm
pascalwager wrote: Fri Jan 15, 2021 2:46 am VTI 33%
VIOV 17%
VXUS 33%
VWO 17%
As you probably know VXUS already contains EM. So I guess you're trying to overweigh EM with VWO? Curious what your motivation is. VWO is about 44% China. VXUS is 11% China. Seems like a lot.
Instead of holding ~4% of his equities in China (market cap weight), he’s holding roughly 11%. Doesn’t sound too wild to me, but to each his own I guess.
Yeah I'm not saying it's too wild. I'm curious what his motivation is.
The intention is to keep overall emerging markets at about 25% of stocks for its diversification function. My 37% bonds would further reduce the China (11% x 0.63 = 7%).

So, effectively I'd be doing:

US total market 33%
US small value 17%
Developed markets 25%
Emerging markets 25%

For a retiree, diversification is very important. I don't personally believe in asset class premiums--just care about diversification--and think small value, and especially emerging markets, do that best with respect to the US market.

And VSS, with developed market small caps and emerging markets small caps, might be a little better for diversification compared to VXUS.
16% TSM | 16% TISM | 7% LV | 7% SV/SC | 7% ISV/ISC | 7% EM | 20% TIPS | 20% STIG | Bonds 9.1 years duration
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Nathan Drake wrote: Tue Jan 12, 2021 11:49 pm

What sort of tilt does everyone have? I was going to start with 10% SCV US and 10% SCV ex-US. Gradually build up over time.

I wouldn't gradually build up over time, sounds like tinkering. Take some time to think about a longterm allocation and then implement.

Your plan to get some US & ex-US exposure is a good one. I would say tilts vary from 10%-20% for most, but then you have oddballs like me with 75% in small/deep-value :twisted:.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

MotoTrojan wrote: Fri Jan 15, 2021 2:53 pm
Nathan Drake wrote: Tue Jan 12, 2021 11:49 pm

What sort of tilt does everyone have? I was going to start with 10% SCV US and 10% SCV ex-US. Gradually build up over time.

I wouldn't gradually build up over time, sounds like tinkering. Take some time to think about a longterm allocation and then implement.

Your plan to get some US & ex-US exposure is a good one. I would say tilts vary from 10%-20% for most, but then you have oddballs like me with 75% in small/deep-value :twisted:.
I forgot you were that high. Are you going to be 75% for life, just increasing your bond allocation?
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

manlymatt83 wrote: Fri Jan 15, 2021 2:59 pm
MotoTrojan wrote: Fri Jan 15, 2021 2:53 pm
Nathan Drake wrote: Tue Jan 12, 2021 11:49 pm

What sort of tilt does everyone have? I was going to start with 10% SCV US and 10% SCV ex-US. Gradually build up over time.

I wouldn't gradually build up over time, sounds like tinkering. Take some time to think about a longterm allocation and then implement.

Your plan to get some US & ex-US exposure is a good one. I would say tilts vary from 10%-20% for most, but then you have oddballs like me with 75% in small/deep-value :twisted:.
I forgot you were that high. Are you going to be 75% for life, just increasing your bond allocation?
That is the plan. Worth noting that my exposure to the size factor is more muted than say 75% to AVUV/AVDV as my value holdings are on the larger size of small or mid (VBR, QVAL, FNDC, IVAL). Plan is to work up to ~30% intermediate bonds eventually.
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

MotoTrojan wrote: Fri Jan 15, 2021 4:11 pm
manlymatt83 wrote: Fri Jan 15, 2021 2:59 pm
MotoTrojan wrote: Fri Jan 15, 2021 2:53 pm
Nathan Drake wrote: Tue Jan 12, 2021 11:49 pm

What sort of tilt does everyone have? I was going to start with 10% SCV US and 10% SCV ex-US. Gradually build up over time.

I wouldn't gradually build up over time, sounds like tinkering. Take some time to think about a longterm allocation and then implement.

Your plan to get some US & ex-US exposure is a good one. I would say tilts vary from 10%-20% for most, but then you have oddballs like me with 75% in small/deep-value :twisted:.
I forgot you were that high. Are you going to be 75% for life, just increasing your bond allocation?
That is the plan. Worth noting that my exposure to the size factor is more muted than say 75% to AVUV/AVDV as my value holdings are on the larger size of small or mid (VBR, QVAL, FNDC, IVAL). Plan is to work up to ~30% intermediate bonds eventually.
Makes sense! I remember that conversation back in the Summer. You don't need as much % if you're using AVUV/AVDV, etc.
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Re: Small Cap Value heads Rejoice !!!

Post by Nathan Drake »

MotoTrojan wrote: Fri Jan 15, 2021 4:11 pm
manlymatt83 wrote: Fri Jan 15, 2021 2:59 pm
MotoTrojan wrote: Fri Jan 15, 2021 2:53 pm
Nathan Drake wrote: Tue Jan 12, 2021 11:49 pm

What sort of tilt does everyone have? I was going to start with 10% SCV US and 10% SCV ex-US. Gradually build up over time.

I wouldn't gradually build up over time, sounds like tinkering. Take some time to think about a longterm allocation and then implement.

Your plan to get some US & ex-US exposure is a good one. I would say tilts vary from 10%-20% for most, but then you have oddballs like me with 75% in small/deep-value :twisted:.
I forgot you were that high. Are you going to be 75% for life, just increasing your bond allocation?
That is the plan. Worth noting that my exposure to the size factor is more muted than say 75% to AVUV/AVDV as my value holdings are on the larger size of small or mid (VBR, QVAL, FNDC, IVAL). Plan is to work up to ~30% intermediate bonds eventually.
Just made some adjustments today

My portfolio is currently 60% VTIAX (total international), 30% S&P 500, and now 10% US SCV.

Chose FISVX as my US SCV fund. Is it worthwhile to add ex US SCV?

From what I understand most of VTIAX could be considered “value”
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

Just found out wife's 403b is moving from PSSIX (S&P 600) to FSSNX (Russell 2K). ER is falling from .24% to .026% as a result but hate the fact that we are going to lose S&P 600 exposure. My 401k is already R2K :( I could start shifting her allocation to ACWI ExUs but this is going to mean that my allocation is going to get even heavier on Large International.
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Re: Small Cap Value heads Rejoice !!!

Post by JamesDean44 »

caklim00 wrote: Fri Jan 15, 2021 4:40 pm Just found out wife's 403b is moving from PSSIX (S&P 600) to FSSNX (Russell 2K). ER is falling from .24% to .026% as a result but hate the fact that we are going to lose S&P 600 exposure. My 401k is already R2K :( I could start shifting her allocation to ACWI ExUs but this is going to mean that my allocation is going to get even heavier on Large International.
I can relate to annoying changes. My wife's 403(b) just dropped DFEVX. I wish that fund administrators were required to permit existing holdings to stay in funds that are being dropped.
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

JamesDean44 wrote: Fri Jan 15, 2021 8:34 pm
caklim00 wrote: Fri Jan 15, 2021 4:40 pm Just found out wife's 403b is moving from PSSIX (S&P 600) to FSSNX (Russell 2K). ER is falling from .24% to .026% as a result but hate the fact that we are going to lose S&P 600 exposure. My 401k is already R2K :( I could start shifting her allocation to ACWI ExUs but this is going to mean that my allocation is going to get even heavier on Large International.
I can relate to annoying changes. My wife's 403(b) just dropped DFEVX. I wish that fund administrators were required to permit existing holdings to stay in funds that are being dropped.
Or transfer out...
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Re: Small Cap Value heads Rejoice !!!

Post by pascalwager »

pascalwager wrote: Fri Jan 15, 2021 2:15 pm
YRT70 wrote: Fri Jan 15, 2021 12:20 pm
absolute zero wrote: Fri Jan 15, 2021 12:15 pm
YRT70 wrote: Fri Jan 15, 2021 12:04 pm
pascalwager wrote: Fri Jan 15, 2021 2:46 am VTI 33%
VIOV 17%
VXUS 33%
VWO 17%
As you probably know VXUS already contains EM. So I guess you're trying to overweigh EM with VWO? Curious what your motivation is. VWO is about 44% China. VXUS is 11% China. Seems like a lot.
Instead of holding ~4% of his equities in China (market cap weight), he’s holding roughly 11%. Doesn’t sound too wild to me, but to each his own I guess.
Yeah I'm not saying it's too wild. I'm curious what his motivation is.
The intention is to keep overall emerging markets at about 25% of stocks for its diversification function. My 37% bonds would further reduce the China (11% x 0.63 = 7%).

So, effectively I'd be doing:

US total market 33%
US small value 17%
Developed markets 25%
Emerging markets 25%

For a retiree, diversification is very important. I don't personally believe in asset class premiums--just care about diversification--and think small value, and especially emerging markets, do that best with respect to the US market.

And VSS, with developed market small caps and emerging markets small caps, might be a little better for diversification compared to VXUS.
For me, after bonds, emerging markets may be the best diversifier. So a spreadsheet EM calculator box was a high priority. It calculates my total portfolio EM percentage (target 25%) including VWO and the VXUS EM component (which changes monthly). So, every couple years or so, I'll check and make any necessary changes to maintain my EM target--or maybe sooner during market turmoil.

The four-fund portfolio shown above would certainly simplify things. I'll try to work toward it with selective withdrawals, purposeful distribution reinvestments and maybe with the help from some existing carryover capital losses.
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Re: Small Cap Value heads Rejoice !!!

Post by empb »

About 8% of net worth in a UK pension holding VT lookalikes plus a similar amount in the HFEA, otherwise I'm maximally tilted and have been for 12 years.

50% VBR/VIOV
30% VSS
20% VWO

Up until recently I was holding AVDV, PDN, DLS, DGS etc but was sat on a capital gains landmine so had to switch entirely into HMRC Reporting funds.

EM overweight due to correlations and my partner not holding any.
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Re: Small Cap Value heads Rejoice !!!

Post by zonto »

manlymatt83 wrote: Thu Jan 14, 2021 11:50 pm Curious, what percentage is everyone’s tilts? :beer
Prior to last spring, in my 70/30 portfolio I held 7% in each of S&P Small Cap 600 (VTMSX), US REITs, and international REITs. They all dropped a lot in February and March, so as part of my April rebalance I upped each of those categories to 10% of the portfolio, and moved from VTMSX to VIOV. Purchased VIOV @ $89 / share. As of yesterday's close, that position is up 72%. It's time to rebalance from SCV back to long-term Treasurys, but I am waiting until I hit the year mark so I can qualify for long-term capital gains rates.
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Re: Small Cap Value heads Rejoice !!!

Post by BabaWawa »

zonto wrote: Sat Jan 16, 2021 9:54 am
manlymatt83 wrote: Thu Jan 14, 2021 11:50 pm Curious, what percentage is everyone’s tilts? :beer
Prior to last spring, in my 70/30 portfolio I held 7% in each of S&P Small Cap 600 (VTMSX), US REITs, and international REITs. They all dropped a lot in February and March, so as part of my April rebalance I upped each of those categories to 10% of the portfolio, and moved from VTMSX to VIOV. Purchased VIOV @ $89 / share. As of yesterday's close, that position is up 72%. It's time to rebalance from SCV back to long-term Treasurys, but I am waiting until I hit the year mark so I can qualify for long-term capital gains rates.
Curious, you rebalanced in April and you changed your allocation percentage from 7% to 10%. After that successful market timing call, will you be dropping your allocation back to 7% when you next rebalance or is that a permanent change?
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Re: Small Cap Value heads Rejoice !!!

Post by zonto »

BabaWawa wrote: Sat Jan 16, 2021 10:25 am Curious, you rebalanced in April and you changed your allocation percentage from 7% to 10%. After that successful market timing call, will you be dropping your allocation back to 7% when you next rebalance or is that a permanent change?
Permanent change. Have been becoming increasingly less comfortable with the ever-increasing technology and communication sector focus of the total market index, so last year felt like the right time to “over”balance. After Tesla’s addition to the S&P500, I feel even better about it.
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Re: Small Cap Value heads Rejoice !!!

Post by whodidntante »

JamesDean44 wrote: Thu Jan 14, 2021 10:36 pm Just wanted to gripe about something: my spouse's 403(b) is getting rid of DFEVX (DFA EM value, currently 8.76 Price/Earnings) and replacing any funds invested in DFEVX with JEMW (JPMorgan Emerging Markets Equity Fund, ER .79, Large Growth, currently 25.39 Price/Earnings). Skating to the where the puck was. There is no other EM equity fund available in the 403(b). I can make changes in other tax advantaged and non-advantaged accounts to compensate, but I won't be able to keep the same factor exposure I was shooting for. So irritating.
I was similarly forced out of DFEVX and I had a large position in it, so I feel your pain. It's one of the few DFA funds that I still believe is worthwhile considering the offerings available today. I'm still not willing to pay an advisor for access, and for some reason, they won't accept my proposed fee structure where they pay to talk to me. It's a good deal, really. :P
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

So I have to ask the people doing this how do you judge if the Value factor is truly dead? It is statistically insignificant in Large-Caps outside Japan out-of-sample of Fama 1992 paper. Only in small-caps is the premium statistically significant out-of-sample except for USA (for the period 1991-2019) but the question is what is making it reliably different from zero statistically in small-caps but not reliably different from zero in large-caps (outside Japan)? If this is a risk factor why is the premium not statistically significant in large-caps?
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

Anon9001 wrote: Sat Jan 16, 2021 11:57 am So I have to ask the people doing this how do you judge if the Value factor is truly dead? It is statistically insignificant in Large-Caps outside Japan out-of-sample of Fama 1992 paper. Only in small-caps is the premium statistically significant out-of-sample even in USA but the question is what is making it reliably different from zero statistically in small-caps but not reliably different from zero in large-caps (outside Japan)?
I think part of the reason you’re not getting many answers to all of your posts about “value premium is dead” or “value is data-mined” or “don’t tilt to value in the USA” is that a lot of what you’ve mentioned has been discussed in this very thread earlier. I know it’s cumbersome but if you’re interested, I’d encourage you look back. Look for posts around April-July of 2020, that should narrow it down.

Cheers mate :)
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

Steve Reading wrote: Sat Jan 16, 2021 12:04 pm
Okay I will stop annoying on this premium being dead in USA but I think people doing this should read Howard Mark's letter "Something of Value" if they want to find out why the data-mined premium has been so disappointing out-of-sample for USA. The Internet being widespread might have killed it at least in USA.
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Re: Small Cap Value heads Rejoice !!!

Post by KlangFool »

Anon9001 wrote: Sat Jan 16, 2021 11:57 am So I have to ask the people doing this how do you judge if the Value factor is truly dead? It is statistically insignificant in Large-Caps outside Japan out-of-sample of Fama 1992 paper. Only in small-caps is the premium statistically significant out-of-sample except for USA (for the period 1991-2019) but the question is what is making it reliably different from zero statistically in small-caps but not reliably different from zero in large-caps (outside Japan)? If this is a risk factor why is the premium not statistically significant in large-caps?
Anon9001,

Do you believe that Large Growth can be overpriced due to human nature? If you say yes, then, there is a place for Large Value. When we faced a situation like Telecom Bust, DotCom Bust, and so on, the Large Growth will be overpriced. Then, the Large Value will have its day when the bubble burst.


We can change a lot of stuff but human behavior aka over-optimism is consistent.


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Re: Small Cap Value heads Rejoice !!!

Post by muffins14 »

Anon9001 wrote: Sat Jan 16, 2021 12:12 pm
Steve Reading wrote: Sat Jan 16, 2021 12:04 pm
Okay I will stop annoying on this premium being dead in USA but I think people doing this should read Howard Mark's letter "Something of Value" if they want to find out why the data-mined premium has been so disappointing out-of-sample for USA. The Internet being widespread might have killed it at least in USA.
Lack of statistical significance in the new dataset is an arbitrary threshold for a decision. The premium could exist but be smaller now and there’s not enough data to meet your arbitrary precision threshold, but it could also exist at the same true magnitude as the original paper, but you were not able to reach significance because in the most recent sample your point estimate was lower than the true value due to sampling error etc.

There may not be statistical significance that it differs from zero now in market A or market B, but there is also not statistical significance that is it different from the value in the original paper.

These are high variance measures
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

Anon9001 wrote: Sat Jan 16, 2021 12:12 pm
Steve Reading wrote: Sat Jan 16, 2021 12:04 pm
Okay I will stop annoying on this premium being dead in USA but I think people doing this should read Howard Mark's letter "Something of Value" if they want to find out why the data-mined premium has been so disappointing out-of-sample for USA. The Internet being widespread might have killed it at least in USA.
It's not an annoyance, just letting you know where you might find discussions that address what you're talking about.

The letter was linked earlier in the thread, it was a nice read. Do keep in mind, as langland said already:
langlands wrote: Thu Jan 14, 2021 9:19 pm (For "SCV heads", be aware that the way people like Howard define value investing is very different from the way Fama-French and other academics do).
While old-school, fundamental stock-picking, and systematic, value premia exposure might both be called "value investing", be careful with grabbing a resource referring to the former in order to draw conclusions of the latter. It might or it might not apply. For instance, a systemic value premium is not mutually exclusive with high levels of market price efficiency, while fundamental stock-picking by definition is.
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

Steve Reading wrote: Sat Jan 16, 2021 7:25 pm
No need I think I come up with a good theory I suspect some of this premium is artificially higher due to Fama-French not excluding illiquid stocks. That might be why it is not statistically significant in large-caps. Also that might be why there is no small-cap growth anomaly in real life funds. This creates a problem for tilting because if it is just illiquid stocks that the premium is strong in then a investors would have to buy the micro-cap value stocks themselves as no fund could invest in these stocks due to their illiquidity.
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Re: Small Cap Value heads Rejoice !!!

Post by BabaWawa »

manlymatt83 wrote: Thu Jan 14, 2021 11:50 pm Curious, what percentage is everyone’s tilts? :beer
60% equities which are 35% VTI, 10% IJS (SCV), 10% VEA (total international), and 5% VWO (emerging market).

I don't tilt in international space. Feel OK with that since Rick Ferri has recently said the international market makeup is smaller and more "valuey" relative to US.
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Re: Small Cap Value heads Rejoice !!!

Post by whodidntante »

Anon9001 wrote: Sun Jan 17, 2021 7:44 am
Steve Reading wrote: Sat Jan 16, 2021 7:25 pm
No need I think I come up with a good theory I suspect some of this premium is artificially higher due to Fama-French not excluding illiquid stocks. That might be why it is not statistically significant in large-caps. Also that might be why there is no small-cap growth anomaly in real life funds. This creates a problem for tilting because if it is just illiquid stocks that the premium is strong in then a investors would have to buy the micro-cap value stocks themselves as no fund could invest in these stocks due to their illiquidity.
If you are able to invalidate the research from FF, that would be an extremely useful outcome. If you take a second step of defining a model that better explains asset prices than e.g. FF five-factor, you are getting into Nobel prize territory. What FF showed is that CAPM is a poor model and they proposed better (but still imperfect) models.

Enormous effort went into testing the FF three-factor model out of sample post publication. The main issue was the data didn't exist in a useful way so it was not tested on these data prior to publication. It held up. I'm sure there are people who would love to get famous for showing FF up. But it is difficult to do in a rigorous way.
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

whodidntante wrote: Sun Jan 17, 2021 9:35 am
Correct me if I am wrong but I assume the model can still be valid and the returns from the factors can still be negative. They state that this model explains returns of diversified portfolios better than CAPM. They don't predict whether these factors will have positive or negative returns in the future. FF themselves don't know whether Value Premium even exists out-of-sample 1991-2019 in USA so my assumption on this is probably correct. The Size Premium is not statistically significant outside USA for 1992-2014 and even inside USA it is weak yet it is still kept in their models.
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

Anon9001 wrote: Sun Jan 17, 2021 9:53 am
whodidntante wrote: Sun Jan 17, 2021 9:35 am
Correct me if I am wrong but I assume the model can still be valid and the returns from the factors can still be negative.
Clearly the realized returns of the facto portfolios can be negative: we’ve seen that in the data since the data existed.

Stocks have underperformed bonds for long periods. Small stocks underperformed big stocks. Cheap stocks underperformed expensive stocks. And so on.

But for the model to be valid and the EXPECTED return of the factors to turn negative would require and extraordinary reversal of fundamental economic beliefs.

What reasonable explanation would explain small stocks having a lower cost of capital than big stocks? A world in which small companies are less risky investments than huge companies is hard to fathom. It’s theoretically possible, I suppose, but I’ve never seen a coherent argument making that case.
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