Small Cap Value heads Rejoice !!!

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Uncorrelated
Posts: 275
Joined: Sun Oct 13, 2019 3:16 pm

Re: Small Cap Value heads Rejoice !!!

Post by Uncorrelated » Thu Nov 28, 2019 12:59 pm

YRT70 wrote:
Thu Nov 28, 2019 12:02 pm
Uncorrelated wrote:
Thu Nov 28, 2019 7:34 am
When I add VFMF, this fund dominates all other funds by an extremely large margin. I have to discount VFMF' factor exposure by 2 and the momentum exposure by 4 before it even starts to consider other funds. I believe this is because the FF2013 factor data I used has similar premia for all different factors (except bond factors) and VFMF is the fund that has the most balanced factor exposure out of the fund selection.
Too bad we can't buy VFMF in the Netherlands. iShares has a bunch of multifactor funds available in Europe. Have you done any analysis on them? https://www.justetf.com/de-en/find-etf. ... ultifactor
I did a long time ago. The factor exposure of MSCI multifactor indices is extremely poor. For example:

Code: Select all

    R^2: 0.86
adj R^2: 0.86
|                                                    |annualized alpha|beta    |SmB     |HmL     |RmW     |CmA     |MoM      
:--|:--|:--|:--|:--|:--|:--|:--
|IFSU, iShares Edge MSCI USA Multifactor UCITS ETF           |  -2.15%|    0.92|    0.07|    0.01|    0.10|    0.10|    0.01|
|t stat                                                      |   -0.82|   67.65|    3.11|    0.45|    3.24|    2.53|    0.87|

expected outperformance based on 50% factor premia: 0.19% + alpha
Based on 3.7 years of data, 248 data points per year (2015-09-03 to 2019-05-31)

YRT70
Posts: 404
Joined: Sat Apr 27, 2019 8:51 am

Re: Small Cap Value heads Rejoice !!!

Post by YRT70 » Thu Nov 28, 2019 1:39 pm

Uncorrelated wrote:
Thu Nov 28, 2019 12:59 pm
I did a long time ago. The factor exposure of MSCI multifactor indices is extremely poor. For example:

Code: Select all

    R^2: 0.86
adj R^2: 0.86
|                                                    |annualized alpha|beta    |SmB     |HmL     |RmW     |CmA     |MoM      
:--|:--|:--|:--|:--|:--|:--|:--
|IFSU, iShares Edge MSCI USA Multifactor UCITS ETF           |  -2.15%|    0.92|    0.07|    0.01|    0.10|    0.10|    0.01|
|t stat                                                      |   -0.82|   67.65|    3.11|    0.45|    3.24|    2.53|    0.87|

expected outperformance based on 50% factor premia: 0.19% + alpha
Based on 3.7 years of data, 248 data points per year (2015-09-03 to 2019-05-31)
Thanks.

User avatar
305pelusa
Posts: 1313
Joined: Fri Nov 16, 2018 10:20 pm

Re: Small Cap Value heads Rejoice !!!

Post by 305pelusa » Thu Nov 28, 2019 2:30 pm

Girya wrote:
Thu Nov 28, 2019 12:15 pm
305pelusa wrote:
Thu Nov 28, 2019 11:52 am
Girya wrote:
Thu Nov 28, 2019 11:03 am
The above conversation is interesting but perhaps a touch over my head. I want to believe in this approach but wonder if I have the mathematic and investment skills to truly do so, not to mention the stomach, and if I don't understand it, can it ever be right for me?
If the above is too complex and you don't understand it, it must definitely is not right for you. How about just keep it simple with the 3 Fund? It's an excellent choice.
Your post is taken in good heart, but this always bums me out when I ask a question like this on Bogleheads. I politely ask “hey I don’t understand this thing; can you all help me understand it” and what I get is some response like “well you don’t understand it switch to a 3 fund portfolio”.

Maybe for once could someone just take the time to, I don’t know, explain it?

Maybe I’ll learn something, maybe you’ll learn something. Just a suggestion.
If you want to learn, that's different. I'll be the last person ever to tell you not to learn or help. And I'm certainly open to answer any questions you have.

Your initial post said something like "I don't understand it so here's my portfolio, what do you suggest?". I hope you appreciate how different that sounds from what you're saying now 0_o

Girya
Posts: 72
Joined: Wed May 29, 2019 7:57 am

Re: Small Cap Value heads Rejoice !!!

Post by Girya » Thu Nov 28, 2019 3:33 pm

Haha. Fair enough. I don’t understand value and small cap.

Ok I understand what they are, but I don’t understand how to appropriately weight a portfolio towards them. What are factor loads? How much does one need to introduce to a TSM portfolio to tilt for beta without ignoring market returns?

Random Walker
Posts: 4233
Joined: Fri Feb 23, 2007 8:21 pm

Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Thu Nov 28, 2019 5:58 pm

Girya wrote:
Thu Nov 28, 2019 3:33 pm
Haha. Fair enough. I don’t understand value and small cap.

Ok I understand what they are, but I don’t understand how to appropriately weight a portfolio towards them. What are factor loads? How much does one need to introduce to a TSM portfolio to tilt for beta without ignoring market returns?
You could basically own only small value funds and still have your portfolio dominated by the market factor.

Dave

james22
Posts: 1495
Joined: Tue Aug 21, 2007 2:22 pm

Re: Small Cap Value heads Rejoice !!!

Post by james22 » Fri Nov 29, 2019 6:25 am

Girya wrote:
Thu Nov 28, 2019 3:33 pm
Haha. Fair enough. I don’t understand value and small cap.

Ok I understand what they are, but I don’t understand how to appropriately weight a portfolio towards them. What are factor loads? How much does one need to introduce to a TSM portfolio to tilt for beta without ignoring market returns?
You've read Swedroe's Your Complete Guide to Factor-Based Investing - what does it fail to explain?

Are you familiar with Portfolio Visualizer? https://www.portfoliovisualizer.com/factor-analysis

typical.investor
Posts: 1364
Joined: Mon Jun 11, 2018 3:17 am

Re: Small Cap Value heads Rejoice !!!

Post by typical.investor » Fri Nov 29, 2019 7:29 am

Girya wrote:
Thu Nov 28, 2019 3:33 pm
Haha. Fair enough. I don’t understand value and small cap.

Ok I understand what they are, but I don’t understand how to appropriately weight a portfolio towards them. What are factor loads? How much does one need to introduce to a TSM portfolio to tilt for beta without ignoring market returns?
First, you had better understand Beta which is market returns.

It's confusing because some refer to multiple betas and call value one of them. Most here we refer to Beta as market returns and then tilt towards small and value or other similar factors (momentum, quality etc).

Anyway, a see 0.2 size load, 0.4 value load targets as being mentioned by some long time tilters.

I didn't construct mine with a numerical target as until recently, factor data on emerging markets was difficult to come by. Also, I look at a FF five factor model so the profitability and investment will see my value funds loading on those too (which reduces the value loading). It gets a bit fuzzy, especially when looking at funds that don't have years and years of data. And anything that isn't explained shows up in alpha.

DFA funds also target profitability and I believe will target investment soon.

Anyway, I hold about 50% market weighted funds and 50% factor tilted funds (I put REITS in factor funds since they load on the investment factor).

The Schwab Intelligent portfolios are similar to that but perhaps a little more tilted, so I don't think your portfolio is overly tilted.

It's less important to have an ideal factor tilt (nobody knows what that is anyway) than it is to not change your portfolio willy nilly. I'd keep your equities they way they are until you have a compelling reason to change.

Girya
Posts: 72
Joined: Wed May 29, 2019 7:57 am

Re: Small Cap Value heads Rejoice !!!

Post by Girya » Fri Nov 29, 2019 8:32 am

james22 wrote:
Fri Nov 29, 2019 6:25 am
Girya wrote:
Thu Nov 28, 2019 3:33 pm
Haha. Fair enough. I don’t understand value and small cap.

Ok I understand what they are, but I don’t understand how to appropriately weight a portfolio towards them. What are factor loads? How much does one need to introduce to a TSM portfolio to tilt for beta without ignoring market returns?
You've read Swedroe's Your Complete Guide to Factor-Based Investing - what does it fail to explain?

Are you familiar with Portfolio Visualizer? https://www.portfoliovisualizer.com/factor-analysis
Implementation. It’s a pretty long book that boils down to “eh, maybe, in the future these factors will do better, but past performance is no guarantee of future success, but I’m not going to say exactly how much of them to utilize”. It lists a bunch of funds (many of which can only be bought through Bridgeway or DFA, ie an advisor).

It certainly explains each factor and why is might offer alpha vs. a pure TSM portfolio. It has an appendix that lists funds (which, you’ll notice in my IPS allocation above, I have). But it doesn’t say how much of each to hold. Should one slice and dice off a piece for each? How much small value....5% tilt, 10% tilt, all small value and bonds only like Merriman sometimes recommends?

Image

So getting back to my question, what does this board do to slice that way? I have a professionally designed portfolio since I left BAM. I haven’t touched it. As noted in other threads they didn’t do a great job explaining it to me; and I am no moron and I ask lots of questions. Now I’m trying to ask the RIGHT questions.

Let’s ask you, james22, since you seem to feel like you know so much, how do YOU tilt?

Random Walker
Posts: 4233
Joined: Fri Feb 23, 2007 8:21 pm

Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Fri Nov 29, 2019 8:56 am

Girya,
Here’s a way to start to figure out how to tilt. Ask yourself how much tracking variance you can tolerate. Will you bail if you underperform TSM or S&P 500 for a few years? Ask yourself how much you believe in each factor, including market beta, and use them proportionately. Ask yourself how much you believe in the unique and independent nature of size and value and the value you perceive derived from investing across independent sources of risk and return.
If you can, and I think the younger you are the harder it is to do, get specific about a targeted level of return you require. Make estimates of the expected return from market, size, value. Monte Carlo Simulation can help decide if various plans are likely to help you achieve goals. BAM could certainly have done this for you. As I wrote in a thread titled something like “on buying used cars and choosing an advisor”, the more informed the client, the more likely he can get what he needs from the advisor and end up satisfied. I get the impression that you are a young doc in fairly early accumulation stage. Under those circumstances it may be difficult to be specific on financial goals other than “save as much as I can and make as much as I can”. Under those circumstances I would let level of faith in various factors, tracking variance tolerance, value you apply to portfolio efficiency, and costs dominate your decision making.

Dave

Girya
Posts: 72
Joined: Wed May 29, 2019 7:57 am

Re: Small Cap Value heads Rejoice !!!

Post by Girya » Fri Nov 29, 2019 9:41 am

As always Dave I appreciate that. I suppose I was sort of putting the numerical cart before the philosophical horse. I was just looking to quantify things....now I ha e to qualify things.

I’ll run through the exercise you suggest; it’s a good one.

YRT70
Posts: 404
Joined: Sat Apr 27, 2019 8:51 am

Re: Small Cap Value heads Rejoice !!!

Post by YRT70 » Fri Nov 29, 2019 9:45 am

Girya wrote:
Fri Nov 29, 2019 8:32 am
Implementation. It’s a pretty long book that boils down to “eh, maybe, in the future these factors will do better, but past performance is no guarantee of future success, but I’m not going to say exactly how much of them to utilize”. It lists a bunch of funds (many of which can only be bought through Bridgeway or DFA, ie an advisor).

It certainly explains each factor and why is might offer alpha vs. a pure TSM portfolio. It has an appendix that lists funds (which, you’ll notice in my IPS allocation above, I have). But it doesn’t say how much of each to hold. Should one slice and dice off a piece for each? How much small value....5% tilt, 10% tilt, all small value and bonds only like Merriman sometimes recommends?
How much to tilt is an interesting question. Did you notice I asked the same question a couple of pages back? viewtopic.php?f=10&t=282533&start=300#p4858042

There's no one size fits all answer obviously but maybe the answers there can help you.

As a side note, I'm not sure how aware you are of recent results of tilting but as an example: DISVX 10 years performance is 6.8% while VTI (Vanguard Total Stock Market) 10 years performance has been 13.5%. Unfortunately this kind of underperformance is entirely possible when tilting.

User avatar
305pelusa
Posts: 1313
Joined: Fri Nov 16, 2018 10:20 pm

Re: Small Cap Value heads Rejoice !!!

Post by 305pelusa » Fri Nov 29, 2019 10:15 am

Girya wrote:
Thu Nov 28, 2019 3:33 pm
What are factor loads? How much does one need to introduce to a TSM portfolio to tilt for beta without ignoring market returns?
Swedroe's book should help answer the former. As for the latter, as Dave said, beta will always be the overwhelming factor in your long-only portfolios. It's not possible to ignore it unless you invest in other risky sources aside from beta (alternatives).
Girya wrote:
Fri Nov 29, 2019 8:32 am
So getting back to my question, what does this board do to slice that way? I have a professionally designed portfolio since I left BAM. I haven’t touched it. As noted in other threads they didn’t do a great job explaining it to me; and I am no moron and I ask lots of questions. Now I’m trying to ask the RIGHT questions.

Let’s ask you, james22, since you seem to feel like you know so much, how do YOU tilt?
I think the part that confuses me is that I essentially hashed out my process for tilting just now with another poster. And you seemed to say "I have been following this thread and comments" but then seem to ask me the same questions. You might just be getting responses from others (very fair so . I hope they answer too). Perhaps you missed my responses so I will re-quote them:
305pelusa wrote:
Tue Nov 26, 2019 11:32 am
YRT70 wrote:
Tue Nov 26, 2019 11:09 am
That really applies to me. So basically I'm looking to reduce excessive outperformance and (greatly) reduce tracking error regret. How to quantify that, I'm not sure.
Haha it applies to all of us! One could quantify it by noting the historical pervasiveness of the factors and calculating potential tracking error. I think that's asking too much of the (limited) data us retail investors can access. And it's only the past; future will look different any ways.

Settling on the desired factor exposure is, IMO, the most arbitrary and difficult part. I think 0.3/0.3 is as deep as I'd go as a retail investors with only some basic knowledge of factors. And 0.1/0.1 is as low as I'd bother tilting. So perhaps split the difference and use 0.2/0.2? That's consistent with what some DFA funds target so it's not unreasonable. If you like value/have more faith on value than size, maybe a little more value.
The first paragraph is a similar process to what Dave said. Make some assumptions and quantify a bit. I don't like it because it's overly complex and I'm not sure it adds much value. So I went a little more qualitatively, looked at what experienced investors did, settled for something reasonable, and just moved on. I recommend you start at the 0.1-0.2 exposure range. For some, like Momentum, just being neutral is pretty good (it's very hard to get large amounts of positive MOM loading in a long-only, Multifactor portoflio). For others, you can truly load up (size).
Random Walker wrote:
Fri Nov 29, 2019 8:56 am
Ask yourself how much you believe in each factor, including market beta, and use them proportionately.
I've always felt that's dangerously close to the logical fallacy of probability matching?

rkhusky
Posts: 7891
Joined: Thu Aug 18, 2011 8:09 pm

Re: Small Cap Value heads Rejoice !!!

Post by rkhusky » Fri Nov 29, 2019 10:25 am

Note that you can’t combine factors and expect to get combined performance, unless you have shown that the factors are independent. Some factors cancel each other, at least partially.

And there is no guarantee that past performance of factors will continue in the future. Especially if the prior out-performance is primarily based on data before the factors were well publicized, such as in the chart above.

User avatar
Taylor Larimore
Advisory Board
Posts: 28959
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Factors

Post by Taylor Larimore » Fri Nov 29, 2019 10:58 am

Bogleheads:

Below is a link to a post I wrote three years ago about factors. Nothing has changed except most factor performance is worse:

Factor Investing

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "By and large I do not approve of factor funds."
Last edited by Taylor Larimore on Sat Nov 30, 2019 11:59 am, edited 1 time in total.
"Simplicity is the master key to financial success." -- Jack Bogle

Random Walker
Posts: 4233
Joined: Fri Feb 23, 2007 8:21 pm

Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Fri Nov 29, 2019 11:00 am

Girya wrote:
Fri Nov 29, 2019 9:41 am
As always Dave I appreciate that. I suppose I was sort of putting the numerical cart before the philosophical horse. I was just looking to quantify things....now I ha e to qualify things.

I’ll run through the exercise you suggest; it’s a good one.
You said you have Larry’s factor book. It’s very worthwhile for using the data to decide on your relative belief in the factors and the potential benefit of diversifying across the factors. It is perhaps at least equally worthwhile for giving you a framework to evaluate any investment you consider in the future: persistence,pervasive, robust, intuitive, investable. It is a good exercise to look at the AQR and Stone Ridge alternatives from those points of view as well.

I think you have Larry’s Black Swan book as well. You need to decide on the value of improved portfolio efficiency for you: same expected return with more narrow SD. Lastly, and very importantly, always look at the portfolio as a whole. How the portfolio is performing relative to your goals counts way way more than how a portfolio component compares to the S&P, some other benchmark, or someone else’s portfolio.

Dave

Random Walker
Posts: 4233
Joined: Fri Feb 23, 2007 8:21 pm

Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Fri Nov 29, 2019 11:06 am

Girya wrote:
Fri Nov 29, 2019 9:41 am
As always Dave I appreciate that. I suppose I was sort of putting the numerical cart before the philosophical horse. I was just looking to quantify things....now I ha e to qualify things.

I’ll run through the exercise you suggest; it’s a good one.
Very hard I think to be very quantitative with this stuff. I think the qualitative / philosophical issue is much more relevant. Invest in the factors proportionate to your faith in each and your faith in efficient markets, human behavioral tendencies, and modern portfolio theory. The goal is to generate a plan you can stick with. The big advantage of the simpler TSM approach is that for certain the investor is minimizing costs. That knowledge can provide the strongest basis for sticking to a plan.

Dave

Random Walker
Posts: 4233
Joined: Fri Feb 23, 2007 8:21 pm

Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Fri Nov 29, 2019 11:20 am

Random Walker wrote:
Fri Nov 29, 2019 11:06 am
Girya wrote:
Fri Nov 29, 2019 9:41 am
As always Dave I appreciate that. I suppose I was sort of putting the numerical cart before the philosophical horse. I was just looking to quantify things....now I ha e to qualify things.

I’ll run through the exercise you suggest; it’s a good one.
Very hard I think to be very quantitative with this stuff. I think the qualitative / philosophical issue is much more relevant. Invest in the factors proportionate to your faith in each and your faith in efficient markets, human behavioral tendencies, and modern portfolio theory. The goal is to generate a plan you can stick with. The big advantage of the simpler TSM approach is that for certain the investor is minimizing costs. That knowledge can provide the strongest basis for sticking to a plan.

Also, I think the benefits of the other factors most pronounced in the small caps, so I’d incorporate that into your decisions as well.

Dave

User avatar
nedsaid
Posts: 12977
Joined: Fri Nov 23, 2012 12:33 pm

Re: Factors

Post by nedsaid » Fri Nov 29, 2019 12:00 pm

Taylor Larimore wrote:
Fri Nov 29, 2019 10:58 am
Bogleheads:

Below is a link to a post I wrote three years ago about factors. Nothing has changed except most factor performance is worse:

Factor Investing

Best wishes.
Taylor
Taylor, it isn't that Value has done poorly, it has not. It is that Growth has been outperforming Value for a decade now. Things look worse now because Value, and particularly Small Value had a bad year recently. Remember that our mentor Jack Bogle believed in reversion to the mean, even if you don't believe in factors at some point the market will revert to Value. Let's see what happens, too early to crow. There also is a Small vs. Large dynamic in the markets. We think this Large Growth trend will continue forever but it won't. Reversion to the mean always happens, we don't know when.
A fool and his money are good for business.

User avatar
nedsaid
Posts: 12977
Joined: Fri Nov 23, 2012 12:33 pm

Re: Factors

Post by nedsaid » Fri Nov 29, 2019 12:06 pm

Taylor Larimore wrote:
Fri Nov 29, 2019 10:58 am
Bogleheads:

Below is a link to a post I wrote three years ago about factors. Nothing has changed except most factor performance is worse:

Factor Investing

Best wishes.
Taylor
Hi Taylor. It isn't that Value has done poorly, it hasn't. It is that Growth has been doing better than Value for a decade now. Things look worse now because Value, particularly Small Value had a bad year recently. Before that, Large Value was doing 14% a year, the S&P 500 15% a year, and Large Growth 16% a year over a decade. Small Value was about even with the S&P 500 over that 10 year period. It shows what one year's worth of performance will do. Our mentor Jack Bogle believed in reversion to the mean, this Large Growth trend will not last forever, the market leadership will change, we just don't know when. You don't have do believe in factors to believe that a reversion to the mean will happen. I happen to believe in factors, particularly the Small/Value phenomenon. Let's see what happens, too early, way too early to crow. One bad year is not a disaster.
A fool and his money are good for business.

james22
Posts: 1495
Joined: Tue Aug 21, 2007 2:22 pm

Re: Small Cap Value heads Rejoice !!!

Post by james22 » Sat Nov 30, 2019 3:43 am

Girya wrote:
Fri Nov 29, 2019 8:32 am
Let’s ask you, james22, since you seem to feel like you know so much, how do YOU tilt?
My indexed equity is 50/50 US Small Value/Emerging Markets.

User avatar
Forester
Posts: 623
Joined: Sat Jan 19, 2019 2:50 pm
Location: UK

Re: Factors

Post by Forester » Sat Nov 30, 2019 4:00 am

Taylor Larimore wrote:
Fri Nov 29, 2019 10:58 am
Bogleheads:

Below is a link to a post I wrote three years ago about factors. Nothing has changed except most factor performance is worse:

Factor Investing

Best wishes.
Taylor
US large cap is lagging MSCI momentum, min vol, quality. Cost is what matters. Whether stocks are picked by committee or a monkey throwing darts is less important over time. Cheap factor funds are harmless.

MotoTrojan
Posts: 7649
Joined: Wed Feb 01, 2017 8:39 pm

Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Fri Dec 06, 2019 12:58 pm

james22 wrote:
Sat Nov 30, 2019 3:43 am
Girya wrote:
Fri Nov 29, 2019 8:32 am
Let’s ask you, james22, since you seem to feel like you know so much, how do YOU tilt?
My indexed equity is 50/50 US Small Value/Emerging Markets.
Why no developed ex-US small value?

MotoTrojan
Posts: 7649
Joined: Wed Feb 01, 2017 8:39 pm

Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Fri Dec 06, 2019 12:59 pm

Nice day today, especially in the S&P600!

james22
Posts: 1495
Joined: Tue Aug 21, 2007 2:22 pm

Re: Small Cap Value heads Rejoice !!!

Post by james22 » Fri Dec 06, 2019 11:33 pm

MotoTrojan wrote:
Fri Dec 06, 2019 12:58 pm
james22 wrote:
Sat Nov 30, 2019 3:43 am
Girya wrote:
Fri Nov 29, 2019 8:32 am
Let’s ask you, james22, since you seem to feel like you know so much, how do YOU tilt?
My indexed equity is 50/50 US Small Value/Emerging Markets.
Why no developed ex-US small value?
Good question. I should have elaborated.

I'm constrained by what's available in my 401k (I've other investments filling my Roth IRA and taxable accounts).

I'd swap EM for ISV (or SV/EM for US/International Multifactor) if I could.

User avatar
steve roy
Posts: 1735
Joined: Thu May 13, 2010 5:16 pm

Re: Small Cap Value heads Rejoice !!!

Post by steve roy » Sat Dec 07, 2019 12:16 am

The reason the Three Fund Portfolio is beguiling? It performs adequately and (this is important) it is hard to louse up with endless tinkering. There is very little to tinker with.

Mike Piper (the Social Security guru) told me some years ago that he switched his investments from multiple funds to a single LifeStrategy Fund because he found himself tweaking his portfolio, then tweaking it again and yet again. And he came to understand that his tweaking was hurting more than helping.

As others have said here, the most important allocation in your portfolio isn't large cap growth or small cap value or mid cap blend, it's your stock/bond ratio.

james22
Posts: 1495
Joined: Tue Aug 21, 2007 2:22 pm

Re: Small Cap Value heads Rejoice !!!

Post by james22 » Sat Dec 07, 2019 12:27 am

1. Tilting is no less beguiling as tinkering is entertaining (it might also help more than hurt).

2. One's tilt may influence your stock/bond ratio (ref. Swedroe Portfolio).

User avatar
steve roy
Posts: 1735
Joined: Thu May 13, 2010 5:16 pm

Re: Small Cap Value heads Rejoice !!!

Post by steve roy » Sat Dec 07, 2019 1:30 am

One bullet point for Right Now: the S&P 500 index and Total Stock Market Index have, by a country mile, higher valuations than small cap value. Which might mean the future performance of small cap value could be better than large equity.

User avatar
whodidntante
Posts: 7129
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Small Cap Value heads Rejoice !!!

Post by whodidntante » Sat Dec 07, 2019 1:39 am

steve roy wrote:
Sat Dec 07, 2019 1:30 am
One bullet point for Right Now: the S&P 500 index and Total Stock Market Index have, by a country mile, higher valuations than small cap value. Which might mean the future performance of small cap value could be better than large equity.
Shhh. You'll let the secret out. LCG to the moon! :happy

User avatar
Topic Author
hdas
Posts: 1346
Joined: Thu Jun 11, 2015 8:24 am

Re: Small Cap Value heads Rejoice !!!

Post by hdas » Thu Dec 12, 2019 11:59 am

Merciless divergence:

RFV +2.26%
VFVA +1.87%
SYLD +1.49%
QVAL+1.29%
VLUE +1.21%


QMOM -0.79%
DVOL -0.32%
MTUM -0.11%
XMMO -0.03%


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

caklim00
Posts: 1994
Joined: Mon May 26, 2008 10:09 am

Re: Small Cap Value heads Rejoice !!!

Post by caklim00 » Thu Dec 12, 2019 12:08 pm

hdas wrote:
Thu Dec 12, 2019 11:59 am
Merciless divergence:

RFV +2.26%
VFVA +1.87%
SYLD +1.49%
QVAL+1.29%
VLUE +1.21%


QMOM -0.79%
DVOL -0.32%
MTUM -0.11%
XMMO -0.03%


Cheers :greedy
These posts are so funny. I'm up fairly big today and then I get one of those emails from IKBR notifying me how far my (Treasury) futures are falling :)

User avatar
Topic Author
hdas
Posts: 1346
Joined: Thu Jun 11, 2015 8:24 am

Re: Small Cap Value heads Rejoice !!!

Post by hdas » Fri Jan 10, 2020 2:30 pm

Wow, the party that started in September is more than over....small cap value down ~7% relative to large growth. A new 15 year low in the ratio (0.84). Be safe out there. 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

User avatar
Topic Author
hdas
Posts: 1346
Joined: Thu Jun 11, 2015 8:24 am

Re: Small Cap Value heads Rejoice !!!

Post by hdas » Thu Jan 16, 2020 1:00 pm

This is the relative performance SCV/LCG since this thread started. Notice the latest jump, Hope Springs Eternal.

Image

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

User avatar
Topic Author
hdas
Posts: 1346
Joined: Thu Jun 11, 2015 8:24 am

A new low

Post by hdas » Tue Jan 21, 2020 1:26 pm

A new low in the ratio 0.83....devastating trend for the heavy tilters. 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

rascott
Posts: 1275
Joined: Wed Apr 15, 2015 10:53 am

Re: A new low

Post by rascott » Tue Jan 21, 2020 2:00 pm

hdas wrote:
Tue Jan 21, 2020 1:26 pm
A new low in the ratio 0.83....devastating trend for the heavy tilters. Cheers :greedy
Seemed a good day to buy more..... so I did.

User avatar
305pelusa
Posts: 1313
Joined: Fri Nov 16, 2018 10:20 pm

Re: A new low

Post by 305pelusa » Tue Jan 21, 2020 2:41 pm

rascott wrote:
Tue Jan 21, 2020 2:00 pm
hdas wrote:
Tue Jan 21, 2020 1:26 pm
A new low in the ratio 0.83....devastating trend for the heavy tilters. Cheers :greedy
Seemed a good day to buy more..... so I did.
Amen! I love that my favorite asset class is underperforming right when I’m accumulating and don’t need the money. I’d be annoyed if it was the other way haha

HippoSir
Posts: 75
Joined: Tue Jul 03, 2018 2:56 pm

Re: A new low

Post by HippoSir » Tue Jan 21, 2020 3:23 pm

305pelusa wrote:
Tue Jan 21, 2020 2:41 pm
Amen! I love that my favorite asset class is underperforming right when I’m accumulating and don’t need the money. I’d be annoyed if it was the other way haha
I'm with you, I'm in the midst of my accumulation years and happily buying up SCV to maintain tilt as my VTI keeps rocketing up.

I'm either a genius or setting myself up for a lifetime of disappointment. We shall see. :P

User avatar
Taylor Larimore
Advisory Board
Posts: 28959
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: A new low

Post by Taylor Larimore » Tue Jan 21, 2020 3:38 pm

HippoSir & 305pelusa wrote:
Tue Jan 21, 2020 3:23 pm
305pelusa wrote:
Tue Jan 21, 2020 2:41 pm
Amen! I love that my favorite asset class is underperforming right when I’m accumulating and don’t need the money. I’d be annoyed if it was the other way haha
I'm with you, I'm in the midst of my accumulation years and happily buying up SCV to maintain tilt as my VTI keeps rocketing up.

I'm either a genius or setting myself up for a lifetime of disappointment. We shall see. :P
Gentlemen and Gentlewomen:

This is the problem with betting one one corner of the market. You may win, but you may also lose. Small-Cap Value stocks are now the worst of all Morningstar style categories. Losing in retirement can be devastating.

Consider switching to a Total Market Index Fund where you will never underperform the U.S. stock market and you are guaranteed to outperform most investors. If you have your Small-Cap value fund in a taxable account, this is an especially good time to switch.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Never think you know more than the market. Nobody does." -- "In my view, owning the market and holding it forever is the ultimate strategy for winners."
"Simplicity is the master key to financial success." -- Jack Bogle

User avatar
jhfenton
Posts: 4426
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: A new low

Post by jhfenton » Tue Jan 21, 2020 3:45 pm

Taylor Larimore wrote:
Tue Jan 21, 2020 3:38 pm
This is the problem with betting one one corner of the market. You may win, but you may also lose. Small-Cap Value stocks are nowhave in the recent past been the worst of all Morningstar style categories. Losing in retirement can be devastating.
You had a tense problem there. I fixed it for you.

I've been heavily tilted to SCV since the 90's. It performed well for many years, leaving me well ahead of the S&P 500 or total market. I should clearly abandon the tilt now when SCV is at a low-water mark.

stocknoob4111
Posts: 917
Joined: Sun Jan 07, 2018 12:52 pm

Re: Small Cap Value heads Rejoice !!!

Post by stocknoob4111 » Tue Jan 21, 2020 3:59 pm

If you remove 2018, 2019 from the equation then IJS (SP600 SCV) and SPY (S&P 500) have near identical results (2013-2017 15.32% for IJS and 15.68% for SPY).

2 years of divergence is miniscule and isn't indicative of any long term trend. That's my opinion.

Smith1776
Posts: 72
Joined: Fri Apr 21, 2017 5:37 pm

Re: A new low

Post by Smith1776 » Tue Jan 21, 2020 4:04 pm

jhfenton wrote:
Tue Jan 21, 2020 3:45 pm
Taylor Larimore wrote:
Tue Jan 21, 2020 3:38 pm
This is the problem with betting one one corner of the market. You may win, but you may also lose. Small-Cap Value stocks are nowhave in the recent past been the worst of all Morningstar style categories. Losing in retirement can be devastating.
You had a tense problem there. I fixed it for you.

I've been heavily tilted to SCV since the 90's. It performed well for many years, leaving me well ahead of the S&P 500 or total market. I should clearly abandon the tilt now when SCV is at a low-water mark.
In addition, he's wrong about "betting on one corner of the market." SCV tilts can improve TSM only portfolios by providing increased diversification.

User avatar
305pelusa
Posts: 1313
Joined: Fri Nov 16, 2018 10:20 pm

Re: A new low

Post by 305pelusa » Tue Jan 21, 2020 5:03 pm

Taylor Larimore wrote:
Tue Jan 21, 2020 3:38 pm

Consider switching to a Total Market Index Fund where you will never underperform the U.S. stock market
Consider switching to Small Cap Value where you will never underperform Small Cap US stock market. :D

User avatar
Topic Author
hdas
Posts: 1346
Joined: Thu Jun 11, 2015 8:24 am

A precision

Post by hdas » Tue Jan 21, 2020 6:01 pm

305pelusa wrote:
Tue Jan 21, 2020 5:03 pm

Consider switching to Small Cap Value where you will never underperform Small Cap US stock market. :D
In order to be funny/witty it has to be at least consistent.

1.) If small growth outperforms, SCV likely will underperform Small Cap US stock market.
2.) You might pick a SCV fund that given the factor loadings or factor definitions underperforms a composite of all SCV funds.

Cheers :greedy

ps. Im not anti SCV tilts at all.
"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

User avatar
305pelusa
Posts: 1313
Joined: Fri Nov 16, 2018 10:20 pm

Re: A precision

Post by 305pelusa » Tue Jan 21, 2020 6:31 pm

hdas wrote:
Tue Jan 21, 2020 6:01 pm
305pelusa wrote:
Tue Jan 21, 2020 5:03 pm

Consider switching to Small Cap Value where you will never underperform Small Cap US stock market. :D
In order to be funny/witty it has to be at least consistent.

1.) If small growth outperforms, SCV likely will underperform Small Cap US stock market.
2.) You might pick a SCV fund that given the factor loadings or factor definitions underperforms a composite of all SCV funds.

Cheers :greedy

ps. Im not anti SCV tilts at all.
Whoops yes I meant to write “Value” back there

Elysium
Posts: 1940
Joined: Mon Apr 02, 2007 6:22 pm

Re: A precision

Post by Elysium » Tue Jan 21, 2020 7:25 pm

305pelusa wrote:
Tue Jan 21, 2020 6:31 pm
hdas wrote:
Tue Jan 21, 2020 6:01 pm
305pelusa wrote:
Tue Jan 21, 2020 5:03 pm

Consider switching to Small Cap Value where you will never underperform Small Cap US stock market. :D
In order to be funny/witty it has to be at least consistent.

1.) If small growth outperforms, SCV likely will underperform Small Cap US stock market.
2.) You might pick a SCV fund that given the factor loadings or factor definitions underperforms a composite of all SCV funds.

Cheers :greedy

ps. Im not anti SCV tilts at all.
Whoops yes I meant to write “Value” back there
It's just pain wrong though, as you can obviously trail SCV market with SCV funds, just checkout BOSVX: https://www.morningstar.com/funds/xnas/bosvx/quote ...or DFSVX.

Taylor is correct that with TSM you cannot underperform the US Market. This cannot be said of any other sub-category of the market.

UberGrub
Posts: 113
Joined: Wed Aug 21, 2019 3:47 pm

Re: A precision

Post by UberGrub » Tue Jan 21, 2020 8:28 pm

Elysium wrote:
Tue Jan 21, 2020 7:25 pm
305pelusa wrote:
Tue Jan 21, 2020 6:31 pm
hdas wrote:
Tue Jan 21, 2020 6:01 pm
305pelusa wrote:
Tue Jan 21, 2020 5:03 pm

Consider switching to Small Cap Value where you will never underperform Small Cap US stock market. :D
In order to be funny/witty it has to be at least consistent.

1.) If small growth outperforms, SCV likely will underperform Small Cap US stock market.
2.) You might pick a SCV fund that given the factor loadings or factor definitions underperforms a composite of all SCV funds.

Cheers :greedy

ps. Im not anti SCV tilts at all.
Whoops yes I meant to write “Value” back there
It's just pain wrong though, as you can obviously trail SCV market with SCV funds, just checkout BOSVX: https://www.morningstar.com/funds/xnas/bosvx/quote ...or DFSVX.

Taylor is correct that with TSM you cannot underperform the US Market. This cannot be said of any other sub-category of the market.
Did you just pick one SCV fund to show one can underperform the Russell 2000 value? There are thousands of TSM funds that also underperform the US market. But if you pick a very tight index fund (like VTI or for the Russell 2000 value, perhaps VTWV) then you won’t underperform except for the tiny fees.

Elysium
Posts: 1940
Joined: Mon Apr 02, 2007 6:22 pm

Re: A precision

Post by Elysium » Tue Jan 21, 2020 9:03 pm

UberGrub wrote:
Tue Jan 21, 2020 8:28 pm
Elysium wrote:
Tue Jan 21, 2020 7:25 pm
305pelusa wrote:
Tue Jan 21, 2020 6:31 pm
hdas wrote:
Tue Jan 21, 2020 6:01 pm
305pelusa wrote:
Tue Jan 21, 2020 5:03 pm

Consider switching to Small Cap Value where you will never underperform Small Cap US stock market. :D
In order to be funny/witty it has to be at least consistent.

1.) If small growth outperforms, SCV likely will underperform Small Cap US stock market.
2.) You might pick a SCV fund that given the factor loadings or factor definitions underperforms a composite of all SCV funds.

Cheers :greedy

ps. Im not anti SCV tilts at all.
Whoops yes I meant to write “Value” back there
It's just pain wrong though, as you can obviously trail SCV market with SCV funds, just checkout BOSVX: https://www.morningstar.com/funds/xnas/bosvx/quote ...or DFSVX.

Taylor is correct that with TSM you cannot underperform the US Market. This cannot be said of any other sub-category of the market.
Did you just pick one SCV fund to show one can underperform the Russell 2000 value? There are thousands of TSM funds that also underperform the US market. But if you pick a very tight index fund (like VTI or for the Russell 2000 value, perhaps VTWV) then you won’t underperform except for the tiny fees.
Thousands of TSM funds, what are they :shock:

By definition there is only one TSM fund, it tracks the entire US Market as represented by the total market capitalization. You need to get the basics right first. You can only trail the US Market by the small fund fee such an index fund charges, it could be Vanguard TSM fund or any number of them issued by others, but by definition they all track the same US Market.

What you and the other guy is missing is that there is no such total market for SCV funds, because by definition it is sub-category of the market, and as such it is left to the definition of various fund providers. Most of them will vary based on factors loadings, or indexes they use.

Edit:
BTW, I didn't mean to say BOSVX is a bad SCV fund, quite the contrary it is possibly one of the best SCV funds if you go by the definition that highest factor loading concentration of SCV is what makes such a fund best among the category. It's just that SCV has performed poorly of late, and deep value fund like BOSVX would trail the SCV category which contains several funds that aren't deep value. This will make a SCV investor test the limits of their conviction to the strategy at times like this. I think what Taylor meant correctly is that most investors cannot live with such tracking regret over extended periods of time, and when you buy TSM no such regrets because you aren't trailing the market at any time.
Last edited by Elysium on Tue Jan 21, 2020 9:08 pm, edited 1 time in total.

User avatar
LadyGeek
Site Admin
Posts: 58804
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Small Cap Value heads Rejoice !!!

Post by LadyGeek » Tue Jan 21, 2020 10:15 pm

I removed an off-topic post and several replies. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

...At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Theoretical
Posts: 1484
Joined: Tue Aug 19, 2014 10:09 pm

Re: Small Cap Value heads Rejoice !!!

Post by Theoretical » Tue Jan 21, 2020 10:35 pm

For what it’s worth, the S&P 600 Pure Value EYF has a trailing PE of 7 And the S&P 400 pure value is like 7.4. Even forward, it’s in the 10s. That’s Emerging Markets Value Winter 2016 territory.

fennewaldaj
Posts: 819
Joined: Sun Oct 22, 2017 11:30 pm

Re: A new low

Post by fennewaldaj » Tue Jan 21, 2020 10:44 pm

305pelusa wrote:
Tue Jan 21, 2020 2:41 pm
rascott wrote:
Tue Jan 21, 2020 2:00 pm
hdas wrote:
Tue Jan 21, 2020 1:26 pm
A new low in the ratio 0.83....devastating trend for the heavy tilters. Cheers :greedy
Seemed a good day to buy more..... so I did.
Amen! I love that my favorite asset class is underperforming right when I’m accumulating and don’t need the money. I’d be annoyed if it was the other way haha
Yeah I kinda want it to get worse before it gets better. I have 10-15 years of accumulation left

lassevirensghost
Posts: 98
Joined: Mon May 07, 2018 5:33 am

Re: Small Cap Value heads Rejoice !!!

Post by lassevirensghost » Tue Jan 21, 2020 11:18 pm

Almost like someone whose name rhymes with shmezeezium is trying to get factor threads locked?
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

Post Reply