How to evaluate a SCV fund implementation: AVDV vs DLS? [Avantis vs. WisdomTree]

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gaz101
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Joined: Thu Sep 03, 2020 9:13 pm

How to evaluate a SCV fund implementation: AVDV vs DLS? [Avantis vs. WisdomTree]

Post by gaz101 »

I've been looking into implementing SCV tilting. Don't worry this was planned, not reacting to recent events. I know that the implementation of SCV matters, like for example SCV funds with profitability screens will outperform plain SCV funds.

For international SCV fund, DLS is the recommended one, but AVDV is a recent contender, given its lower ER and DFA origins. But I would like to know if there's an easy way that I can decide which SCV fund implementation is better?

I did the morningstar style check, and there's a bunch of factors, but profitability is not among them? :confused Thanks!
cheezit
Posts: 377
Joined: Sat Jul 14, 2018 7:28 pm

Re: How to evaluate a SCV fund implementation: AVDV vs DLS? [Avantis vs. WisdomTree]

Post by cheezit »

First off, you can look at the prospectus and see how the fund management defines value and how they designed the fund.

Second, for funds with a reasonable amount of history, you'll be able to get statistically meaningful numbers on the level of factor exposure from a regression analysis. Cf. this regression analysis for the SCV funds DFSVX, IJS, VFVA, and VBR, with the caveat that VFVA has a short-ish history and tries to equal-weight large-, mid-, and small-cap stocks in separate buckets and thus isn't truly SCV despite its decent loading to the size factor. When looking at the regression analysis, remember to check the t-stats (and p-values) for each factor loading to filter out some of the noise. Nb. while the size factor is straightforward, the definition of the value factor can vary substantially between factor models.

Once you understand the funds in question and have a decent idea of how each one loads up on the factors, you can then start to think about which, if any, gives you a level of factor exposure that is worth its cost. A very first-order analysis might be to estimate/measure the post-publication factor premia as best you can, multiply the loadings by the factor premia, and then compare that number to the alpha and the expense ratio of the fund.
YRT70
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Joined: Sat Apr 27, 2019 8:51 am

Re: How to evaluate a SCV fund implementation: AVDV vs DLS? [Avantis vs. WisdomTree]

Post by YRT70 »

There's been some discussion about DLS vs. AVDV in the main Small Cap Value thread.
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