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Backtesting SCV and Intl SCV

Posted: Wed Mar 30, 2011 6:50 pm
by radionightster
Hi all,

I've been backtesting a few funds. When you backtest SCV and Intl SCV (both vs S&P500) it's pretty ridiculous. I'm talking off the charts, literally, of the SCV funds.

I know we can't expect that kind of performance these days, but what happened back between the 70s and now that made the SCV funds perform so amazingly well?

Posted: Wed Mar 30, 2011 7:15 pm
by exeunt
Part of it was the massive revaluations that occurred after countries started letting their currencies float. You really want to compare them to the international indexes.

Posted: Thu Mar 31, 2011 5:40 am
by grap0013
You're starting to walk on a slippery slope backtesting SCV! :twisted:

Generally over long periods of time investors are rewarded for holding risky assets.

I believe value companies did well in the 70s because they typically have high amounts of debt and inflation erodes it away.

Look Forward, not back

Posted: Thu Mar 31, 2011 8:21 am
by Random Walker
Seems like lots of folks look at past results for small and value, then debate whether that will occur again in future. Seems to me that if you view the potential premiums as risk stories, then you can set a course with conviction and stop worrying about past periods. Higher cost of capital reveals higher risk.

Dave

Re: Backtesting SCV and Intl SCV

Posted: Thu Mar 31, 2011 11:35 am
by RaleighStClaire
radionightster wrote:Hi all,

I've been backtesting a few funds. When you backtest SCV and Intl SCV (both vs S&P500) it's pretty ridiculous. I'm talking off the charts, literally, of the SCV funds.

I know we can't expect that kind of performance these days, but what happened back between the 70s and now that made the SCV funds perform so amazingly well?
Historically, SCV has outperformed Large caps by 5-7% annualized, depending on what kind of data you are looking at. Regardless, it's a lot, but don't think that investors in the SCV asset class all got those returns. Many investors panic and sell at the bottom and never reaped the rewards of the high-risk asset class that is SCV.

Do you really need to look at 70s data to prove your point?
10 year annualized numbers for Vanguard funds as of 3/30/11:
500 Index 2.51%
Small Value Index 8.13%

Yeah, it's a big difference, but in line with historical averages? Indeed.

Re: Backtesting SCV and Intl SCV

Posted: Thu Mar 31, 2011 12:04 pm
by fluffyistaken
RaleighStClaire wrote: Do you really need to look at 70s data to prove your point?
10 year annualized numbers for Vanguard funds as of 3/30/11:
500 Index 2.51%
Small Value Index 8.13%

Yeah, it's a big difference, but in line with historical averages? Indeed.
And Vanguard Small-Cap Growth had 9.20% CAGR in the same period. Take that, Fama+French :twisted:

I would treat all pre-1970s and maybe even pre-1980s backtesting for any equities other than US Large Caps as entertainment only. All the "index" data we have for such backtesting was put together after the fact and AFAIK does not account for huge trading costs of the more esoteric classes like Small Caps. My post about that: http://www.bogleheads.org/forum/viewtopic.php?t=48268

Re: Backtesting SCV and Intl SCV

Posted: Thu Mar 31, 2011 12:21 pm
by RaleighStClaire
fluffyistaken wrote:
RaleighStClaire wrote: Do you really need to look at 70s data to prove your point?
10 year annualized numbers for Vanguard funds as of 3/30/11:
500 Index 2.51%
Small Value Index 8.13%

Yeah, it's a big difference, but in line with historical averages? Indeed.
And Vanguard Small-Cap Growth had 9.20% CAGR in the same period. Take that, Fama+French :twisted:
lol. You joke, but we know the reason is because of the small cap premium being huge over this time period. Value and growth were pretty close over the last 10 years. So, they were half-right :)

Re: Look Forward, not back

Posted: Thu Mar 31, 2011 4:27 pm
by jimkinny
Random Walker wrote:Seems like lots of folks look at past results for small and value, then debate whether that will occur again in future. Seems to me that if you view the potential premiums as risk stories, then you can set a course with conviction and stop worrying about past periods. Higher cost of capital reveals higher risk.

Dave
I think the risk approach is the best approach whatever the reason for past performance.

Posted: Thu Mar 31, 2011 5:27 pm
by grap0013
Looks like investors are jumping on the growth wagon!

VBR(small cap value) total assets = 2 billion
VBK(small cap growth) total assets = 2.3 billion

I think it's better to run away from the lemmings. :twisted:

Posted: Thu Mar 31, 2011 5:58 pm
by The Wizard
grap0013 wrote:Looks like investors are jumping on the growth wagon!

VBR(small cap value) total assets = 2 billion
VBK(small cap growth) total assets = 2.3 billion

I think it's better to run away from the lemmings. :twisted:
They may or they may not be.
As I pointed out in another thread, every share of every company in the SCV or SCG categories has to be owned by someone, via mutual fund or otherwise.
There has to be a better way to determine if exuberant demand is bidding up the prices of certain equities more than is justified, but someone else will have to determine how to measure that...

Posted: Fri Apr 01, 2011 12:06 am
by stratton
If you're looking at Simba's Backtest Spreadsheet the International Smallcap numbers are suspect from 1975 to 1996 because there is no source listed. IFA for prior intl small returbs isn't good either because it's usually made up from US numbers combined to simulate behavior.

See the "Data_Sources" sheet in the spreadsheet.

Paul