Best small cap value fund for Fama French fans

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krelihan
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Best small cap value fund for Fama French fans

Post by krelihan » Sun Apr 17, 2011 10:43 pm

Over the last several years, there have been a number of threads debating the best fund to capture the Fama French SCV premium. Two funds, RZV and VBR have received the most attention. RZV has been touted as having the best regression scores (very value-oriented and micro-cap) but criticized as being too volatile, undiversified and small in terms of total fund size. VBR has been suggested as a tamer, more diversifed and slightly cheaper alternative. I would appreciate how Fama French fans on this forum are gaining exposure.

Several past threads referenced historical (i.e., pre-fund launch)backtesting of RZV against FF factors including momentum (the "fourth factor"). I would appreciate any insights on this front as well.

Disclosure: I own RZV but am debating whether to switch to VBR (minimal cap gain implications).

exeunt
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Post by exeunt » Sun Apr 17, 2011 11:04 pm

RZV is a poor choice for small-value tilters. It gets way too micro-cappy for an ETF. I'd be worried about price impact and arbitrageurs front-running the index's trades, or the fact that I may be losing out on a substantial liquidity premium that's driven micro-cap returns.

I'd go with a DFA fund for micro-value exposure. Otherwise, VBR.

DaveS
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Post by DaveS » Sun Apr 17, 2011 11:06 pm

The way you phrase your question DFA small value is more likely to be the most fama french. I mean they mostly went to school together. Lowest book value for example. I ain't going to deal with a financial advisor myself, so I would never buy it.

I go VBR with a smidgen of microcap that I figure offsets the fact VBR has quite a few mid caps. Frankly I am satisfied with what I have that I have not looked into alternatives recently. When I did select what I have I rejected the Russel 2000 value because it could be front run and wanted something that re-balanced in a more flexible way i.e. letting managers hold stocks longer to reduce turnover. I rejected the 600 value because it holds a lot less stocks and is less index like because a committee picks the stocks. Holding a larger number of stocks is more important with small caps because you make more of your money on the few that hit home runs. Dave

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grap0013
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Post by grap0013 » Mon Apr 18, 2011 11:55 am

whoops
Last edited by grap0013 on Mon Apr 18, 2011 11:59 am, edited 1 time in total.
There are no guarantees, only probabilities.

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grap0013
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Post by grap0013 » Mon Apr 18, 2011 11:56 am

I like PRFZ/SFSNX. Positive alpha(so far), big beta, large amount of microcaps, and the value loading increases as growth outperforms. Backtests about 2% annualized above VBR and gets the same/better returns than RZV with a fraction of the risk and less tracking error.

About 5 years worth of data.
Code:
IJS IWN VBR SFSNX
Alpha -0.22 -0.19 0.04 0.26
Mkt-RF 0.87 0.88 0.97 1.08
SMB 0.90 0.77 0.61 0.90
HML 0.42 0.53 0.49 0.38
There are no guarantees, only probabilities.

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krelihan
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MOM factors?

Post by krelihan » Sat Apr 23, 2011 5:44 am

Thanks GRAP0013, have you run the numbers for RZV and have you included MOM factor as well?

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grap0013
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Re: MOM factors?

Post by grap0013 » Sat Apr 23, 2011 6:30 am

krelihan wrote:Thanks GRAP0013, have you run the numbers for RZV and have you included MOM factor as well?
Nope. I don't even know how to do that. I pirated RaleighStClaire's data from a DFA vs. RAFI thread. Maybe he knows how to do it?

I came to my conclusion because I had data on RAFI back to 1979 vs. a mishmash of Russell/VBR and RAFI came out ahead by about 2% annualized. I also looked at RZV for a while. I backtested from the early nineties to current RZV vs. RAFI and it was essentially a wash for their returns. However, you get much higher volatility with RZV and more tracking error.

Note: PRFZ/SFSNX have tracked their indexes well.
There are no guarantees, only probabilities.

dbonnett
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Post by dbonnett » Sat Apr 23, 2011 7:45 am

Some posters have shown that RZV has negative alpha. In March of '09, the lows of RZV were much lower than that of other small cap value ETFs.

caklim00
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Post by caklim00 » Sat Apr 23, 2011 9:40 am

dbonnett wrote:Some posters have shown that RZV has negative alpha. In March of '09, the lows of RZV were much lower than that of other small cap value ETFs.
Yes, but what was RZV's ranking in terms of SCV funds for 2009?

I'm not saying RZV is a slam dunk. I wish it was more diversified. I wish it wasn't run by Rydex. I wish there was a decent Tax Loss Harvest Partner. But, it is the smalles, most valuey, with a low dividend yield (hence low ongoing taxes if held longterm). I would never hold it as my primary SCV fund unless I held mostly bonds. That said, it is a small amount of my US SCV allocation in addition to VBR and DFFVX.

wilson08
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Post by wilson08 » Sat Apr 23, 2011 11:02 am

This may have been discussed previously
but what is wrong with VISVX ?

Wilson

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anthau
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Post by anthau » Sat Apr 23, 2011 1:13 pm

wilson08 wrote:This may have been discussed previously
but what is wrong with VISVX ?

Wilson
"Wrong" is probably an overstatement, but VISVX/VBR isn't as small or value loaded as some other options, and it has a relatively high number of REITs in it (an issue shared with several funds).

http://www.bogleheads.org/forum/viewtopic.php?t=12352 is one of the in-depth threads.

Edit: http://www.bogleheads.org/forum/viewtop ... ht=#871508 is another.
Best, | | Anth

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