How much do you tilt?

Rick Ferri · Post by **Rick Ferri** » Wed Jan 18, 2012 9:41 am

Many investors tilt their market tracking index portfolio toward alternative risk factors such as small cap, value, active management, quant, or other non-beta seeking investments?

For example. To the nearest 10%, I have 70% in core index products that are seeking market returns and and 30% in small-cap value funds seeking exposure to small-value risk factors.

Rick Ferri

cheese_breath · Post by **cheese_breath** » Wed Jan 18, 2012 9:59 am

On the stock side of my portfolio I'm totally in Vanguard Total Stock Market Index and TIAA-CREF Equity Index funds. I don't tilt unless they do.

letsgobobby · Post by **letsgobobby** » Wed Jan 18, 2012 10:16 am

percent of stocks, I'm assuming. across domestic and international it is 24%.

livesoft · Post by **livesoft** » Wed Jan 18, 2012 10:20 am

I don't think folks understand how to measure tilt at all. Even I don't understand. To wit, here is my current 9-box style grid from Morningstar:
15-15-17
10-10-08
12-09-04

So how much tilt is that? (That 17 in the upper-right large growth is probably a fake-out because of the way M* vacillates on whether PM is large-growth or something else.)

For reference, TotatStockMarket (VTSMX) has:
25-24-23
06-07-07
03-03-03

and a DFA 60/40 Global (DGSIX) an arguably small-cap and value-tilted fund:
22-16-12
12-11-08
08-07-05

So how does one measure tilt? Do you add up the Small Row or add up the Value Column and compare to the two reference portfolios with TSM being 0% tilted and DGSIX being 100% tilted?

Rick Ferri · Post by **Rick Ferri** » Wed Jan 18, 2012 10:31 am

Equity portfolio only.
Good X-Ray example. The tilt would be whatever excess % in style boxes that not the TSM. Your Tilt is 25% and the DFA Core Tilt is 22%.

Thanks for clarifying.

Khanmots · Post by **Khanmots** » Wed Jan 18, 2012 10:37 am

Are you looking for % over market or % total? And total % of portfolio involved in any tilt, max % involved in any single tilt?

I tilt on location. My allocation is to slightly underweight emerging markets, slightly overweight domestic (I've noticed that lots here have a large tilt to domestic), semi-heavily underweight europe (decided this prior to the debt crisis) and to overweight the remainder (Japan, developed Asia, and so forth)
I also tilt on size overweighting both mid-caps and to a larger degree small.
Also tilt on sector a bit with REITs (more for potential correlation benefits than because I think the sector will outperform)
Finally I tilt on value, although the value tilt is more pronounced at the small cap end than the large.

I doubt that measuring just core-index products vs non would give a good answer due to situations where I'm obtaining a part of my allocation of an underweighted asset class from a tilted fund.

Edit: and I see livesoft has already addressed this. The morningstar boxes will address size and value factors but not location or sector factors so I'm not sure that's the real way to measure either.

ruralavalon · Post by **ruralavalon** » Wed Jan 18, 2012 10:37 am

What percent of your portfolio is titled toward small cap, value, active, or other factor risks?

Percent of equity portfolio:
10% Vanguard Small-Cap Value Index Fund Admiral (VSIAX)
10% Vanguard REIT Index Fund Admiral Shares (VGSLX)
10% Vanguard Precious Metals and Mining Fund (VGPMX)

The rest is Total Stock Market and Total International.

Rick Ferri · Post by **Rick Ferri** » Wed Jan 18, 2012 10:40 am

ruralavalon wrote:
What percent of your portfolio is titled toward small cap, value, active, or other factor risks?
Percent of portfolio:
05% Vanguard Small-Cap Value Index Fund Admiral (VSIAX)
05% Vanguard REIT Index Fund Admiral Shares (VGSLX)
05% Vanguard Precious Metals and Mining Fund (VGPMX)

I'm more interested in factor, i.e. small-cap, value, growth. Not so much in industry sectors overallocations.

GregLee · Post by **GregLee** » Wed Jan 18, 2012 10:42 am

65% is a small cap growth fund, T. Rowe Price New Horizons. We've had it since the 80s, and it's done quite well. It's volatile.

lwfitzge · Post by **lwfitzge** » Wed Jan 18, 2012 10:51 am

Rick Ferri wrote:Many investors tilt their market tracking index portfolio toward alternative risk factors such as small cap, value, active management, quant, or other non-beta seeking investments?

For example. To the nearest 10%, I have 70% in core index products that are seeking market returns and and 30% in small-cap value funds seeking exposure to small-value risk factors.

Rick Ferri

+ 11% small cap, +7% REIT tilts vs Total Market; general moderate value tilt on small/lg cap components
+10% Emerging Market vs Total Intern'l Market

ruralavalon · Post by **ruralavalon** » Wed Jan 18, 2012 10:53 am

Domestic equity (SCV, REIT, TSM), style box

18/21/18
08/10/06
10/07/03

International equity (TISM, PMM), style box

21/19/25
06/10/14
02/02/01

G-Money · Post by **G-Money** » Wed Jan 18, 2012 11:05 am

Perhaps not exactly what you're asking, but here's a related poll. http://www.bogleheads.org/forum/viewtopic.php?t=3963

jeff1949 · Post by **jeff1949** » Wed Jan 18, 2012 12:46 pm

My portfolio looks like this:

20% TSM Index
20% International Index
20% SCV Index
20% Emerging Markets Index
20% REIT Index

I put my tilt at 20% because of the SCV until I realized it must be 60% because of the EM and REITs. So I guess I answered the poll incorrectly. Can I have a do-over?

jidina80 · Post by **jidina80** » Wed Jan 18, 2012 1:06 pm

I responded 'zero' because I'm totally invested in total market type funds. However, if we consider geographic overweighting to be a tilt then I'm probably 10% or 20% tilted towards U.S. stocks. Only 1/3 of my stocks are non-U.S., compared to a larger percentage in world equity markets.

empb · Post by **empb** » Wed Jan 18, 2012 1:26 pm

50.00% VBR
37.50% DLS
12.50% DGS

Basically, as much tilt as possible within the constraints of account options and my arbitrary minimum number of individual holdings (~400ish in each region). In other words, I wouldn't be comfortable with RZV.

For the purposes of this poll, is that 100%? Dunno.

tludwig23 · Post by **tludwig23** » Wed Jan 18, 2012 1:49 pm

I chose 30%, because 30% of my equities are in SC and REIT. I'd get a different answer, I'm sure, if I took the trouble to put everything through the Morningstar tool and compare to TSM.

(Of equities):

40% TSM (VTI)
10% US Small cap (VB)
10% US REIT (VNQ)
30% TISM (VXUS)
10% International Small Cap (VSS)

leod · Post by **leod** » Wed Jan 18, 2012 1:55 pm

20% SV, MC
30% with REIT

rkhusky · Post by **rkhusky** » Wed Jan 18, 2012 2:01 pm

10% Active
20% SC/MC

grap0013 · Post by **grap0013** » Wed Jan 18, 2012 2:26 pm

empb wrote:50.00% VBR
37.50% DLS
12.50% DGS

Basically, as much tilt as possible within the constraints of account options and my arbitrary minimum number of individual holdings (~400ish in each region). In other words, I wouldn't be comfortable with RZV.

For the purposes of this poll, is that 100%? Dunno.

That's 100% in my book. Me too. I'm surprised 7% have 100% tilt. Maybe some people misreading the question? Closet tilters? Taylor?

empb · Post by **empb** » Wed Jan 18, 2012 2:31 pm

grap0013 wrote:
empb wrote:50.00% VBR
37.50% DLS
12.50% DGS

Basically, as much tilt as possible within the constraints of account options and my arbitrary minimum number of individual holdings (~400ish in each region). In other words, I wouldn't be comfortable with RZV.

For the purposes of this poll, is that 100%? Dunno.
That's 100% in my book. Me too. I'm surprised 7% have 100% tilt. Maybe some people misreading the question? Closet tilters? Taylor?

The poll doesn't refer to just SmB and HmL, so I suspect it's at least a few people who have only active funds, individual stocks etc...

VennData · Post by **VennData** » Wed Jan 18, 2012 2:47 pm

It said percent of portfolio, not percent of stocks.

bob90245 · Post by **bob90245** » Wed Jan 18, 2012 3:17 pm

Is any one else surprised that so few (12%) have no tilt at all? It appears not many have taken that road to Dublin, as Taylor would say.

FabLab · Post by **FabLab** » Wed Jan 18, 2012 3:36 pm

bob90245 wrote:Is any one else surprised that so few (12%) have no tilt at all? It appears not many have taken that road to Dublin, as Taylor would say.

Perhaps those with no tilt are less inclined to respond to the poll. The naysayers look to be about 20%, last I looked.

chisey · Post by **chisey** » Wed Jan 18, 2012 4:04 pm

My domestic equity style box:

14-11-09
19-17-12
09-06-04

So my total tilt is 38%. I chose 40% in the poll.

LH · Post by LH » Wed Jan 18, 2012 4:05 pm

Rick Ferri wrote:Equity portfolio only.
Good X-Ray example. The tilt would be whatever excess % in style boxes that not the TSM. Your Tilt is 25% and the DFA Core Tilt is 22%.

Thanks for clarifying.

livesoft wrote: I don't think folks understand how to measure tilt at all. Even I don't understand. To wit, here is my current 9-box style grid from Morningstar:
15-15-17
10-10-08
12-09-04

So how much tilt is that? (That 17 in the upper-right large growth is probably a fake-out because of the way M* vacillates on whether PM is large-growth or something else.)

For reference, TotatStockMarket (VTSMX) has:
25-24-23
06-07-07
03-03-03

Silly question I am sure, but it escapes me why going from a 3 percent SCV in TSM, to a 12 in SCV in livesofts portfolio constitutes a 25 percent SCV tilt? It would be 25 percent tilt relative to the "nuetral" TSM right? But 12 is not 25 percent of 3, rather its vice versa..... Which I find confusing.

In terms of stocks, he has a 12-3= 9 percent excess tilt towards SCV..... one way of looking at it.

But in terms of style boxes, I am not sure what percent of what, you are talking about when you say there is a 25 percent tilt in livesofts style boxes towards SCV? I still am unsure how to vote, even with using morningstar style boxes.

thanks for clarifying,

LH

ofcmetz · Post by **ofcmetz** » Wed Jan 18, 2012 4:09 pm

12% of equity is large cap value. This is due to the Vanguard Value Index Signal shares being the best choice in a retirement account.

10% of equity is tilted towards REITs which I assume falls toward small cap tilt.

no_name · Post by **no_name** » Wed Jan 18, 2012 4:11 pm

livesoft wrote:I don't think folks understand how to measure tilt at all. Even I don't understand. To wit, here is my current 9-box style grid from Morningstar:
15-15-17
10-10-08
12-09-04

So how much tilt is that? (That 17 in the upper-right large growth is probably a fake-out because of the way M* vacillates on whether PM is large-growth or something else.)

For reference, TotatStockMarket (VTSMX) has:
25-24-23
06-07-07
03-03-03

and a DFA 60/40 Global (DGSIX) an arguably small-cap and value-tilted fund:
22-16-12
12-11-08
08-07-05

So how does one measure tilt? Do you add up the Small Row or add up the Value Column and compare to the two reference portfolios with TSM being 0% tilted and DGSIX being 100% tilted?

Here is mine:

16-18-16
9-11 -7
12- 8 -3

Kevin M · Post by **Kevin M** » Wed Jan 18, 2012 4:44 pm

Rick, can you change title to percent of equities instead of percent of portfolio (you clarified in a reply that you wanted percent of equities)?

Just based on classification of the funds and stocks (not a style box breakdown of portfolio), my tilts as a percent of equities are:

Large value: 12%
Large growth: 1%
Small blend: 11%
Small value: 10%
Small growth: 1%
REIT: 10%
Small international: 2%

That's 47%, so I selected 50%.

Kevin

bertilak · Post by **bertilak** » Wed Jan 18, 2012 4:45 pm

I chose 0% even though I have a position in a REIT fund in addition to US-TSM and Intl-TSM funds

I don't claim this as a tilt because the data I have seen (mostly USB total world investable capital pie charts) show that real estate investment is higher than the percentage in TSM. This is because much real estate investment is done outside the stock market. I added enough in REITs to match the USB numbers. Specifically, TSM (both US and Intl) have about 3% REITS and USB shows Real Estate at about 6% of total world investments. My allocations, with the extra REIT fund, match the 6%.

natureexplorer · Post by **natureexplorer** » Wed Jan 18, 2012 5:07 pm

I don't know.

grap0013 · Post by **grap0013** » Wed Jan 18, 2012 5:13 pm

I wouldn't make this too complicated by use of the ol' Xray. Rick has guided this poll with an example. I'm gonna try one.

Let's say you have:

25% total stock market
25% small cap value
25% total international
25% international small cap

I see X2 tilts there each with 25%. 25% + 25% = 50%. Don't make finding the tilt as difficult as finding Waldo.

Rick Ferri · Post by **Rick Ferri** » Wed Jan 18, 2012 5:18 pm

I change the question to "What percentage of your EQUITY portfolio is titled to small cap, value, active, or other risk factors?"

So far, it does appear that Bogleheads are employing these tilts more than I would have guessed.

Rick Feri

bob90245 · Post by **bob90245** » Wed Jan 18, 2012 5:26 pm

Rick Ferri wrote:I change the question to "What percentage of your EQUITY portfolio is titled to small cap, value, active, or other risk factors?"

Then, the choice I selected is only half as much. And I don't see a way to change my vote to the reflect the newly changed question.

Midpack · Post by **Midpack** » Wed Jan 18, 2012 5:29 pm

I voted 20% based on 6% LCV, 6% SC & 6% SCV. I also hold 6% Emer Mkts and 4% Energy Sector, but I am guessing you (and I) would not consider them tilts, just Intl and LC respectively. Didn't count REIT as a tilt either.

Some 100% tilts votes - WOWZA!

abuss368 · Post by **abuss368** » Wed Jan 18, 2012 5:30 pm

We tilt towards REITs. At some point we will also look to the Vanguard Global REIT fund as well.

20% of equity to REITS (i.e. the Yale/David Swensen model) and are happy with the results in all markets thus far.

Khanmots · Post by **Khanmots** » Wed Jan 18, 2012 5:44 pm

grap0013 wrote:I wouldn't make this too complicated by use of the ol' Xray. Rick has guided this poll with an example. I'm gonna try one.

Let's say you have:

25% total stock market
25% small cap value
25% total international
25% international small cap

I see X2 tilts there each with 25%. 25% + 25% = 50%. Don't make finding the tilt as difficult as finding Waldo.

grap, problem with this is something like the following:
5% total stock market
40% 500 Index
5% mid cap index
10% total international
20% European stock index
10% pacific stock index
10% emerging markets index

How much tilt is that? Hint, it's not much. It's a portfolio that can be simplified... presumably there's a reason why it's not. Perhaps they have 500 index in their 401k so they need to have small/mid caps elsewhere to compensate? Perhaps they want to exploit potential negative correlations so have broken out funds like pacific and european so that it's easier to rebalance as regions move differently? Who knows. What it does do is prevent you from saying that they have the hugely large tilt that simple addition as in your example would indicate... this person is relatively close to TSM, within 5% in size (very slight tilt to small), almost no tilt to or away from value (within margin of error) and with a slight tilt to US over the rest of the world (5% or so).

grap0013 · Post by **grap0013** » Wed Jan 18, 2012 5:47 pm

[quote="Khanmots"]

grap, problem with this is something like the following:
5% total stock market
40% 500 Index
5% mid cap index
10% total international
20% European stock index
10% pacific stock index
10% emerging markets index

How much tilt is that? 5%

I am clearly much better at tilting questions than formatting.

Khanmots · Post by **Khanmots** » Wed Jan 18, 2012 6:00 pm

grap0013 wrote:
Khanmots wrote:
grap, problem with this is something like the following:
5% total stock market
40% 500 Index
5% mid cap index
10% total international
20% European stock index
10% pacific stock index
10% emerging markets index

How much tilt is that? 5%

If you want I can construct one that you'll have to run through x-ray... I think you get the point I'm trying to make though.

(and it's probably a bit over 10% if you account for regional factors)

grap0013 · Post by **grap0013** » Wed Jan 18, 2012 6:03 pm

Khanmots wrote: If you want I can construct one that you'll have to run through x-ray...

Let's do it!

It could be constructive!

Khanmots · Post by **Khanmots** » Wed Jan 18, 2012 6:07 pm

grap0013 wrote:
Khanmots wrote: If you want I can construct one that you'll have to run through x-ray...
Let's do it! It could be constructive!

lol, I'll try to remember to do so after work then

BlueEars · Post by **BlueEars** » Wed Jan 18, 2012 6:31 pm

Code: Select all

32   16   2
19   14   4
 7    5    1

All indexed US currently. I use an algorithmic approach so tilt is not a constant with time. Not your standard procedure.

Sammy_M · Post by **Sammy_M** » Wed Jan 18, 2012 6:39 pm

60% small and/or value. 7.5% active.

TSM 10.00%
Active Lrg Val 7.50%
S&P600 Val 10.00%
EAFE 5.00%
EAFE Val 5.00%
RAFI ISV 10.00%
MSCI EM 7.50%
Total equity = 55%

X-Ray's as follows:
22 19 16
07 06 06
11 09 04

A Devout Indexer · Post by **A Devout Indexer** » Wed Jan 18, 2012 8:09 pm

Rick Ferri wrote:Many investors tilt their market tracking index portfolio toward alternative risk factors such as small cap, value, active management, quant, or other non-beta seeking investments?

For example. To the nearest 10%, I have 70% in core index products that are seeking market returns and and 30% in small-cap value funds seeking exposure to small-value risk factors.

Rick Ferri

Not to nitpick here, but I hope we aren't lumping small and value dimensions of the market with active investing (risk with no expected return), quant (many different meanings, none of which have the horsepower that size/value exposure capture), or other non-beta investments (which run the gamut)?

Size and value are of course 2 of the 3 legs of the FF 3 Factor model that explain over 95% of the returns to a diversified portfolio. Everything else mentioned is pretty much noise in some way/shape/form.

Muchtolearn · Post by **Muchtolearn** » Wed Jan 18, 2012 8:33 pm

I absolutely love how some advisors recommend total stock index investing because, well, what specific knowledge does one have to do otherwise. However, because in the past something like small cap value has done well, they assume that will continue going forward. Do they or people who tilt (that term annoys me) have knowledge that the market in general doesn't?

A Devout Indexer · Post by **A Devout Indexer** » Wed Jan 18, 2012 8:48 pm

bob90245 wrote:Is any one else surprised that so few (12%) have no tilt at all? It appears not many have taken that road to Dublin, as Taylor would say.

My guess is there is theory, and then there is application. When real money is on the line, some diversification by size and price (as well as equity/fixed) is just common sense. I mean, if John Bogle himself can't answer "0" to the question, what's the purpose of anyone else needing to keep themselves in line.

And I say good for everyone that does! The post 2000 market has been a lot easier if you have.

A Devout Indexer · Post by **A Devout Indexer** » Wed Jan 18, 2012 8:51 pm

Muchtolearn wrote:I absolutely love how some advisors recommend total stock index investing because, well, what specific knowledge does one have to do otherwise. However, because in the past something like small cap value has done well, they assume that will continue going forward. Do they or people who tilt (that term annoys me) have knowledge that the market in general doesn't?

Well, I think they (or anyone else who "tilts") thinks risk and return are related and size and value exposure in excess of the market is a worthwhile portfolio consideration, especially given that the 3 equity factors have approximately 0 correlations (what you'd expect given that they are unique factors) so you get a multifactor modern portfolio benefit (witness the above average value/size premiums since 2000 along with a 0 equity risk premium).

Sibelius · Post by **Sibelius** » Wed Jan 18, 2012 9:05 pm

I go heavy into value for my equities and balance out the higher risk with bond funds. My equity allocations are:

39% small value
14% large value
22% large cap value
17% emerging markets

all in Vanguard index funds, which are more spread over the style boxes than their names would suggest, as several posters have pointed out in other threads.

Rick Ferri · Post by **Rick Ferri** » Wed Jan 18, 2012 9:11 pm

Muchtolearn wrote:I absolutely love how some advisors recommend total stock index investing because, well, what specific knowledge does one have to do otherwise. However, because in the past something like small cap value has done well, they assume that will continue going forward. Do they or people who tilt (that term annoys me) have knowledge that the market in general doesn't?

If you're referring to me, I have been using this strategy for 12 years and writing about as well.

Value investing goes waaaay back. Books have covered the topic since the early 1900s. Although no one knows the future, it's a pretty good bet that value stock will outperform over the next couple of decades, and I'm willing to put a little in. Worst case, I do the market.

Rick Ferri

cb474 · Post by **cb474** » Thu Jan 19, 2012 4:30 am

livesoft wrote:I don't think folks understand how to measure tilt at all. Even I don't understand. To wit, here is my current 9-box style grid from Morningstar:
15-15-17
10-10-08
12-09-04

So how much tilt is that? (That 17 in the upper-right large growth is probably a fake-out because of the way M* vacillates on whether PM is large-growth or something else.)

For reference, TotatStockMarket (VTSMX) has:
25-24-23
06-07-07
03-03-03

and a DFA 60/40 Global (DGSIX) an arguably small-cap and value-tilted fund:
22-16-12
12-11-08
08-07-05

So how does one measure tilt? Do you add up the Small Row or add up the Value Column and compare to the two reference portfolios with TSM being 0% tilted and DGSIX being 100% tilted?

Rick Ferri wrote:Equity portfolio only.
Good X-Ray example. The tilt would be whatever excess % in style boxes that not the TSM. Your Tilt is 25% and the DFA Core Tilt is 22%.

Thanks for clarifying.

What about REITs? How does one account for something like REITs using the x-ray tool? The x-ray doesn't not show REITs (in terms of size and value) as being entirely different from TSM. So any addition of REITs will not be counted through the x-ray tool as entirely an equivalent tilt away from TSM. But shouldn't it? Any percent of additional REITs that I hold in a separate fund is entirely a tilt (to that degree) away from TSM. What's relevant with REITs is not their relative size and value factors as compared to TSM, what's relevant is that they're REITs. It seems like one has to exclude REITs from the x-ray, do the calculation, and then add one's REIT allocation percentage entirely to the tilt percent calculated from the x-ray. Or does overweighting REITs just not fit into the "tilt" concept and any such overweighting should be excluded from the analysis altogether? Or am I missing something?

Also what about the international allocation? If one has an international allocation of say, 50% US 50% Intl, it seems like one needs to compare one's portfolio to a baseline x-ray of a 50/50 US TSM/Intl TSM portfolio (and one would need to adjust the baseline according to whatever one's domestic/international allocation happens to be). The size and value loads of a TSM portfolio with international diversification are not the same as for pure U.S., as used in livesoft's example. (Using Vanguard's Total World Stock Index fund, as a baseline, I think would only be relevant if one's domestic/international allocation exactly replictated the proportions in that fund.) If one doesn't account for this, then one is partly measuring as tilt what are just differences in the size/value loads of the global equity markets as a whole, in comparison to the U.S. equity market alone.

SkolVikes7 · Post by **SkolVikes7** » Thu Jan 19, 2012 5:17 am

I spent many hours on deciding whether or not to tilt. I read several books on the reading list and almost every thread on this forum that had the keywords small or value in them. I was looking for guidance on how to simply use TSM and SCV index funds to accomplish a tilt without getting too complicated. I then found an article titled "Winning with Small Value Stocks" by a Mr. Rick Ferri. Perfect.

http://www.rickferri.com/blog/strategy/ ... ue-stocks/

Thanks Mr. Ferri for this article and the many other contributions you have made to this forum.

What percent of your equity portfolio is titled to small cap, value, active or other factor risks?