Does your portfolio tilt toward small/value?
Does your portfolio tilt toward small/value?
In keeping the fama French, does your portfolio tilt toward small caps and value?
"get out and live, you are dead an awfully long time" - Jimmy Demaret
Re: Does your portfolio tilt toward small/value?
I am not sure how to answer this. I make no tilt toward value/growth. I do tilt 2/3 S&P 500 and 1/3 Extended (including some REIT). TSM is 4/5 and 1/5 respectively.
Re: Does your portfolio tilt toward small/value?
Yep, 100% tilt.
There are no guarantees, only probabilities.
Re: Does your portfolio tilt toward small/value?
I am tilted toward large cap value (Wellington) and small cap blend (Extended Market). I have both a small and a value tilt, but do not own any small cap value.
Re: Does your portfolio tilt toward small/value?
Um... that's not true... if you have a small cap blend fund, then you do own small cap value.billyt wrote:I am tilted toward large cap value (Wellington) and small cap blend (Extended Market). I have both a small and a value tilt, but do not own any small cap value.
Re: Does your portfolio tilt toward small/value?
Right you are. I do have small cap value at market weight. I don't have a tilt to small cap value.
Re: Does your portfolio tilt toward small/value?
It's been awhile since the Fama French studies came out. Why do people think that the size and value premiums haven't been arbitraged away by too many people adopting this strategy?
50% VTI / 50% VXUS
Re: Does your portfolio tilt toward small/value?
I answered 'somewhat'. I own Total Stock, Total International, and REIT Index as far as equities go.
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Re: Does your portfolio tilt toward small/value?
I want to throw up a red flag here. It sounds to me as if you are saying "Fama and French's research on factor analysis of stock market returns shows that most investors should use a portfolio tilted toward small caps and value."frugalhen wrote:In keeping the fama French, does your portfolio tilt toward small caps and value?
Go to this video of Eugene Fama speaking, and play it starting at 11:35. Don't jump to conclusions, play some more, try to figure out the context. But do play it.
The interviewer asks: "Some people cite your research showing that value and small firms have higher average returns over time and they assume that you would recommend most investors have a big helping of small and value stocks in their portfolios. Is that a fair representation of your views?"
What do you think Fama's answer is?
Last edited by nisiprius on Wed Jan 23, 2013 2:43 pm, edited 1 time in total.
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Re: Does your portfolio tilt toward small/value?
Because some risks are inherent, and cannot be arbitraged away. For example, everyone knows that stocks are riskier than bonds, and therefore stocks have a higher risk premium than bonds. This has been known for centuries, so why hasn't the risk premium of stocks been arbitraged away?nimo956 wrote:It's been awhile since the Fama French studies came out. Why do people think that the size and value premiums haven't been arbitraged away by too many people adopting this strategy?
Last edited by mptfan on Wed Jan 23, 2013 3:46 pm, edited 1 time in total.
Re: Does your portfolio tilt toward small/value?
It's been a while since we learned the equities return more than bonds. Why do people think that the equity premium hasn't been arbitraged away?nimo956 wrote:It's been awhile since the Fama French studies came out. Why do people think that the size and value premiums haven't been arbitraged away by too many people adopting this strategy?
The answer is that we believe that the equity premium is a risk premium. The higher expected return is compensation for taking more risk.
Likewise people that invest in small and value believe that these are risk premiums and not simply some statistical anomaly that will now disappear. In other words, we believe we're exposing ourselves to additional compensated risk.
The same way as you might increase your exposure to equities in order to increase expected return at the cost of increased exposure to risk (say to 60/40 from 50/50 equities/bonds), we tilt to more exposure to small and value factors.
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Re: Does your portfolio tilt toward small/value?
So you are counting REITs as small value?Index Fan wrote:I answered 'somewhat'. I own Total Stock, Total International, and REIT Index as far as equities go.
Have the Benefits of Small Cap and Value Diminished?
One way to check for this is to observe the long-term historical difference in returns between the market (CRSP 1-10 or Russell 3000) relative to a smaller and more value oriented equity allocation (20% S&P 500, 30% US large value index, 50% mid/small value index for illustration purposes) and compare it to a recent period such as the last 10 years.
From 1928-2002, the CRSP 1-10 Index compounded at +9.6% and the multi-asset mix (using indexes) returned +12.1%. That is a 26% higher return. From 2003-2012, using the Russell 3000 Index and the DFA funds of the associated asset classes, we saw +7.7% and +9.7% respectively. That to is a 26% higher return for the multi-asset class mix.
A casual glance doesn't reveal any erosion in the additional returns from a smaller and value oriented stock allocation over a decade after the research was published.
Eric
From 1928-2002, the CRSP 1-10 Index compounded at +9.6% and the multi-asset mix (using indexes) returned +12.1%. That is a 26% higher return. From 2003-2012, using the Russell 3000 Index and the DFA funds of the associated asset classes, we saw +7.7% and +9.7% respectively. That to is a 26% higher return for the multi-asset class mix.
A casual glance doesn't reveal any erosion in the additional returns from a smaller and value oriented stock allocation over a decade after the research was published.
Eric
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Re: Does your portfolio tilt toward small/value?
And the tilt to small and value isn't just about increased returns. It's also about increased portfolio efficiency. Small and value are weakly correlated with the market (more true for value) and weakly correlated with each other. Diversifying across risk factors is probably much more meaningful than diversifying geographically.
Dave
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Re: Does your portfolio tilt toward small/value?
Unless you're Japanese?Random Walker wrote:And the tilt to small and value isn't just about increased returns. It's also about increased portfolio efficiency. Small and value are weakly correlated with the market (more true for value) and weakly correlated with each other. Diversifying across risk factors is probably much more meaningful than diversifying geographically.
Dave
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Re: Does your portfolio tilt toward small/value?
Go to Kenneth French's data web site http://mba.tuck.dartmouth.edu/pages/fac ... brary.htmlUnless you're Japanese?
About three quarters of the way down there's a Country Portfolios formed on B/M, E/P, CE/P, and D/P zip file link.
Within that zip file there's Japan.dat that has data from 1975
Near the bottom of that dat file (third group of data up from the bottom) there's yearly local (Yen currency) values for both Market and High Book to Market (2nd and 3rd columns in that data group).
Plot those and for Market you'll see the often/commonly highlighted 'Japan' stock pattern of a big rise up to 1990 then big fall and then zigzagging sideways but in a volatile manner more or less since. Providing around a 4% annualised nominal from 1975 - 2011.
Value however followed a totally different motion and provided a 12.3% annualised and the progression looks much more like the S&P500 over those years.
When you also factor in low inflation in more recent decades, a strengthening Yen (so imports cost relatively less) !!!
Code: Select all
Value weighted local
BE/ME
Mkt High
1975 25.14 32.83
1976 21.88 20.81
1977 -5.22 18.67
1978 24.31 32.99
1979 4.03 9.2
1980 11.81 13.29
1981 27.5 45.88
1982 6.24 10.02
1983 22.71 19.05
1984 7.53 21.31
1985 10.39 17.85
1986 55.37 46.83
1987 -4.45 13.33
1988 18.11 44.94
1989 10.28 16.92
1990 -36.71 -31.69
1991 -3.73 -4.09
1992 -18.87 -12.13
1993 15.5 20.69
1994 10.48 16.06
1995 4.03 8.56
1996 6.37 14.52
1997 -4.36 -16.91
1998 -4.83 7.9
1999 60.32 34.03
2000 -29.74 25.36
2001 -16.8 -0.31
2002 -14.94 -4.47
2003 17.27 32.63
2004 9.04 27.18
2005 38.89 41.98
2006 10.03 9.15
2007 -7.45 -9.12
2008 -39.75 -27.45
2009 8.88 29.59
2010 2.71 6.61
2011 -13.83 -10.91
Last edited by Clive on Wed Jan 23, 2013 6:14 pm, edited 2 times in total.
Re: Does your portfolio tilt toward small/value?
I just became the proud owner of VBR today. Small, but mighty.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
Re: Does your portfolio tilt toward small/value?
Define tilt.
Define small/value.
To be more precise, I split my domestic equity into equal thirds of Vanguard Value Index, Vanguard Small-Cap Value index, and REITS index. In addition, Vanguard FSTE All-World ex-US Small-Cap index, is one-third of my foreign equity, whose percentage equals that of my domestic equity.
Thank you.
Define small/value.
To be more precise, I split my domestic equity into equal thirds of Vanguard Value Index, Vanguard Small-Cap Value index, and REITS index. In addition, Vanguard FSTE All-World ex-US Small-Cap index, is one-third of my foreign equity, whose percentage equals that of my domestic equity.
Thank you.
Gordon
Re: Does your portfolio tilt toward small/value?
Kenneth French's interpretation is :gkaplan wrote: Define small/value.
http://mba.tuck.dartmouth.edu/pages/fac ... loped.html
Big stocks are those in the top 90% of June market cap for the region, and small stocks are those in the bottom 10%. The B/M breakpoints for big and small stocks in a region are the 30th and 70th percentiles of B/M for the big stocks of the region.
Re: Does your portfolio tilt toward small/value?
Mine does not
My plan is to match the market and not tilt
However, through my 401k fund choices, I'm probably tilted AWAY from small caps
I think about correcting that by adding some new funds but then just figure a good plan is good enough and I shouldn't complicate it seeking a perfect plan
My plan is to match the market and not tilt
However, through my 401k fund choices, I'm probably tilted AWAY from small caps
I think about correcting that by adding some new funds but then just figure a good plan is good enough and I shouldn't complicate it seeking a perfect plan
Re: Does your portfolio tilt toward small/value?
Yes, I've 20% in small cap in my equity portion of allocation according to Vanguard.
US Stock Market is only 7.0% in small cap as stated by Vanguard.
US Stock Market is only 7.0% in small cap as stated by Vanguard.
Re: Does your portfolio tilt toward small/value?
Half Large, Half Small, Half Market, Half Value, Half US, Half International
50% US Equities - split 50/50 Large Cap Index / Small Value Index...
50% Intl Equities - split 50/50 Intl Large Value (indluding EM), Intl Small Market (including EM).
I don't consider it tilted myself... You have to somehow believe that CAPM is ideal before you would consider diversifying by size and price to be tilting...
Trev H
50% US Equities - split 50/50 Large Cap Index / Small Value Index...
50% Intl Equities - split 50/50 Intl Large Value (indluding EM), Intl Small Market (including EM).
I don't consider it tilted myself... You have to somehow believe that CAPM is ideal before you would consider diversifying by size and price to be tilting...
Trev H
Re: Does your portfolio tilt toward small/value?
I purchased a little bit of VSS and VWO last October 2012.
My little spreadsheet tells me that I am "down" 28 bucks compared to if I had simply purchased total international (vtiax) on that same day.....
100% proof that international tilting does not work
I think I am going to submit my study to one of the finance journals......
xram
My little spreadsheet tells me that I am "down" 28 bucks compared to if I had simply purchased total international (vtiax) on that same day.....
100% proof that international tilting does not work
I think I am going to submit my study to one of the finance journals......
xram
VTI, VBR, VTWV, SCHH, VXUS, VEA, VWO, VSS, FM, VNQI, VBTLX, VFITX, SCHP, VWITX, IBONDS, EEBONDS, EF(EverBank), UTAH-529
Re: Does your portfolio tilt toward small/value?
Previous polls on this subject have shown that people on this forum favor SCV tilting.
Maybe someone can find the most recent previous poll.
Maybe someone can find the most recent previous poll.
Re: Does your portfolio tilt toward small/value?
Currently a positive value tilt and a negative small tilt (using M* Instant X-ray).
A significant amount of the "tilt" is attributable to international holdings, which are 37% value for TISM, compared to 33% value for TSM. Also TISM is only 4% small, compared to 9% small for TSM. When is a tilt not a tilt?
A significant amount of the "tilt" is attributable to international holdings, which are 37% value for TISM, compared to 33% value for TSM. Also TISM is only 4% small, compared to 9% small for TSM. When is a tilt not a tilt?
Re: Does your portfolio tilt toward small/value?
Here is what a 50/50 mix of Vanguards Total US Stock and Total Intl Stock indexes looks like via X Ray
26-25-24 (75% Large)
07-06-06 (19% Mid)
02-02-02 (06% Small)
There you go... CAPM and that's not tilted ???
My 4x25 mix of US Large Blend, US Small Value, Intl Large Value, Intl Small Market
15-14-13 (42% Large)
10-10-08 (28% Mid)
15-11-04 (30% Small)
Ahhhh... I don't see tilting there... just a sweet mix of Beta, Size and Price (Diversification).
Only a true "Lumper" could look at the first example above and see it as the ideal starting point, the base, the standard, and anything else is "tilted".
Trev H
26-25-24 (75% Large)
07-06-06 (19% Mid)
02-02-02 (06% Small)
There you go... CAPM and that's not tilted ???
My 4x25 mix of US Large Blend, US Small Value, Intl Large Value, Intl Small Market
15-14-13 (42% Large)
10-10-08 (28% Mid)
15-11-04 (30% Small)
Ahhhh... I don't see tilting there... just a sweet mix of Beta, Size and Price (Diversification).
Only a true "Lumper" could look at the first example above and see it as the ideal starting point, the base, the standard, and anything else is "tilted".
Trev H
Re: Does your portfolio tilt toward small/value?
I don't agree with investing by what people call things. The right thing to do is see what properties each of the asset allocations in question has and decide what advantages and disadvantages one wants to seek.Trev H wrote:Here is what a 50/50 mix of Vanguards Total US Stock and Total Intl Stock indexes looks like via X Ray
26-25-24 (75% Large)
07-06-06 (19% Mid)
02-02-02 (06% Small)
There you go... CAPM and that's not tilted ???
My 4x25 mix of US Large Blend, US Small Value, Intl Large Value, Intl Small Market
15-14-13 (42% Large)
10-10-08 (28% Mid)
15-11-04 (30% Small)
Ahhhh... I don't see tilting there... just a sweet mix of Beta, Size and Price (Diversification).
Only a true "Lumper" could look at the first example above and see it as the ideal starting point, the base, the standard, and anything else is "tilted".
Trev H
In reality there are some good reasons many investors might choose the second option but those reasons have nothing to do with some sort of intuitive conclusion reached by looking at the numbers in the arrays above.
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Re: Does your portfolio tilt toward small/value?
No tilt for me. I have not totally ruled it out for the future. I still don't fully understand it. Still reading The Intelligent Asset Allocator by William Bernstein. It's a more involved read than some of his other books so it's taking some time. When he says in the book to set it down and take a break for a few days….I do
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Re: Does your portfolio tilt toward small/value?
I own what I own. When I TLHed out of Index 500 I bought Large Cap Index. Later I bought TSM. I wasn't tilting or was I? Before I bought the TSM, I had no small. Then I bought TSM, so I did tilt toward small. But I still have Large Cap, so I am tilting away from small. I guess there is a difference between the action and the result. My answer is thus I did, but I don't.
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Re: Does your portfolio tilt toward small/value?
I do not tilt. But it's not as if I think tilting is a bad idea. Rather, I see it as one of several reasonable ways to adjust the overall risk level of one's portfolio to fit one's needs.
In other words, I'm indifferent to tilting. My reason for not tilting is that I place a very high value on simplicity, and I want to use one of Vanguard's all-in-one funds for my retirement savings. If those funds were tilted, then I would be tilted, and I would have no qualms about it.
In other words, I'm indifferent to tilting. My reason for not tilting is that I place a very high value on simplicity, and I want to use one of Vanguard's all-in-one funds for my retirement savings. If those funds were tilted, then I would be tilted, and I would have no qualms about it.
Mike Piper |
Roth is a name, not an acronym. If you type ROTH, you're just yelling about retirement accounts.
Re: Does your portfolio tilt toward small/value?
I have a portion of IJS and VSS, so YES...I am tilter.
A man is rich in proportion to the number of things he can afford to let alone.
Re: Does your portfolio tilt toward small/value?
That doesn't follow. I have $1000 in a small cap value fund. I have $1,000,000 in a large cap growth fund. Do I tilt small/value? I guess it's all relative. Relative to having all my money in a large cap growth fund, adding $1000 of small cap value does tilt if you want to call that a tilt.matjen wrote:I have a portion of IJS and VSS, so YES...I am tilter.
Last edited by sscritic on Sat Jan 26, 2013 9:11 am, edited 1 time in total.
Re: Does your portfolio tilt toward small/value?
I have no quarrel with anyone choosing to "tilt" to any degree they like, as long as that person understands what they have.
I don't "tilt" because I don't need to and I don't want to.
I don't "tilt" because I don't need to and I don't want to.
Re: Does your portfolio tilt toward small/value?
Sorry, to be much more clear. The rest of my equity is all Total Stock Market and Total Int'l funds with a smattering of S&P500 index. I layered on the IJS and VSS. They are about 25% or so of my equity.sscritic wrote:That doesn't follow. I have $1000 in a small cap value fund. I have $1,000,000 in a large cap growth fund. Do I tilt small/value? I guess it's all relative. Relative to having all my money in a large cap growth fund, adding $1000 of small cap value does tilt if you want to call that a tilt.matjen wrote:I have a portion of IJS and VSS, so YES...I am tilter.
A man is rich in proportion to the number of things he can afford to let alone.
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Re: Does your portfolio tilt toward small/value?
I have 23% of equity portion in small cap value, 23% in large cap value, 23% in TSM. 10% in Int. value, 20% in total Int. I am 37 and looking for risk and return over long run. I would say I am thoroughly tilted.
I am enjoying this thread and this site very much. Thank you to all who make it great.
SC Hoosier
I am enjoying this thread and this site very much. Thank you to all who make it great.
SC Hoosier
I live in No Payment Land. It is wonderful, and I'd love for you to live here too.
Re: Does your portfolio tilt toward small/value?
I am fairly new to investing and currently my wife and I invest solely in tax advantaged accounts with vanguard total retirement 2050 fund. I have been reading up on small/value/REIT tilting but I currently don't feel that understand it well enough and in addition given the small size of our current portfolio don't think it would likely make much difference.
From what I can gather some like Rick Ferri recommend tilting for two reasons: First that tilting lets you more accurately replicate the broader economy where there are many small companies and real estate that are not traded and secondly back testing has shown that it can increase returns 1-2% when held for long durations (20-30 years) while at the same time slightly decreasing volatility.
On the other hand some like Taylor Larimore recommend a simple 3 fund portfolio that replicates the traded market and market caps (I.E. holding small caps and REITs as a percentage of the market that they represent). Additionally some say that through back testing you could always find some segment of the market that would appear to improve performance, however, a reversion to the mean should be expected, (I believe there is some Bogle quote that nothing lasts forever). Even Rick Ferri who does tilt has stated that the perfect portfolio is only knowable in hindsight. I have also read that while small caps increase performance that the reason they do this is that they are inherently riskier than large caps and thus they do not increase risk adjusted performance.
As Taylor and others say there are many roads to Dublin. However, I have had difficulty reconciling the statements that small caps do not increase risk adjusted performance with the back testing Rick has shown on his blog and this forum that adding a small cap tilt will decrease volatility. Perhaps Mr. Ferri or others could explain/disabuse me of any false notions I espoused above.
From what I can gather some like Rick Ferri recommend tilting for two reasons: First that tilting lets you more accurately replicate the broader economy where there are many small companies and real estate that are not traded and secondly back testing has shown that it can increase returns 1-2% when held for long durations (20-30 years) while at the same time slightly decreasing volatility.
On the other hand some like Taylor Larimore recommend a simple 3 fund portfolio that replicates the traded market and market caps (I.E. holding small caps and REITs as a percentage of the market that they represent). Additionally some say that through back testing you could always find some segment of the market that would appear to improve performance, however, a reversion to the mean should be expected, (I believe there is some Bogle quote that nothing lasts forever). Even Rick Ferri who does tilt has stated that the perfect portfolio is only knowable in hindsight. I have also read that while small caps increase performance that the reason they do this is that they are inherently riskier than large caps and thus they do not increase risk adjusted performance.
As Taylor and others say there are many roads to Dublin. However, I have had difficulty reconciling the statements that small caps do not increase risk adjusted performance with the back testing Rick has shown on his blog and this forum that adding a small cap tilt will decrease volatility. Perhaps Mr. Ferri or others could explain/disabuse me of any false notions I espoused above.
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Re: Does your portfolio tilt toward small/value?
Yes
We've got some Wellington, Value Index, Small Cap Value Index, MidCap Value Index, and REIT. In my TSP, I've also got a larger allocation to the S fund than would replicate the total Market.
We've got some Wellington, Value Index, Small Cap Value Index, MidCap Value Index, and REIT. In my TSP, I've also got a larger allocation to the S fund than would replicate the total Market.
Re: Does your portfolio tilt toward small/value?
I do not tilt toward small/value, because I'm not persuaded that any past outperformance will continue in the future. (This is a neutral statement: I'm not persuaded that it won't, either.) In fact, within US equities, I am somewhat tilted toward large cap because my 401(k) plan doesn't offer a total stock market index fund, so I use an S&P500 index fund as a proxy for this. I use VTI for the US equity portion held outside of the 401(k).
Re: Does your portfolio tilt toward small/value?
Hi Dave, Over many periods of time that's probably true. But I'm glad I didn't diversify into Germany or Japan before WWII, or Syria before the recent civil war. ("According to the International Monetary Fund (IMF), between March 2011 when the uprising began, and May 2012, the value of the Syrian pound has fallen 45 percent and the Damascus stock exchange decreased 40 percent" [source: http://english.nuqudy.com/Levant/Damage ... an_Ec-1822 ]). Best, NeilRandom Walker wrote:And the tilt to small and value isn't just about increased returns. It's also about increased portfolio efficiency. Small and value are weakly correlated with the market (more true for value) and weakly correlated with each other. Diversifying across risk factors is probably much more meaningful than diversifying geographically. Dave
Re: Does your portfolio tilt toward small/value?
My 403b account has a substantial tilt toward the "extended market." The main component of that is VEMSX -- VG Extended Market Index Fund. Although I've only had access to this fund for a little more than a year, my experience from the past 5-6 years with midcap funds has reinforced my commitment to them. This is, however, not a love story, not a marriage. Just a commitment for as long as they consistently outperform the SP500 (i.e., TR of VEMSX > TR of VINIX).
Re: Does your portfolio tilt toward small/value?
As I read in your recent post, that doesn't follow. Going by what you posted, your only tilt was and is to Large. IMO, owning TSM does not constitute a tilt to small, only a move toward a market portfolio. Again paraphrasing your prior post, I guess it's all relative. Relative to having all your money in a index 500 or Large cap index, adding any amount of TSM does tilt if you want to call that a tilt.sscritic wrote:I own what I own. When I TLHed out of Index 500 I bought Large Cap Index. Later I bought TSM. I wasn't tilting or was I? Before I bought the TSM, I had no small. Then I bought TSM, so I did tilt toward small. But I still have Large Cap, so I am tilting away from small. I guess there is a difference between the action and the result. My answer is thus I did, but I don't.