Small Cap Value heads Rejoice !!!

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foosball
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Re: Small Cap Value heads Rejoice !!!

Post by foosball » Sun Sep 15, 2019 6:03 pm

Wyodoc wrote:
Sat Sep 14, 2019 6:06 pm
VIOV/IJS are quite tax efficient. More than VTI when I plug into triceratops tax sheet. If you want small value, not sure why you’d replace that with VFMF? Nothing wrong with it but certainly a different fund.
Just to clarify in my own case, I didn't replace small value with multi-factor - I wanted a multi-factor fund in my taxable account and chose VFMF for that. I have small value in my Roth. Who knows if all that will be beneficial.
Tilterati

stocknoob4111
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Re: Small Cap Value heads Rejoice !!!

Post by stocknoob4111 » Fri Sep 27, 2019 9:01 pm

A good discussion on Consuelo Mack with Chuck Royce of Royce Funds (Small Caps specialists):

https://www.youtube.com/watch?v=iRQvPODtZKs

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Forester
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Re: Small Cap Value heads Rejoice !!!

Post by Forester » Sat Sep 28, 2019 4:55 am

typical.investor wrote:
Sat Sep 14, 2019 8:46 pm
hdas wrote:
Sat Sep 14, 2019 6:44 am
It’s interesting to note that the best value funds this week were (in order):

BOSVX
VFVA
VIOV / IJS
QVAL
ZIG

Cheers :greedy
Just curious. Are these funds actually targeting value, or are they simple tilts to value sectors?
within-industry component of HML—i.e., the portfolio that buys the stock of firms which have a high book-to-market ratio relative to the industry mean– earns a large premium. In contrast, the second component, which buys high book-to-market industries and sells low book-to-market industries, earns approximately zero premium
It looks like Vanguard VFVA is sector constrained whereas ZIG & QVAL just buy what is cheap. The two later ETFs are definitely value focused, they both buy only from the cheapest 10% of the universe. ZIG shorts some names whereas QVAL is purely rules based.

In the long run we'll see if it really matters which value fund one bets on, it's possible that holding IJS is just as good as a fancy whizbang deep value fund.

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Forester
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Re: Small Cap Value heads Rejoice !!!

Post by Forester » Sat Sep 28, 2019 4:57 am

Great discussion on the chances of value making a comeback between Toby Carlisle & Josh Brown (coarse language at times) https://youtu.be/-cG2BvJQnJU

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Re: Small Cap Value heads Rejoice !!!

Post by rkhusky » Sat Sep 28, 2019 7:36 am

typical.investor wrote:
Sat Sep 14, 2019 8:46 pm
hdas wrote:
Sat Sep 14, 2019 6:44 am
It’s interesting to note that the best value funds this week were (in order):

BOSVX
VFVA
VIOV / IJS
QVAL
ZIG

Cheers :greedy
Just curious. Are these funds actually targeting value, or are they simple tilts to value sectors?
within-industry component of HML—i.e., the portfolio that buys the stock of firms which have a high book-to-market ratio relative to the industry mean– earns a large premium. In contrast, the second component, which buys high book-to-market industries and sells low book-to-market industries, earns approximately zero premium
ZIG is the only one that is long and short, so targeting the value factor. Morningstar lists 30 stocks each in short and long. The top 25 holdings are equal-weighted, but not sure how to see the weighting of the others. The description lists the fund as being 30% short, 130% long.

The others listed are long only, so not targeting value factor, just value stocks (QVAL has 40 stocks), which provides some loading on the value factor, but also on market beta.

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Re: Small Cap Value heads Rejoice !!!

Post by stocknoob4111 » Sun Sep 29, 2019 7:46 pm

I may be mistaken but I think this is the worst 20 month (Jan '18 - Aug '19) performance for Small Caps in recorded history outside of a recessionary period. The S&P 600 has had the worst returns ever looking at the historical record since 1994, only 01 and 08 were worse which were both severe recessions.

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Re: Small Cap Value heads Rejoice !!!

Post by Forester » Mon Oct 07, 2019 4:21 pm

Funds need to eliminate stocks that are too small to be tradeable. And the bigger stocks left over generally have higher valuations.

...

At the level of AUM at which most funds operate, it is very hard to achieve portfolios with undiluted exposure to the value premium because of the paucity of qualifying stocks in each market.

...

We’ve found remarkable consistency (here and here) of return degradation among all permutations of concentration and minimum volume by AUM. And value-weighted premiums are materially lower than equal-weighted premiums for most all robust quantitative factors. Despite this, Morningstar’s US “Small Value” mutual fund vehicles with 4- or 5-star ratings have an average of $2.4 billion in AUM: far too large to take advantage of the value premium.
https://t.co/MiMWvGNWB9?amp=1

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hdas
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Re: Small Cap Value heads Rejoice !!!

Post by hdas » Fri Oct 11, 2019 9:58 am

As of this morning:

IJS +3.13%
RZV +3.22%
QVAL +2.78%
VFVA +2.53%
ZIG +2.61%

On the other hand:

SPLV +0.31%
DVOL -0.40%
VPU -0.25%

Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: Small Cap Value heads Rejoice !!!

Post by garlandwhizzer » Fri Oct 11, 2019 12:27 pm

If you believe academic factor models accurately and reliably describe 90+% of all market action then it might be reasonable for someone to invest most or all of their equity in SCV or multi-factor approaches. Personally, I believe factor models are inherently flawed, their basic methodology flawed, and will not reliably produce risk adjusted outperformance relative to beta going forward. The underlying assumptions in their models are not realistic in today's world. First, most of their favorable backtesting results are derived from the distant past when no one knew about factors, when there were no factor funds loading pouring hundreds of billons into factor approaches, and when markets were not dominated by professionals and algorithms. Second, the model itself--cost-free, long/short, no trading frictions, factor definition parameters and trading frequency parameters optimized in the rear view mirror--is entirely unrealistic. It is a fun game in arithmetic but the model is designed to magnify positives and minimize negatives and is optimized over a specific time frame in the past. There is absolutely no certainty whatsoever that this past optimal pattern will be optimal going forward. P/B was magical when value was first described and now it has been abandoned due to underperformance. However value or SCV or MOM is optimally measured now will likely in my opinion also be discarded in the future. AI will likely turn out to be the ultimate force arbitraging away these premiums and will do more quickly than most expect and without emotion.

Things to consider that question whether we should accept academic factor models as reliable and exploitable for investors after costs going forward. The downsides of such models: increased trading, increased costs of management, increased trading frictions especially in the SC space, capacity restraints from the increasing proliferation of factor funds (Arnott), the constant switching of factor strategies as the last strategy no longer works (abandoning single factor for multi-factor, abandoning P/B the original definition of value, serious questions about whether the small factor which has been described for 4 decades even exists now or has ever existed (Asness). If you're putting 100% of your equity assets into SCV, no more than a 3% slice of the market, or into multi-factor, I wish you good luck as I do all investors. I believe however that most who do this will not succeed in producing risk-adjusted outperformance. Those who prefer multi-factor approaches which are theoretically so appealing should consider the fact that most real multi-factor funds have in their admittedly short lives to date underperformed beta and done so with more volatility which is the opposite of what is supposed to happen when your model supposedly drives 90+% of returns even over a short 4 or 5 year time horizon. Also the fact that factor loads are very modest on most multi-factor funds due to the fact that as you increase exposure to one factor you automatically decrease it to other factors. What you wind up with in most multi-factor funds turns out to be a lot of beta due to this factor infighting. So things may not be quite as clear in the real world as they are in these artificial constantly upgraded and evolving academic models.

Tt's okay to drink some factor Kool Aid, but not as the only beverage which IMO puts more faith in factor models than market reality warrants.

Garland Whizzer

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Forester
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Re: Small Cap Value heads Rejoice !!!

Post by Forester » Fri Oct 11, 2019 1:01 pm

garlandwhizzer wrote:
Fri Oct 11, 2019 12:27 pm
If you believe academic factor models accurately and reliably describe 90+% of all market action then it might be reasonable for someone to invest most or all of their equity in SCV or multi-factor approaches. Personally, I believe factor models are inherently flawed, their basic methodology flawed, and will not reliably produce risk adjusted outperformance relative to beta going forward.
It's also possible that one day IJS, USMV & MTUM will all be ahead of the S&P over 3,5 & 10 years :sharebeer

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Re: Small Cap Value heads Rejoice ???

Post by Taylor Larimore » Fri Oct 11, 2019 1:38 pm

Garland Whizzer:

Thank you for your excellent analysis of factor funds. Mr. Bogle agreed with you. You can't get a better endorsement than that.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Selecting funds that will significantly exceed market returns, a search in which hope springs eternal and in which past performance has proven of virtually no predictive value, is a loser’s game.
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Re: Small Cap Value heads Rejoice !!!

Post by lassevirensghost » Fri Oct 11, 2019 1:51 pm

Whatever the case, I am perfectly happy with an equity allocation of VT (50%), QVAL (25%), and IVAL (25%).
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

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Re: Small Cap Value heads Rejoice !!!

Post by abuss368 » Fri Oct 11, 2019 6:04 pm

garlandwhizzer wrote:
Fri Oct 11, 2019 12:27 pm
If you believe academic factor models accurately and reliably describe 90+% of all market action then it might be reasonable for someone to invest most or all of their equity in SCV or multi-factor approaches. Personally, I believe factor models are inherently flawed, their basic methodology flawed, and will not reliably produce risk adjusted outperformance relative to beta going forward. The underlying assumptions in their models are not realistic in today's world. First, most of their favorable backtesting results are derived from the distant past when no one knew about factors, when there were no factor funds loading pouring hundreds of billons into factor approaches, and when markets were not dominated by professionals and algorithms. Second, the model itself--cost-free, long/short, no trading frictions, factor definition parameters and trading frequency parameters optimized in the rear view mirror--is entirely unrealistic. It is a fun game in arithmetic but the model is designed to magnify positives and minimize negatives and is optimized over a specific time frame in the past. There is absolutely no certainty whatsoever that this past optimal pattern will be optimal going forward. P/B was magical when value was first described and now it has been abandoned due to underperformance. However value or SCV or MOM is optimally measured now will likely in my opinion also be discarded in the future. AI will likely turn out to be the ultimate force arbitraging away these premiums and will do more quickly than most expect and without emotion.

Things to consider that question whether we should accept academic factor models as reliable and exploitable for investors after costs going forward. The downsides of such models: increased trading, increased costs of management, increased trading frictions especially in the SC space, capacity restraints from the increasing proliferation of factor funds (Arnott), the constant switching of factor strategies as the last strategy no longer works (abandoning single factor for multi-factor, abandoning P/B the original definition of value, serious questions about whether the small factor which has been described for 4 decades even exists now or has ever existed (Asness). If you're putting 100% of your equity assets into SCV, no more than a 3% slice of the market, or into multi-factor, I wish you good luck as I do all investors. I believe however that most who do this will not succeed in producing risk-adjusted outperformance. Those who prefer multi-factor approaches which are theoretically so appealing should consider the fact that most real multi-factor funds have in their admittedly short lives to date underperformed beta and done so with more volatility which is the opposite of what is supposed to happen when your model supposedly drives 90+% of returns even over a short 4 or 5 year time horizon. Also the fact that factor loads are very modest on most multi-factor funds due to the fact that as you increase exposure to one factor you automatically decrease it to other factors. What you wind up with in most multi-factor funds turns out to be a lot of beta due to this factor infighting. So things may not be quite as clear in the real world as they are in these artificial constantly upgraded and evolving academic models.

Tt's okay to drink some factor Kool Aid, but not as the only beverage which IMO puts more faith in factor models than market reality warrants.

Garland Whizzer
Nice analysis and thoughts indeed.

Thank you!
:sharebeer
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Re: Small Cap Value heads Rejoice !!!

Post by RetiredAL » Fri Oct 11, 2019 6:35 pm

This brings to mind the PBS documentary "Trillion Dollar Bet" which was based on a real event, where all went well with the model until it didn't, and then only shrewd intervention saved us from a financial meltdown.

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hdas
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Re: Small Cap Value heads Rejoice !!!

Post by hdas » Tue Oct 22, 2019 4:26 pm

We got ourselves another round of "convergence":

QVAL + 2.33%
VFVA + 1.03%
RZV + 0.65%


vs

MTUM - 1.21%
VUG - 1.14%
USMV - 0.86%


Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

HippoSir
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir » Tue Oct 22, 2019 5:14 pm

hdas wrote:
Tue Oct 22, 2019 4:26 pm
We got ourselves another round of "convergence":
I don't know what factor exposure it has, but OMFL (dynamic multifactor strategy) is doing gangbusters this year, and that includes small/value days:

OMFL: +0.77%, YTD: +25.32%

I don't own the fund, and don't plan on buying it, but it still makes me a bit jealous. :moneybag :moneybag :moneybag

lassevirensghost
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Re: Small Cap Value heads Rejoice !!!

Post by lassevirensghost » Tue Oct 22, 2019 6:45 pm

QVAL rocked it today. I am trying to figure out which holding of the 40 or so it was.
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

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hdas
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Re: Small Cap Value heads Rejoice !!!

Post by hdas » Fri Oct 25, 2019 6:56 pm

The rotation keeps on going

QVAL + 1.35%
VLUE + 1.47%
XMVM + 1.20%


vs

DVOL - 0.91%
VPU - 1.07%
USMV - 0.41%


Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

HippoSir
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir » Mon Nov 04, 2019 6:51 pm

Looks like the rotation continued, VFVA up 1.82% today! VFMV/VFMO (minimum volatility/momentum) both down.

Random Walker
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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Mon Nov 04, 2019 7:46 pm

I just looked up VFVA, VG Value Factor ETF, on Portfolio Visualizer: it has some serious exposure to size and value, and an expense ratio of 0.13%!

https://www.portfoliovisualizer.com/fac ... sion=false

Dave

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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Mon Nov 04, 2019 7:51 pm

For those true believers, what International SCV funds do you hold?

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hdas
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Re: Small Cap Value heads Rejoice !!!

Post by hdas » Mon Nov 04, 2019 8:12 pm

What a day it was.....Energy Sector up 3.26%


VFVA + 1.82%
XMVM + 1.72%
RFV + 1.51%
RZV + 1.46%
ZIG + 1.43%
VLUE + 1.34%
QVAL + 0.92%


vs


REZ -1.54%
VPU - 1.29%
DVOL - 1.20%
VDC -0.88%
USMV - 0.72%
QMOM - 0.72%
XMMO -0.62
MTUM - 0.58%


Cheers :greedy
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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305pelusa
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Re: Small Cap Value heads Rejoice !!!

Post by 305pelusa » Mon Nov 04, 2019 11:09 pm

MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
I really like FNDC.
Random Walker wrote:
Mon Nov 04, 2019 7:46 pm
I just looked up VFVA, VG Value Factor ETF, on Portfolio Visualizer: it has some serious exposure to size and value, and an expense ratio of 0.13%!

https://www.portfoliovisualizer.com/fac ... sion=false

Dave
And a serious amount of negative momentum.

Also, the fund inception was like a year ago. That's waaaay too short of a time period to judge exposure IMO.

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Forester
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Re: Small Cap Value heads Rejoice !!!

Post by Forester » Tue Nov 05, 2019 5:31 am

Total return, SCV (IJS) is now ahead of the S&P since the start of this bull market in March 2009.

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Re: Small Cap Value heads Rejoice !!!

Post by schismal » Tue Nov 05, 2019 5:53 am

MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
I have DFISX (DFA int small blend) in my 403b, and DLS in taxable. While I do quite like DLS, it is expensive. Been eyeing the new Avantis AVDV fund and it's sexy ER, but it's too new for me to jump ship just yet.

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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 » Tue Nov 05, 2019 9:22 am

MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
ISCF

will consider AVDV as well

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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Tue Nov 05, 2019 9:50 am

305pelusa wrote:
Mon Nov 04, 2019 11:09 pm
MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
I really like FNDC.
Random Walker wrote:
Mon Nov 04, 2019 7:46 pm
I just looked up VFVA, VG Value Factor ETF, on Portfolio Visualizer: it has some serious exposure to size and value, and an expense ratio of 0.13%!

https://www.portfoliovisualizer.com/fac ... sion=false

Dave
And a serious amount of negative momentum.

Also, the fund inception was like a year ago. That's waaaay too short of a time period to judge exposure IMO.
I would trust VG to be pretty diligent sticking to its mandates, you think they may drift away from those loadings?

Dave

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305pelusa
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Re: Small Cap Value heads Rejoice !!!

Post by 305pelusa » Tue Nov 05, 2019 10:01 am

Random Walker wrote:
Tue Nov 05, 2019 9:50 am
305pelusa wrote:
Mon Nov 04, 2019 11:09 pm
MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
I really like FNDC.
Random Walker wrote:
Mon Nov 04, 2019 7:46 pm
I just looked up VFVA, VG Value Factor ETF, on Portfolio Visualizer: it has some serious exposure to size and value, and an expense ratio of 0.13%!

https://www.portfoliovisualizer.com/fac ... sion=false

Dave
And a serious amount of negative momentum.

Also, the fund inception was like a year ago. That's waaaay too short of a time period to judge exposure IMO.
I would trust VG to be pretty diligent sticking to its mandates, you think they may drift away from those loadings?

Dave
They don't have a mandate to maintain X amount of value loading. They just rank the stocks based on their 3 measures of value, select based on their rules, and whatever value/MOM/etc loading comes from that is what you get.

I'm not sure a year of data is at all representative of the average long-term loading that their strategy would have. Even if it were, it has one of the highest negative MOM I've seen so it's not even compelling.

A fund like SLYV has much more size loading, just as much value, a tiny bit of + MOM, and much more data (if you regressed the index). Kind of a no-brainer IMO.

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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Tue Nov 05, 2019 10:02 am

MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
I have DISVX: DFA International Small Value.
And now using DWUSX: DFA World Ex US Targeted Value.

DWUSX combines Emerging markets into international small value; likely more efficient than owning separate EM fund.

Dave

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305pelusa
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Re: Small Cap Value heads Rejoice !!!

Post by 305pelusa » Tue Nov 05, 2019 10:10 am

caklim00 wrote:
Tue Nov 05, 2019 9:22 am
MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
ISCF

will consider AVDV as well
A regression result I did from 1996 on ISCF's index
Beta = 1.05
SmB = 0.78
HmL = 0.18
MOM = 0

It had a positive, statistical significant alpha, which implies loadings of profitability and quality as well (not surprising since it's Multifactor)

Here's FNDC
Beta = 0.95
SmB = 0.66
HmL = 0.35
MOM = -0.1

ISCF looks like a decent fund to me. I target equal amounts of value/size so the more "even" FNDC is a better fit for me. I also don't have a strong opinion on profitability/quality so those loadings don't matter as much to me. Hence, FNDC was a slightly better choice for me but it's certainly a close race.

Cheers

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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Tue Nov 05, 2019 10:14 am

I think it’s potentially very worthwhile to get as big a loading on size as possible, lowest average market cap. The effects of the other factors tend to be most pronounced in the smallest stocks.

Dave

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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 » Tue Nov 05, 2019 10:52 am

MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
I hold DLS. I didn't have many options to choose from though, as I don't have access to FNDC or DISVX. DLS is recommended by Paul Merriman.

In it's 6 years of existence FNDC has slightly outperformed DLS: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Interestingly DLS has outperformed DISVX over its 15 years of existence: https://www.portfoliovisualizer.com/bac ... ion2_2=100

I guess DLS outperformed DISVX because the last couple of years haven't been good for deeper value.

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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 » Tue Nov 05, 2019 11:15 am

Random Walker wrote:
Tue Nov 05, 2019 10:14 am
I think it’s potentially very worthwhile to get as big a loading on size as possible, lowest average market cap. The effects of the other factors tend to be most pronounced in the smallest stocks.
Would you also say this when a fund with slightly larger holdings has deeper value exposure?

I'm comparing IJS to a European fund I'm holding (ZPRV). IJS is the smaller one, but ZPRV has deeper value exposure.

Random Walker
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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Tue Nov 05, 2019 11:28 am

I think some people have questioned whether the value premium exists at all in the most liquid large cap realm. I think it’s fair to say value is stronger as market cap declines.

Dave

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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 » Tue Nov 05, 2019 11:42 am

So I've managed to find factor analyses for 2 small cap value funds that I hold: IJS (iShares US SCV in USD) and ZPRV (SPDR US SCV, an European ETF in euros).

Ben Felix found this on IJS (Avg Market Cap 1.49 Bil):
MKT 1.02
SMB 0.86
HML 0.27
RMW 0.20
CMA 0.06 (not significant)

"Based on the regression data for IJS, estimated value-added from excess exposure to MKT, SmB, HmL, and RmW, relative to a market-cap weighted index, and based on 50% of the historical factor premia, is 182 bps, resulting in expected outperformance of 157 bps after fees".
source: https://www.pwlcapital.com/wp-content/u ... -Final.pdf

A Dutch guy online made a factor analysis on ZPRV (Avg Market Cap 2.62 Bil):
MKT 0.979868 -0.020132 4.746482e-170
SMB 0.596905 0.596905 2.319708e-88
HML 0.362511 0.362511 9.749621e-34
RMW 0.164035 0.164035 1.579281e-08
CMA 0.059965 0.000000 1.058991e-01
Expected outperformance (based on full premiums history from 1963-07 to 2018-12): 1.51%/year
Fees on ZPRV are 0.3%. Remaining expected outperformance is 1.21%/year.

Going by this analysis IJS would have the higher expected outperformance even though ZPRV has stronger value loading. Does this seem correct?

If anyone has input I'd like to hear.

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305pelusa
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Re: Small Cap Value heads Rejoice !!!

Post by 305pelusa » Tue Nov 05, 2019 11:58 am

YRT70 wrote:
Tue Nov 05, 2019 11:42 am
So I've managed to find factor analyses for 2 small cap value funds that I hold: IJS (iShares US SCV in USD) and ZPRV (SPDR US SCV, an European ETF in euros).

Ben Felix found this on IJS:
MKT 1.02
SMB 0.86
HML 0.27
RMW 0.20
CMA 0.06 (not significant)

"Based on the regression data for IJS, estimated value-added from excess exposure to MKT, SmB, HmL, and RmW, relative to a market-cap weighted index, and based on 50% of the historical factor premia, is 182 bps, resulting in expected outperformance of 157 bps after fees".
source: https://www.pwlcapital.com/wp-content/u ... -Final.pdf

A Dutch guy online made a factor analysis on ZPRV:
MKT 0.979868 -0.020132 4.746482e-170
SMB 0.596905 0.596905 2.319708e-88
HML 0.362511 0.362511 9.749621e-34
RMW 0.164035 0.164035 1.579281e-08
CMA 0.059965 0.000000 1.058991e-01
Expected outperformance (based on full premiums history from 1963-07 to 2018-12): 1.51%/year
Fees on ZPRV are 0.3%. Remaining expected outperformance is 1.21%/year.

Going by this analysis IJS would have the higher expected outperformance even though ZPRV has stronger value loading. Does this seem correct?

If anyone has input I'd like to hear.
The above assumes the full historical premiums. I think just about everyone (Bernstein, AQR, Swedroe) recommends assuming a smaller future premium because these factors are documented. Not gone entirely but somewhat lower.

As for the comparison, it's a little strange to compare a US fund vs a European fund. In theory, it's not a either/or. You'd want both to achieve more even factor exposure throughout the globe.
Random Walker wrote:
Tue Nov 05, 2019 11:28 am
I think some people have questioned whether the value premium exists at all in the most liquid large cap realm. I think it’s fair to say value is stronger as market cap declines.

Dave
I had this misunderstanding as well. However, Uncorrolated explained it pretty well to me:
viewtopic.php?p=4816434#p4816434

In other words: yes, value premium is higher in small cap. But this is reflected in that SC funds have higher value exposure per unit of fund. If the LC value premium was zero, then no large cap fund could achieve exposure to the value factor by the definition of how the factor itself is defined!

YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 » Tue Nov 05, 2019 12:02 pm

305pelusa wrote:
Tue Nov 05, 2019 11:58 am
YRT70 wrote:
Tue Nov 05, 2019 11:42 am
So I've managed to find factor analyses for 2 small cap value funds that I hold: IJS (iShares US SCV in USD) and ZPRV (SPDR US SCV, an European ETF in euros).

Ben Felix found this on IJS:
MKT 1.02
SMB 0.86
HML 0.27
RMW 0.20
CMA 0.06 (not significant)

"Based on the regression data for IJS, estimated value-added from excess exposure to MKT, SmB, HmL, and RmW, relative to a market-cap weighted index, and based on 50% of the historical factor premia, is 182 bps, resulting in expected outperformance of 157 bps after fees".
source: https://www.pwlcapital.com/wp-content/u ... -Final.pdf

A Dutch guy online made a factor analysis on ZPRV:
MKT 0.979868 -0.020132 4.746482e-170
SMB 0.596905 0.596905 2.319708e-88
HML 0.362511 0.362511 9.749621e-34
RMW 0.164035 0.164035 1.579281e-08
CMA 0.059965 0.000000 1.058991e-01
Expected outperformance (based on full premiums history from 1963-07 to 2018-12): 1.51%/year
Fees on ZPRV are 0.3%. Remaining expected outperformance is 1.21%/year.

Going by this analysis IJS would have the higher expected outperformance even though ZPRV has stronger value loading. Does this seem correct?

If anyone has input I'd like to hear.
The above assumes the full historical premiums. I think just about everyone (Bernstein, AQR, Swedroe) recommends assuming a smaller future premium because these factors are documented. Not gone entirely but somewhat lower.

As for the comparison, it's a little strange to compare a US fund vs a European fund. In theory, it's not a either/or. You'd want both to achieve more even factor exposure throughout the globe.
For clarity: both analyses assume 50% of the historical premium and both funds only contain US small cap value stocks.

ZPRV is domiciled in Ireland though, and it's only available on European exchanges.
Last edited by YRT70 on Tue Nov 05, 2019 12:11 pm, edited 2 times in total.

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305pelusa
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Re: Small Cap Value heads Rejoice !!!

Post by 305pelusa » Tue Nov 05, 2019 12:10 pm

YRT70 wrote:
Tue Nov 05, 2019 12:02 pm
305pelusa wrote:
Tue Nov 05, 2019 11:58 am
YRT70 wrote:
Tue Nov 05, 2019 11:42 am
So I've managed to find factor analyses for 2 small cap value funds that I hold: IJS (iShares US SCV in USD) and ZPRV (SPDR US SCV, an European ETF in euros).

Ben Felix found this on IJS:
MKT 1.02
SMB 0.86
HML 0.27
RMW 0.20
CMA 0.06 (not significant)

"Based on the regression data for IJS, estimated value-added from excess exposure to MKT, SmB, HmL, and RmW, relative to a market-cap weighted index, and based on 50% of the historical factor premia, is 182 bps, resulting in expected outperformance of 157 bps after fees".
source: https://www.pwlcapital.com/wp-content/u ... -Final.pdf

A Dutch guy online made a factor analysis on ZPRV:
MKT 0.979868 -0.020132 4.746482e-170
SMB 0.596905 0.596905 2.319708e-88
HML 0.362511 0.362511 9.749621e-34
RMW 0.164035 0.164035 1.579281e-08
CMA 0.059965 0.000000 1.058991e-01
Expected outperformance (based on full premiums history from 1963-07 to 2018-12): 1.51%/year
Fees on ZPRV are 0.3%. Remaining expected outperformance is 1.21%/year.

Going by this analysis IJS would have the higher expected outperformance even though ZPRV has stronger value loading. Does this seem correct?

If anyone has input I'd like to hear.
The above assumes the full historical premiums. I think just about everyone (Bernstein, AQR, Swedroe) recommends assuming a smaller future premium because these factors are documented. Not gone entirely but somewhat lower.

As for the comparison, it's a little strange to compare a US fund vs a European fund. In theory, it's not a either/or. You'd want both to achieve more even factor exposure throughout the globe.
For clarity: both analyses assume 50% of the historical premium and both funds only contain US small cap value stocks.

ZPRV is domiciled in Ireland though, and it's only available on European exchanges.
Ah sorry, I did not notice that was the case with ZPRV. I just saw it has an MSCI index, which is easy to get data for.

When I get a chance, I'll regress it and compare values. Some things that matter to me are R^2 values and alphas, which I didn't see for ZPRV in your comment. Also, I'm not necessarily trustful of "a Dutch guy online".

Regardless, provided their values are correct, I think you came to a reasonable conclusion.

YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 » Tue Nov 05, 2019 12:14 pm

305pelusa wrote:
Tue Nov 05, 2019 12:10 pm
Ah sorry, I did not notice that was the case with ZPRV. I just saw it has an MSCI index, which is easy to get data for.

When I get a chance, I'll regress it and compare values. Some things that matter to me are R^2 values and alphas, which I didn't see for ZPRV in your comment. Also, I'm not necessarily trustful of "a Dutch guy online".

Regardless, provided their values are correct, I think you came to a reasonable conclusion.
That would be great. And yes I agree, I have no way of knowing that what the Dutch guy calculated is 100% correct.

If true, I'm surprised that the expected outperformance of IJS is that 'much' higher, even though it has a weaker value tilt. I guess, if true, it would mean size is a lot more important.

Making things more interesting for me: IJS probably also has a benefit for me in dividend withholding taxes, giving it another ±0.2% edge.

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Re: Small Cap Value heads Rejoice !!!

Post by whodidntante » Tue Nov 05, 2019 12:24 pm

Random Walker wrote:
Tue Nov 05, 2019 11:28 am
I think some people have questioned whether the value premium exists at all in the most liquid large cap realm. I think it’s fair to say value is stronger as market cap declines.

Dave
It could be that value companies have greater opportunities for surprise turnarounds and greater than expected growth compared to a growth company whose stock is already priced based on great expectations. And that it's much more difficult for large organizations to pull that off than small organizations. But large value has been lagging so long it may outperform due to significantly more attractive pricing.

Uncorrelated
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Re: Small Cap Value heads Rejoice !!!

Post by Uncorrelated » Tue Nov 05, 2019 3:53 pm

305pelusa wrote:
Tue Nov 05, 2019 12:10 pm
YRT70 wrote:
Tue Nov 05, 2019 12:02 pm
Ah sorry, I did not notice that was the case with ZPRV. I just saw it has an MSCI index, which is easy to get data for.

When I get a chance, I'll regress it and compare values. Some things that matter to me are R^2 values and alphas, which I didn't see for ZPRV in your comment. Also, I'm not necessarily trustful of "a Dutch guy online".

Regardless, provided their values are correct, I think you came to a reasonable conclusion.
I suspect I'm the "Dutch guy online". Here are my results with the momentum factor included:

IJS daily data (actual fund performance)

Code: Select all

|                                                    |annualized alpha|beta    |SmB     |HmL     |RmW     |CmA     |MoM      
:--|:--|:--|:--|:--|:--|:--|:--
|IJS, USA small cap value weighted                           |  -0.19%|    1.04|    0.92|    0.21|    0.17|    0.06|   -0.06|
|t stat                                                      |   -0.07|    4.04|   48.06|   10.57|    6.58|    1.94|   -4.86|

expected outperformance: 1.56%
Based on 18.8 years of data, 263 data points per year
R^2 adj = 0.376

ZPRV daily data (index)

Code: Select all

|                                                    |annualized alpha|beta    |SmB     |HmL     |RmW     |CmA     |MoM      
:--|:--|:--|:--|:--|:--|:--|:--
|MSCI USA small cap value weighted                           |  -1.82%|    1.03|    0.68|    0.26|    0.07|    0.16|   -0.12|
|t stat                                                      |   -1.41|    5.50|   76.99|   23.37|    5.36|    9.18|  -17.90|

expected outperformance: 1.25%
Based on 4.9 years of data, 308 data points per year
R^2 adj = 0.889

ZPRV monthly data (index)

Code: Select all

|                                                    |annualized alpha|beta    |SmB     |HmL     |RmW     |CmA     |MoM      
:--|:--|:--|:--|:--|:--|:--|:--
|MSCI USA small cap value weighted                           |   0.30%|    1.05|    0.75|    0.29|    0.30|    0.07|   -0.21|
|t stat                                                      |    0.35|    2.66|   31.25|    9.35|    8.87|    1.54|  -14.33|

expected outperformance: 1.17%
Based on 24.4 years of data, 12 data points per year
R^2 adj = 0.849
Source: own calculations based on MSCI index data and Ken French data library. Expected outperformance assumes that factors with t-stat below 2 are insignificant (equal to zero) and the remaining factors get 50% of the historical factor performance. Expected outperformance is before fees / turnover / tax inefficiencies.

The R^2 on IJS is atrocious. Not sure what's up with that. The factors loadings themselves are almost identical to portfolio visualizer's numbers

MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Tue Nov 05, 2019 4:05 pm

YRT70 wrote:
Tue Nov 05, 2019 10:52 am
MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
I hold DLS. I didn't have many options to choose from though, as I don't have access to FNDC or DISVX. DLS is recommended by Paul Merriman.

In it's 6 years of existence FNDC has slightly outperformed DLS: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Interestingly DLS has outperformed DISVX over its 15 years of existence: https://www.portfoliovisualizer.com/bac ... ion2_2=100

I guess DLS outperformed DISVX because the last couple of years haven't been good for deeper value.
DLS looked intriguing to me. I need to research more and see about holding in taxable. I suppose I could give up some Roth space too.

YRT70
Posts: 400
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 » Wed Nov 06, 2019 7:24 am

MotoTrojan wrote:
Tue Nov 05, 2019 4:05 pm
YRT70 wrote:
Tue Nov 05, 2019 10:52 am
MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
I hold DLS. I didn't have many options to choose from though, as I don't have access to FNDC or DISVX. DLS is recommended by Paul Merriman.

In it's 6 years of existence FNDC has slightly outperformed DLS: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Interestingly DLS has outperformed DISVX over its 15 years of existence: https://www.portfoliovisualizer.com/bac ... ion2_2=100

I guess DLS outperformed DISVX because the last couple of years haven't been good for deeper value.
DLS looked intriguing to me. I need to research more and see about holding in taxable. I suppose I could give up some Roth space too.
Nice thing about DLS is that the holdings are quite small: avg. mkt. cap 1.48 Bil vs. 2.14 Bil for FNDC. FNDC has more value exposure though and a slightly lower expense ratio. I'm curious to see which one will perform better in the future.

snailderby
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Re: Small Cap Value heads Rejoice !!!

Post by snailderby » Wed Nov 06, 2019 8:09 am

Another option that I find intriguing (although I don't currently use it) is DDLS. It's basically DLS with a dynamic currency hedge overlay and a lower ER (0.43% v. 0.58%). Also, DLS and DDLS are not as concentrated in Japan as FNDC (which is about 35% Japan).

MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Wed Nov 06, 2019 11:03 am

YRT70 wrote:
Wed Nov 06, 2019 7:24 am
MotoTrojan wrote:
Tue Nov 05, 2019 4:05 pm
YRT70 wrote:
Tue Nov 05, 2019 10:52 am
MotoTrojan wrote:
Mon Nov 04, 2019 7:51 pm
For those true believers, what International SCV funds do you hold?
I hold DLS. I didn't have many options to choose from though, as I don't have access to FNDC or DISVX. DLS is recommended by Paul Merriman.

In it's 6 years of existence FNDC has slightly outperformed DLS: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Interestingly DLS has outperformed DISVX over its 15 years of existence: https://www.portfoliovisualizer.com/bac ... ion2_2=100

I guess DLS outperformed DISVX because the last couple of years haven't been good for deeper value.
DLS looked intriguing to me. I need to research more and see about holding in taxable. I suppose I could give up some Roth space too.
Nice thing about DLS is that the holdings are quite small: avg. mkt. cap 1.48 Bil vs. 2.14 Bil for FNDC. FNDC has more value exposure though and a slightly lower expense ratio. I'm curious to see which one will perform better in the future.
How is DLS in taxable though?

My core allocation is 55% Total US, 25% Total Int, 20% domestic small-value and I am struggling to see much justification for complicating it beyond that. Even at 12.5/12.5 Total Int/Int Small Value it barely seems to move the needle in returns. May be more worthwhile if I were to move my entire International stake into the tilt.

schismal
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Re: Small Cap Value heads Rejoice !!!

Post by schismal » Wed Nov 06, 2019 11:51 am

MotoTrojan wrote:
Wed Nov 06, 2019 11:03 am
How is DLS in taxable though?
You can check my numbers at the WisdomTree/Vanguard sites, but here's a quick QDI comparison. Couldn't immediately find the FNDC documentation, so someone can add those if interested.

DLS
QDI: 97.17% (2018), 89.26% (2017), 87.82% (2016), 82.02% (2015), 66.56% (2014), 52.99% (2013)
Cap gains: none

VSS
QDI: 59.03% (2018), 42.33% (2017), 49.32% (2016), 51.75% (2015), 53.42% (2014), 51.75% (2013)
Cap gains: none

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305pelusa
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Re: Small Cap Value heads Rejoice !!!

Post by 305pelusa » Wed Nov 06, 2019 12:04 pm

schismal wrote:
Wed Nov 06, 2019 11:51 am
MotoTrojan wrote:
Wed Nov 06, 2019 11:03 am
How is DLS in taxable though?
You can check my numbers at the WisdomTree/Vanguard sites, but here's a quick QDI comparison. Couldn't immediately find the FNDC documentation, so someone can add those if interested.

DLS
QDI: 97.17% (2018), 89.26% (2017), 87.82% (2016), 82.02% (2015), 66.56% (2014), 52.99% (2013)
Cap gains: none

VSS
QDI: 59.03% (2018), 42.33% (2017), 49.32% (2016), 51.75% (2015), 53.42% (2014), 51.75% (2013)
Cap gains: none
Using the terminology of Triceratops's tax efficiency:

I found VSS to have a tax efficiency of 0.57% while FNDC of 0.43%. So for me personally, FNDC makes up 14 basis points of its ER on it's tax efficiency alone. It's reasonable in taxable IMO.

YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 » Wed Nov 06, 2019 12:16 pm

MotoTrojan wrote:
Wed Nov 06, 2019 11:03 am
How is DLS in taxable though?
I'm in the Netherlands myself so can't answer that. I don't know the US system.
My core allocation is 55% Total US, 25% Total Int, 20% domestic small-value and I am struggling to see much justification for complicating it beyond that. Even at 12.5/12.5 Total Int/Int Small Value it barely seems to move the needle in returns. May be more worthwhile if I were to move my entire International stake into the tilt.
That's basically what I did. I hold very little Total Int, and much more DLS. Same for my US allocation: much more SCV than TSM.

MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Wed Nov 06, 2019 1:26 pm

schismal wrote:
Wed Nov 06, 2019 11:51 am
MotoTrojan wrote:
Wed Nov 06, 2019 11:03 am
How is DLS in taxable though?
You can check my numbers at the WisdomTree/Vanguard sites, but here's a quick QDI comparison. Couldn't immediately find the FNDC documentation, so someone can add those if interested.

DLS
QDI: 97.17% (2018), 89.26% (2017), 87.82% (2016), 82.02% (2015), 66.56% (2014), 52.99% (2013)
Cap gains: none

VSS
QDI: 59.03% (2018), 42.33% (2017), 49.32% (2016), 51.75% (2015), 53.42% (2014), 51.75% (2013)
Cap gains: none
Interesting. Any idea what caused the QDI to rise so much throughout the years? Must mean they are investing in different types of companies?

schismal
Posts: 145
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Re: Small Cap Value heads Rejoice !!!

Post by schismal » Wed Nov 06, 2019 1:33 pm

MotoTrojan wrote:
Wed Nov 06, 2019 1:26 pm
schismal wrote:
Wed Nov 06, 2019 11:51 am
MotoTrojan wrote:
Wed Nov 06, 2019 11:03 am
How is DLS in taxable though?
You can check my numbers at the WisdomTree/Vanguard sites, but here's a quick QDI comparison. Couldn't immediately find the FNDC documentation, so someone can add those if interested.

DLS
QDI: 97.17% (2018), 89.26% (2017), 87.82% (2016), 82.02% (2015), 66.56% (2014), 52.99% (2013)
Cap gains: none

VSS
QDI: 59.03% (2018), 42.33% (2017), 49.32% (2016), 51.75% (2015), 53.42% (2014), 51.75% (2013)
Cap gains: none
Interesting. Any idea what caused the QDI to rise so much throughout the years? Must mean they are investing in different types of companies?
Not sure. And actually if you keep going back in time, DLS' QDI trends toward 100% again. So there were just a rough few years from around 2012-14 where it was showing a near-VSS level of inefficiency.

¯\_(ツ)_/¯

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