Small Cap Value heads Rejoice !!!

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manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
Massdriver
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
During the sell off, I sold 2/3 of my VSS position for AVDV. I sold VBR and bought SLYV for my SCV domestic (I used to have VBR+IJS for commission free reasons), but wish I would have also TLH my IJS for AVUV.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Massdriver wrote: Tue Sep 15, 2020 1:22 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
During the sell off, I sold 2/3 of my VSS position for AVDV. I sold VBR and bought SLYV for my SCV domestic (I used to have VBR+IJS for commission free reasons), but wish I would have also TLH my IJS for AVUV.
Interesting that your actions were due to TLH. If you were starting from scratch today, what would you buy between SLYV/IJS, VSS, VBR, DLS, DGS, AVUV, ADVD, and ADEM?
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
I think you mean DLS instead of DGS (developed not EM).

I moved from SLYV to AVUV where I could (SLYV is tax loss harvest parter now and have a bunch with gain so not moving that). I know use AVDV instead of other funds like ISCF, FNDC, or DLS. I moved out of DLS years ago due to the high ER. ISCF or FNDC will be tax loss harvest partner for AVDV for me. I have an affinity for ISCF over FNDC but FNDC has much higher trading volume. AVDV is easy to trade though.
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imak
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Re: Small Cap Value heads Rejoice !!!

Post by imak »

Research Affiliates published an article on book value and composite measures of value.

Book Value Is an Incomplete Measure of Firm Size
https://www.researchaffiliates.com/en_u ... -size.html

Key Points:
1) We recommend using a composite of ratios when valuing a firm because no perfect measure of value exists. Doing so reduces the impact of each measure’s inherent shortcomings when the ratio is used in isolation.
2) Book value is an incomplete measure of a firm’s assets. Given the growing importance and increasing share of intangible capital in total company capital, adding measures of intangibles provides a more complete measure of firm capital.
3) Including intangibles when estimating a firm’s value has a greater impact on smaller companies. Mega-cap growth stocks, notably, the FANGs, still look expensive after incorporating intangibles in the value of firm capital.
AA: 30% FNDX, 30% FNDA, 10% FNDF, 10% FNDC, 10% REET+VWO+DGS, 10% TMF; EF = VTEB; "Discipline matters more than allocation" ~ W Bernstein
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

caklim00 wrote: Tue Sep 15, 2020 1:27 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
I think you mean DLS instead of DGS (developed not EM).

I moved from SLYV to AVUV where I could (SLYV is tax loss harvest parter now and have a bunch with gain so not moving that). I know use AVDV instead of other funds like ISCF, FNDC, or DLS. I moved out of DLS years ago due to the high ER. ISCF or FNDC will be tax loss harvest partner for AVDV for me. I have an affinity for ISCF over FNDC but FNDC has much higher trading volume. AVDV is easy to trade though.
You're right, I actually meant DLS. That being said, AVEM doesn't seem to be SCV emerging markets... seems to be total emerging markets. So that being said, might a portfolio of 50% AVUV, 40% AVDV, and 10% DGS make sense?
Massdriver
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

manlymatt83 wrote: Tue Sep 15, 2020 1:25 pm
Massdriver wrote: Tue Sep 15, 2020 1:22 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
During the sell off, I sold 2/3 of my VSS position for AVDV. I sold VBR and bought SLYV for my SCV domestic (I used to have VBR+IJS for commission free reasons), but wish I would have also TLH my IJS for AVUV.
Interesting that your actions were due to TLH. If you were starting from scratch today, what would you buy between SLYV/IJS, VSS, VBR, DLS, DGS, AVUV, ADVD, and ADEM?
From scratch for my 25% SCV tilt I would go AVUV (SLYV close second, may hold some of each) and AVDV and take a nap. I would maintain my broad index funds for the other 75% of my equities.

AVEM isn't small cap.

I will say that there are a lot of other great SCV funds and this thread is filled with people making the case for different types. SLYV/IJS/VIOV, VBR, they're all great. There are deeper value plays that people also talk about frequently. It all depends on how deep you want to go and if you're interested in other factors (I am not personally).

Edited
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

manlymatt83 wrote: Tue Sep 15, 2020 1:32 pm
caklim00 wrote: Tue Sep 15, 2020 1:27 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
I think you mean DLS instead of DGS (developed not EM).

I moved from SLYV to AVUV where I could (SLYV is tax loss harvest parter now and have a bunch with gain so not moving that). I know use AVDV instead of other funds like ISCF, FNDC, or DLS. I moved out of DLS years ago due to the high ER. ISCF or FNDC will be tax loss harvest partner for AVDV for me. I have an affinity for ISCF over FNDC but FNDC has much higher trading volume. AVDV is easy to trade though.
You're right, I actually meant DLS. That being said, AVEM doesn't seem to be SCV emerging markets... seems to be total emerging markets. So that being said, might a portfolio of 50% AVUV, 40% AVDV, and 10% DGS make sense?
That could be an option. I have a lot tied to 401k/403b where there is no value tilt option and no small cap international so I just end up trying to do a 50/50 US International split and then try to go 1/4 EM, 3/4 Developed where I'm using funds to split between Dev and EM. I moved out of DGS a little over a year ago and just went into DFEVX (DFA EM Value all cap). Its been my worst performing fund of course. I did make the move since I kept hearing about additional transaction costs in the small cap EM space. I'll likely just use AVEM in taxable and perhaps the new DFA Core ETF if it ever comes out.
HippoSir
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

imak wrote: Tue Sep 15, 2020 1:31 pm Research Affiliates published an article on book value and composite measures of value.

Book Value Is an Incomplete Measure of Firm Size
https://www.researchaffiliates.com/en_u ... -size.html
For their value metric the Avantis funds use p/b. They seem to take a pretty measured approach to their fund design so I'm really curious why they do so vs a composite metric (which most of what I've read indicates is superior).
Massdriver
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

No longer seeing a recession, fund managers are beginning to shift into industrials and value stocks, Bank of America survey finds
https://www.marketwatch.com/story/no-lo ... 1600179447

Interesting, nothing more.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

HippoSir wrote: Tue Sep 15, 2020 3:25 pm
imak wrote: Tue Sep 15, 2020 1:31 pm Research Affiliates published an article on book value and composite measures of value.

Book Value Is an Incomplete Measure of Firm Size
https://www.researchaffiliates.com/en_u ... -size.html
For their value metric the Avantis funds use p/b. They seem to take a pretty measured approach to their fund design so I'm really curious why they do so vs a composite metric (which most of what I've read indicates is superior).
I actually met an Avantis employee once (pure chance) and asked her that. Long story short, they believe P/B with goodwill subtracted simply is the superior value metric, so why "dilute" it with other metrics they do not like as much.

FWIW, overlaying cash profitability like they do gives some of the benefits composites give as well.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Steve Reading wrote: Tue Sep 15, 2020 3:33 pm
HippoSir wrote: Tue Sep 15, 2020 3:25 pm
imak wrote: Tue Sep 15, 2020 1:31 pm Research Affiliates published an article on book value and composite measures of value.

Book Value Is an Incomplete Measure of Firm Size
https://www.researchaffiliates.com/en_u ... -size.html
For their value metric the Avantis funds use p/b. They seem to take a pretty measured approach to their fund design so I'm really curious why they do so vs a composite metric (which most of what I've read indicates is superior).
I actually met an Avantis employee once (pure chance) and asked her that. Long story short, they believe P/B with goodwill subtracted simply is the superior value metric, so why "dilute" it with other metrics they do not like as much.

FWIW, overlaying cash profitability like they do gives some of the benefits composites give as well.
Very interesting, thanks for sharing. I know Ken French believes it is still a good option particularly because it is more stable than other metrics (less turnover).
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

YRT70 wrote: Tue Sep 15, 2020 12:26 pm
MotoTrojan wrote: Tue Sep 15, 2020 8:55 am
YRT70 wrote: Tue Sep 15, 2020 8:38 am
dml130 wrote: Mon Sep 14, 2020 9:32 am Would anybody advocate investing in the broader s&p 600 (as opposed to specifically s&p 600 value) as a sufficient value position at this point in time? I was looking at morningstar metrics and s&p 600 average p/s is .78 and price to cash flow is about 6, for example. That to me seems to have a value tilt with the added benefit of more diversification and maybe more quality metrics. Any thoughts?
As far as I know that could be just temporarily. Next month the metrics could look a lot less 'valuey'.
The 5-factor regression I posted above from 2005 to present (below again) shows a statistically significant 0.12 loading to HML which is a good chunk of the 0.33 the value variant had.

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

If you prefer the classic 3-factor then the blend nets a full 0.23 out of 0.45.

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

If you look at the rolling regression you'll note that HML has been drifting higher for both variants, although a much larger relative move on the blended fund. Even the growth fund has had several years now in the 0.15-0.20 realm.
Interesting. So what's your conclusion?
What's your question?

I suppose my conclusion is that even a small-blend fund in the S&P600 will have some value exposure, but I personally would still use the value variant. Even the R2K seems to load positively on value (see below); this isn't surprising once you realize that HML is anchored to a long-short portfolio of 50/50 large/small, and the small-caps make up a larger portion of the value exposure in general. So just by moving towards small-caps without any other sorts, you will naturally get value exposure.

https://www.portfoliovisualizer.com/fac ... sion=false
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

caklim00 wrote: Tue Sep 15, 2020 2:45 pm
manlymatt83 wrote: Tue Sep 15, 2020 1:32 pm
caklim00 wrote: Tue Sep 15, 2020 1:27 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
I think you mean DLS instead of DGS (developed not EM).

I moved from SLYV to AVUV where I could (SLYV is tax loss harvest parter now and have a bunch with gain so not moving that). I know use AVDV instead of other funds like ISCF, FNDC, or DLS. I moved out of DLS years ago due to the high ER. ISCF or FNDC will be tax loss harvest partner for AVDV for me. I have an affinity for ISCF over FNDC but FNDC has much higher trading volume. AVDV is easy to trade though.
You're right, I actually meant DLS. That being said, AVEM doesn't seem to be SCV emerging markets... seems to be total emerging markets. So that being said, might a portfolio of 50% AVUV, 40% AVDV, and 10% DGS make sense?
That could be an option. I have a lot tied to 401k/403b where there is no value tilt option and no small cap international so I just end up trying to do a 50/50 US International split and then try to go 1/4 EM, 3/4 Developed where I'm using funds to split between Dev and EM. I moved out of DGS a little over a year ago and just went into DFEVX (DFA EM Value all cap). Its been my worst performing fund of course. I did make the move since I kept hearing about additional transaction costs in the small cap EM space. I'll likely just use AVEM in taxable and perhaps the new DFA Core ETF if it ever comes out.
Interesting thoughts. I get Emerging Markets exposure via my VXUS holding. Doesn't seem like I'd want to add AVEM on top of that, otherwise I'd end up with a tilt towards emerging markets as a whole? Perhaps I'll just dump my DGS and go 50/50 AVUV/AVDV... and just not have any small cap value with emerging markets.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

manlymatt83 wrote: Tue Sep 15, 2020 1:25 pm
Massdriver wrote: Tue Sep 15, 2020 1:22 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
During the sell off, I sold 2/3 of my VSS position for AVDV. I sold VBR and bought SLYV for my SCV domestic (I used to have VBR+IJS for commission free reasons), but wish I would have also TLH my IJS for AVUV.
Interesting that your actions were due to TLH. If you were starting from scratch today, what would you buy between SLYV/IJS, VSS, VBR, DLS, DGS, AVUV, ADVD, and ADEM?
It really did open my eyes up recently when I realized the differences between these are pretty subtle once you adjust for factor exposure. You cannot really answer this question without first deciding how much of a tilt you want. For example, DFA's DFSVX is one of the more potent factor loaders (I would wager AVUV will fall in this realm). Let's say you were comfortable with 75/25 S&P500 (VFINX)/DFSVX; we can then use Portfolio Visualizer's Match Factor Exposure tool to find an equivalent portfolio of VFINX/VBR (VBR is a much less aggressive tilt, but also cheaper fund). We find that to match exposures the tilt increases to a whopping 65/35 VFINX/VBR, a 40% relative increase in small-value tilt. Even more powerful though, you can see the portfolio with VBR actually outperformed the one with DFSVX, in part because VBR's expense ratio is far lower.

https://www.portfoliovisualizer.com/mat ... tion2_1=75

The biggest takeaway here is that you may not actually need these more expensive funds unless you are constrained by available funds (most of funds in 401k in broad index, and only a small amount of IRA space for factor exposure), or want a more aggressive tilt than 100% VBR.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

manlymatt83 wrote: Tue Sep 15, 2020 4:07 pm
caklim00 wrote: Tue Sep 15, 2020 2:45 pm
manlymatt83 wrote: Tue Sep 15, 2020 1:32 pm
caklim00 wrote: Tue Sep 15, 2020 1:27 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
I think you mean DLS instead of DGS (developed not EM).

I moved from SLYV to AVUV where I could (SLYV is tax loss harvest parter now and have a bunch with gain so not moving that). I know use AVDV instead of other funds like ISCF, FNDC, or DLS. I moved out of DLS years ago due to the high ER. ISCF or FNDC will be tax loss harvest partner for AVDV for me. I have an affinity for ISCF over FNDC but FNDC has much higher trading volume. AVDV is easy to trade though.
You're right, I actually meant DLS. That being said, AVEM doesn't seem to be SCV emerging markets... seems to be total emerging markets. So that being said, might a portfolio of 50% AVUV, 40% AVDV, and 10% DGS make sense?
That could be an option. I have a lot tied to 401k/403b where there is no value tilt option and no small cap international so I just end up trying to do a 50/50 US International split and then try to go 1/4 EM, 3/4 Developed where I'm using funds to split between Dev and EM. I moved out of DGS a little over a year ago and just went into DFEVX (DFA EM Value all cap). Its been my worst performing fund of course. I did make the move since I kept hearing about additional transaction costs in the small cap EM space. I'll likely just use AVEM in taxable and perhaps the new DFA Core ETF if it ever comes out.
Interesting thoughts. I get Emerging Markets exposure via my VXUS holding. Doesn't seem like I'd want to add AVEM on top of that, otherwise I'd end up with a tilt towards emerging markets as a whole? Perhaps I'll just dump my DGS and go 50/50 AVUV/AVDV... and just not have any small cap value with emerging markets.
If I am reading between the lines you have a more traditional VTI/VXUS portfolio and want to tilt and are proposing some percent of 50/50 AVUV/AVDV added to achieve that; that sounds like a very sound plan and I agree there is no need to complicate things with a dedicated EM-value fund as without an overweight to EM, the % of portfolio would be so small it would barely move the needle.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

MotoTrojan wrote: Tue Sep 15, 2020 4:24 pm
manlymatt83 wrote: Tue Sep 15, 2020 4:07 pm
caklim00 wrote: Tue Sep 15, 2020 2:45 pm
manlymatt83 wrote: Tue Sep 15, 2020 1:32 pm
caklim00 wrote: Tue Sep 15, 2020 1:27 pm
I think you mean DLS instead of DGS (developed not EM).

I moved from SLYV to AVUV where I could (SLYV is tax loss harvest parter now and have a bunch with gain so not moving that). I know use AVDV instead of other funds like ISCF, FNDC, or DLS. I moved out of DLS years ago due to the high ER. ISCF or FNDC will be tax loss harvest partner for AVDV for me. I have an affinity for ISCF over FNDC but FNDC has much higher trading volume. AVDV is easy to trade though.
You're right, I actually meant DLS. That being said, AVEM doesn't seem to be SCV emerging markets... seems to be total emerging markets. So that being said, might a portfolio of 50% AVUV, 40% AVDV, and 10% DGS make sense?
That could be an option. I have a lot tied to 401k/403b where there is no value tilt option and no small cap international so I just end up trying to do a 50/50 US International split and then try to go 1/4 EM, 3/4 Developed where I'm using funds to split between Dev and EM. I moved out of DGS a little over a year ago and just went into DFEVX (DFA EM Value all cap). Its been my worst performing fund of course. I did make the move since I kept hearing about additional transaction costs in the small cap EM space. I'll likely just use AVEM in taxable and perhaps the new DFA Core ETF if it ever comes out.
Interesting thoughts. I get Emerging Markets exposure via my VXUS holding. Doesn't seem like I'd want to add AVEM on top of that, otherwise I'd end up with a tilt towards emerging markets as a whole? Perhaps I'll just dump my DGS and go 50/50 AVUV/AVDV... and just not have any small cap value with emerging markets.
If I am reading between the lines you have a more traditional VTI/VXUS portfolio and want to tilt and are proposing some percent of 50/50 AVUV/AVDV added to achieve that; that sounds like a very sound plan and I agree there is no need to complicate things with a dedicated EM-value fund as without an overweight to EM, the % of portfolio would be so small it would barely move the needle.
This is correct! Thank you. I will just do 50/50 AVUV and AVDV and forget the DGS (EM) allocation in SCV.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

MotoTrojan wrote: Tue Sep 15, 2020 4:20 pm
manlymatt83 wrote: Tue Sep 15, 2020 1:25 pm
Massdriver wrote: Tue Sep 15, 2020 1:22 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
During the sell off, I sold 2/3 of my VSS position for AVDV. I sold VBR and bought SLYV for my SCV domestic (I used to have VBR+IJS for commission free reasons), but wish I would have also TLH my IJS for AVUV.
Interesting that your actions were due to TLH. If you were starting from scratch today, what would you buy between SLYV/IJS, VSS, VBR, DLS, DGS, AVUV, ADVD, and ADEM?
It really did open my eyes up recently when I realized the differences between these are pretty subtle once you adjust for factor exposure. You cannot really answer this question without first deciding how much of a tilt you want. For example, DFA's DFSVX is one of the more potent factor loaders (I would wager AVUV will fall in this realm). Let's say you were comfortable with 75/25 S&P500 (VFINX)/DFSVX; we can then use Portfolio Visualizer's Match Factor Exposure tool to find an equivalent portfolio of VFINX/VBR (VBR is a much less aggressive tilt, but also cheaper fund). We find that to match exposures the tilt increases to a whopping 65/35 VFINX/VBR, a 40% relative increase in small-value tilt. Even more powerful though, you can see the portfolio with VBR actually outperformed the one with DFSVX, in part because VBR's expense ratio is far lower.

https://www.portfoliovisualizer.com/mat ... tion2_1=75

The biggest takeaway here is that you may not actually need these more expensive funds unless you are constrained by available funds (most of funds in 401k in broad index, and only a small amount of IRA space for factor exposure), or want a more aggressive tilt than 100% VBR.
The above is a great post! Very well said.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
nzahir
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Re: Small Cap Value heads Rejoice !!!

Post by nzahir »

Having a tough time figuring out what SCV fund to pick for the US and now I am wondering if I should have SCV for International or if it gets too complicated/not worth it

DFA is not available to me easily. I do have access to Avantis though
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

nzahir wrote: Tue Sep 15, 2020 4:44 pm Having a tough time figuring out what SCV fund to pick for the US and now I am wondering if I should have SCV for International or if it gets too complicated/not worth it

DFA is not available to me easily. I do have access to Avantis though
I think it’s reasonable to just start with US-only. Most of ex-US is a value stock by comparison already :).
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Steve Reading wrote: Tue Sep 15, 2020 4:44 pm
MotoTrojan wrote: Tue Sep 15, 2020 4:20 pm
manlymatt83 wrote: Tue Sep 15, 2020 1:25 pm
Massdriver wrote: Tue Sep 15, 2020 1:22 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
During the sell off, I sold 2/3 of my VSS position for AVDV. I sold VBR and bought SLYV for my SCV domestic (I used to have VBR+IJS for commission free reasons), but wish I would have also TLH my IJS for AVUV.
Interesting that your actions were due to TLH. If you were starting from scratch today, what would you buy between SLYV/IJS, VSS, VBR, DLS, DGS, AVUV, ADVD, and ADEM?
It really did open my eyes up recently when I realized the differences between these are pretty subtle once you adjust for factor exposure. You cannot really answer this question without first deciding how much of a tilt you want. For example, DFA's DFSVX is one of the more potent factor loaders (I would wager AVUV will fall in this realm). Let's say you were comfortable with 75/25 S&P500 (VFINX)/DFSVX; we can then use Portfolio Visualizer's Match Factor Exposure tool to find an equivalent portfolio of VFINX/VBR (VBR is a much less aggressive tilt, but also cheaper fund). We find that to match exposures the tilt increases to a whopping 65/35 VFINX/VBR, a 40% relative increase in small-value tilt. Even more powerful though, you can see the portfolio with VBR actually outperformed the one with DFSVX, in part because VBR's expense ratio is far lower.

https://www.portfoliovisualizer.com/mat ... tion2_1=75

The biggest takeaway here is that you may not actually need these more expensive funds unless you are constrained by available funds (most of funds in 401k in broad index, and only a small amount of IRA space for factor exposure), or want a more aggressive tilt than 100% VBR.
The above is a great post! Very well said.
Coming from you, means a lot! Certainly picked this up from our chats/banters on here (along with lots Robert T's gems).

I'm still naughty with my QVAL/IVAL intrigue, but still moving in the direction of seeing what really matters and not being too caught up in the flashiness of new products.
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Re: Small Cap Value heads Rejoice !!!

Post by Robert T »

MotoTrojan wrote: Tue Sep 15, 2020 5:38 pm It really did open my eyes up recently when I realized the differences between these are pretty subtle once you adjust for factor exposure. You cannot really answer this question without first deciding how much of a tilt you want. For example, DFA's DFSVX is one of the more potent factor loaders (I would wager AVUV will fall in this realm). Let's say you were comfortable with 75/25 S&P500 (VFINX)/DFSVX; we can then use Portfolio Visualizer's Match Factor Exposure tool to find an equivalent portfolio of VFINX/VBR (VBR is a much less aggressive tilt, but also cheaper fund). We find that to match exposures the tilt increases to a whopping 65/35 VFINX/VBR, a 40% relative increase in small-value tilt. Even more powerful though, you can see the portfolio with VBR actually outperformed the one with DFSVX, in part because VBR's expense ratio is far lower.

https://www.portfoliovisualizer.com/mat ... tion2_1=75

The biggest takeaway here is that you may not actually need these more expensive funds unless you are constrained by available funds (most of funds in 401k in broad index, and only a small amount of IRA space for factor exposure), or want a more aggressive tilt than 100% VBR.
+1. Yes.

Over the years we have certainly received the marketing spin on DFA funds i.e. we were told that DFA funds were far superior because of:
  • • block trading,
    • more frequent rebalancing,
    • momentum screens,
    • IPO exclusions,
    • hold ranges,
    • security lending,
    • low price and low market cap filters,
    • patient trading,
    • avoiding impure size/value securities such as REITs and regulated securities,
    • more stock holdings to avoid idiosyncratic risk, etc.
And were told that all these benefits compound into 1-3% alpha beyond factor exposure (conveniently and implicitly saying the additional alpha was more than enough to offset any fees advisors charge)…

This was never a credible argument.

Don Keim’s research (on An analysis of mutual fund design: the case of investing in small-cap stocks) showed that DFA’s stock inclusion/exclusion rules (e.g. hold ranges, IPO exclusions, low price/market cap restrictions) and trading strategy (e.g. patient and block trading) simply changed factor exposure rather than added alpha.

And I have tracked the performance of a DFA portfolio with a factor matched non-DFA portfolio for many years (17+ years) and the annualized returns over the full period have been the same i.e. no persistent, long-term 1-3% alpha beyond factor exposure. Those expecting it would have been disappointed.

Not saying that DFA funds are bad, I use them in a 529, just not expecting anything beyond factor exposure.

Out of interest, I recently checked the equity factor loads of the ”DFA Balanced Strategy”. With available data, it came to 1.00/0.24/0.40 for the market/size/value loads. Not too dissimilar to my long-term 0.2/0.4 size/value load targets, although I hold more international - 50:50 vs. 70:30, and a much more simplified (non-DFA) portfolio. Don’t think I am missing much, if anything.

As Bernstein said in 2002 – “Over the long haul, what matters is factor exposure and expense.” http://socialize.morningstar.com/NewSoc ... ID=1347999 . And I take expense to be total costs (including expense ratios, taxes, and any residual negative alpha).

You will rarely find someone promoting DFA funds comparing them to a factor matched non-DFA portfolio - and for good reason as differences disappear (re: Bernstein's quote).
.
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

manlymatt83 wrote: Tue Sep 15, 2020 4:33 pm
MotoTrojan wrote: Tue Sep 15, 2020 4:24 pm
manlymatt83 wrote: Tue Sep 15, 2020 4:07 pm
caklim00 wrote: Tue Sep 15, 2020 2:45 pm
manlymatt83 wrote: Tue Sep 15, 2020 1:32 pm

You're right, I actually meant DLS. That being said, AVEM doesn't seem to be SCV emerging markets... seems to be total emerging markets. So that being said, might a portfolio of 50% AVUV, 40% AVDV, and 10% DGS make sense?
That could be an option. I have a lot tied to 401k/403b where there is no value tilt option and no small cap international so I just end up trying to do a 50/50 US International split and then try to go 1/4 EM, 3/4 Developed where I'm using funds to split between Dev and EM. I moved out of DGS a little over a year ago and just went into DFEVX (DFA EM Value all cap). Its been my worst performing fund of course. I did make the move since I kept hearing about additional transaction costs in the small cap EM space. I'll likely just use AVEM in taxable and perhaps the new DFA Core ETF if it ever comes out.
Interesting thoughts. I get Emerging Markets exposure via my VXUS holding. Doesn't seem like I'd want to add AVEM on top of that, otherwise I'd end up with a tilt towards emerging markets as a whole? Perhaps I'll just dump my DGS and go 50/50 AVUV/AVDV... and just not have any small cap value with emerging markets.
If I am reading between the lines you have a more traditional VTI/VXUS portfolio and want to tilt and are proposing some percent of 50/50 AVUV/AVDV added to achieve that; that sounds like a very sound plan and I agree there is no need to complicate things with a dedicated EM-value fund as without an overweight to EM, the % of portfolio would be so small it would barely move the needle.
This is correct! Thank you. I will just do 50/50 AVUV and AVDV and forget the DGS (EM) allocation in SCV.
Nothing wrong with that. I have a slight overweight to EM, but not by much. I believe there are some on here that do equal amounts Dev vs EM or even more EM than Dev. You heard a lot more of that about 10 years ago by the way. I've always wanted to stay more in line with the market even though I do my small and value tilts.

I went through a similar exercise when it came to microcap. Smallhi (search on his name on here in case you haven't been around here for over 10 years) gave me some advice I've tried to follow: whatever you do, don't switch back and forth between strategies. In my case I was trying to decide whether to just tilt to SCV or also include microcap (via BRSIX). I decided not to do microcap...

I'm hoping 10 years from now there are people talking about how they can leverage up on small value and EM value.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

caklim00 wrote: Tue Sep 15, 2020 8:56 pm In my case I was trying to decide whether to just tilt to SCV or also include microcap (via BRSIX). I decided not to do microcap...

Rumor is that Carlisle's newly acquired DEEP ETF will be transitioning in the next month or so to a micro/small deep-value ETF :twisted:.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

MotoTrojan wrote: Tue Sep 15, 2020 5:38 pm
Steve Reading wrote: Tue Sep 15, 2020 4:44 pm
MotoTrojan wrote: Tue Sep 15, 2020 4:20 pm
manlymatt83 wrote: Tue Sep 15, 2020 1:25 pm
Massdriver wrote: Tue Sep 15, 2020 1:22 pm

During the sell off, I sold 2/3 of my VSS position for AVDV. I sold VBR and bought SLYV for my SCV domestic (I used to have VBR+IJS for commission free reasons), but wish I would have also TLH my IJS for AVUV.
Interesting that your actions were due to TLH. If you were starting from scratch today, what would you buy between SLYV/IJS, VSS, VBR, DLS, DGS, AVUV, ADVD, and ADEM?
It really did open my eyes up recently when I realized the differences between these are pretty subtle once you adjust for factor exposure. You cannot really answer this question without first deciding how much of a tilt you want. For example, DFA's DFSVX is one of the more potent factor loaders (I would wager AVUV will fall in this realm). Let's say you were comfortable with 75/25 S&P500 (VFINX)/DFSVX; we can then use Portfolio Visualizer's Match Factor Exposure tool to find an equivalent portfolio of VFINX/VBR (VBR is a much less aggressive tilt, but also cheaper fund). We find that to match exposures the tilt increases to a whopping 65/35 VFINX/VBR, a 40% relative increase in small-value tilt. Even more powerful though, you can see the portfolio with VBR actually outperformed the one with DFSVX, in part because VBR's expense ratio is far lower.

https://www.portfoliovisualizer.com/mat ... tion2_1=75

The biggest takeaway here is that you may not actually need these more expensive funds unless you are constrained by available funds (most of funds in 401k in broad index, and only a small amount of IRA space for factor exposure), or want a more aggressive tilt than 100% VBR.
The above is a great post! Very well said.
Coming from you, means a lot! Certainly picked this up from our chats/banters on here (along with lots Robert T's gems).

I'm still naughty with my QVAL/IVAL intrigue, but still moving in the direction of seeing what really matters and not being too caught up in the flashiness of new products.
Bruh, all I know, I learned from Robert T, the OG factor tilter.
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YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

manlymatt83 wrote: Tue Sep 15, 2020 1:32 pm
caklim00 wrote: Tue Sep 15, 2020 1:27 pm
manlymatt83 wrote: Tue Sep 15, 2020 12:33 pm Did anyone else replace their SLYV/DGS holdings with AVUV/AVDV? Just curious. And if so, did you dump your entire SLYV/DGS?
I think you mean DLS instead of DGS (developed not EM).

I moved from SLYV to AVUV where I could (SLYV is tax loss harvest parter now and have a bunch with gain so not moving that). I know use AVDV instead of other funds like ISCF, FNDC, or DLS. I moved out of DLS years ago due to the high ER. ISCF or FNDC will be tax loss harvest partner for AVDV for me. I have an affinity for ISCF over FNDC but FNDC has much higher trading volume. AVDV is easy to trade though.
You're right, I actually meant DLS. That being said, AVEM doesn't seem to be SCV emerging markets... seems to be total emerging markets. So that being said, might a portfolio of 50% AVUV, 40% AVDV, and 10% DGS make sense?
I think that makes a lot of sense. If you believe in the small/value premium, why not play at 3 courts?

If the historical data is any indication it will likely pay off: https://www.ifa.com/portfolios/100/#4

DGS has outperformed VWO since inception: https://www.portfoliovisualizer.com/bac ... ion2_2=100
Last edited by YRT70 on Wed Sep 16, 2020 2:38 am, edited 2 times in total.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

MotoTrojan wrote: Tue Sep 15, 2020 4:07 pm I suppose my conclusion is that even a small-blend fund in the S&P600 will have some value exposure, but I personally would still use the value variant. Even the R2K seems to load positively on value (see below); this isn't surprising once you realize that HML is anchored to a long-short portfolio of 50/50 large/small, and the small-caps make up a larger portion of the value exposure in general. So just by moving towards small-caps without any other sorts, you will naturally get value exposure.

https://www.portfoliovisualizer.com/fac ... sion=false
Thanks, that was my question.

Edit: I just ran PV with IJS (small value) vs. IJT (small blend). I didn't expect the lines would be so close together for most of the time, even when the value outperformance happened around 2001. As expected since 2017 IJT has been doing better, resulting in better total performance.
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Last edited by YRT70 on Wed Sep 16, 2020 6:22 am, edited 1 time in total.
rascott
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Re: Small Cap Value heads Rejoice !!!

Post by rascott »

MotoTrojan wrote: Tue Sep 15, 2020 4:07 pm
YRT70 wrote: Tue Sep 15, 2020 12:26 pm
MotoTrojan wrote: Tue Sep 15, 2020 8:55 am
YRT70 wrote: Tue Sep 15, 2020 8:38 am
dml130 wrote: Mon Sep 14, 2020 9:32 am Would anybody advocate investing in the broader s&p 600 (as opposed to specifically s&p 600 value) as a sufficient value position at this point in time? I was looking at morningstar metrics and s&p 600 average p/s is .78 and price to cash flow is about 6, for example. That to me seems to have a value tilt with the added benefit of more diversification and maybe more quality metrics. Any thoughts?
As far as I know that could be just temporarily. Next month the metrics could look a lot less 'valuey'.
The 5-factor regression I posted above from 2005 to present (below again) shows a statistically significant 0.12 loading to HML which is a good chunk of the 0.33 the value variant had.

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

If you prefer the classic 3-factor then the blend nets a full 0.23 out of 0.45.

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

If you look at the rolling regression you'll note that HML has been drifting higher for both variants, although a much larger relative move on the blended fund. Even the growth fund has had several years now in the 0.15-0.20 realm.
Interesting. So what's your conclusion?
What's your question?

I suppose my conclusion is that even a small-blend fund in the S&P600 will have some value exposure, but I personally would still use the value variant. Even the R2K seems to load positively on value (see below); this isn't surprising once you realize that HML is anchored to a long-short portfolio of 50/50 large/small, and the small-caps make up a larger portion of the value exposure in general. So just by moving towards small-caps without any other sorts, you will naturally get value exposure.

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

I seem to recall a mention that even IJT (Sp600 growth) actually has a tiny bit of value tilt?
occambogle
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Re: Small Cap Value heads Rejoice !!!

Post by occambogle »

I'm not doing value tilts and not sure if this has been posted already but maybe interesting for those on this thread, a shout out to AVUV:

https://seekingalpha.com/article/437413 ... tual-funds
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

occambogle wrote: Wed Sep 16, 2020 5:51 am I'm not doing value tilts and not sure if this has been posted already but maybe interesting for those on this thread, a shout out to AVUV:

https://seekingalpha.com/article/437413 ... tual-funds
They never explain what makes an attractive vs. unattractive stock, seems odd.
YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

...double...
Last edited by YRT70 on Wed Sep 16, 2020 7:00 am, edited 1 time in total.
YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

I just did a 5 factor analysis of VFMF. Only size and value get a significant loading, profitability and investment don't. Funds like SLYV and VIOV give stronger loading on size and value while they have lower expense ratios than VFMF. Can someone explain the appeal of VFMF?

https://www.portfoliovisualizer.com/fac ... sion=false
muffins14
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Re: Small Cap Value heads Rejoice !!!

Post by muffins14 »

YRT70 wrote: Wed Sep 16, 2020 7:00 am I just did a 5 factor analysis of VFMF. Only size and value get a significant loading, profitability and investment don't. Funds like SLYV and VIOV give stronger loading on size and value while they have lower expense ratios than VFMF. Can someone explain the appeal of VFMF?

https://www.portfoliovisualizer.com/fac ... sion=false
By design, I do not think VFMF is targeting 5 factors, but 4, so explicitly targeting momentum rather than profitability and investment. It does have significant loading on all factors in the 4-factor model

The draw then, is that you get more momentum and less size
Last edited by muffins14 on Wed Sep 16, 2020 7:20 am, edited 1 time in total.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

YRT70 wrote: Wed Sep 16, 2020 7:00 am I just did a 5 factor analysis of VFMF. Only size and value get a significant loading, profitability and investment don't. Funds like SLYV and VIOV give stronger loading on size and value while they have lower expense ratios than VFMF. Can someone explain the appeal of VFMF?

https://www.portfoliovisualizer.com/fac ... sion=false
4-factor (momentum) shows significant momentum, but also a frightening (for such a diverse fund) -3% annualized alpha.

When switching to daily regression all of the values get (barely) statistically significant. Perhaps the fund just hasn't be around long enough for a rolling monthly regression to be very meaningful?

On that note, would love to hear more from the regression wizards on best practices for a proper regression, assuming you have good long-term data. Is the default PV 36-month rolling the way to go? Daily? Something else?
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

muffins14 wrote: Wed Sep 16, 2020 7:18 am
YRT70 wrote: Wed Sep 16, 2020 7:00 am I just did a 5 factor analysis of VFMF. Only size and value get a significant loading, profitability and investment don't. Funds like SLYV and VIOV give stronger loading on size and value while they have lower expense ratios than VFMF. Can someone explain the appeal of VFMF?

https://www.portfoliovisualizer.com/fac ... sion=false
By design, I do not think VFMF is targeting 5 factors, but 4, so explicitly targeting momentum rather than profitability and investment. It does have significant loading on all factors in the 4-factor model
Quality is also a component of VFMF, which would show up on a 5-factor, along with low-volatility.
muffins14
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Re: Small Cap Value heads Rejoice !!!

Post by muffins14 »

MotoTrojan wrote: Wed Sep 16, 2020 7:19 am
YRT70 wrote: Wed Sep 16, 2020 7:00 am I just did a 5 factor analysis of VFMF. Only size and value get a significant loading, profitability and investment don't. Funds like SLYV and VIOV give stronger loading on size and value while they have lower expense ratios than VFMF. Can someone explain the appeal of VFMF?

https://www.portfoliovisualizer.com/fac ... sion=false
4-factor (momentum) shows significant momentum, but also a frightening (for such a diverse fund) -3% annualized alpha.

When switching to daily regression all of the values get (barely) statistically significant. Perhaps the fund just hasn't be around long enough for a rolling monthly regression to be very meaningful?

On that note, would love to hear more from the regression wizards on best practices for a proper regression, assuming you have good long-term data. Is the default PV 36-month rolling the way to go? Daily? Something else?
There are only ~31 unique monthly values in the dataset since VFMF launched, so not much data there to give you a precise estimate of regression coefficients
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

muffins14 wrote: Wed Sep 16, 2020 7:24 am
MotoTrojan wrote: Wed Sep 16, 2020 7:19 am
YRT70 wrote: Wed Sep 16, 2020 7:00 am I just did a 5 factor analysis of VFMF. Only size and value get a significant loading, profitability and investment don't. Funds like SLYV and VIOV give stronger loading on size and value while they have lower expense ratios than VFMF. Can someone explain the appeal of VFMF?

https://www.portfoliovisualizer.com/fac ... sion=false
4-factor (momentum) shows significant momentum, but also a frightening (for such a diverse fund) -3% annualized alpha.

When switching to daily regression all of the values get (barely) statistically significant. Perhaps the fund just hasn't be around long enough for a rolling monthly regression to be very meaningful?

On that note, would love to hear more from the regression wizards on best practices for a proper regression, assuming you have good long-term data. Is the default PV 36-month rolling the way to go? Daily? Something else?
There are only ~31 unique monthly values in the dataset since VFMF launched, so not much data there to give you a precise estimate of regression coefficients
Indeed, so would a daily regression be more applicable (which PV supports for US funds)?
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Re: Small Cap Value heads Rejoice !!!

Post by muffins14 »

I would think yes, since they are unique and independent measurements, so you 365x your dataset size
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

YRT70 wrote: Wed Sep 16, 2020 7:00 am I just did a 5 factor analysis of VFMF. Only size and value get a significant loading, profitability and investment don't. Funds like SLYV and VIOV give stronger loading on size and value while they have lower expense ratios than VFMF. Can someone explain the appeal of VFMF?

https://www.portfoliovisualizer.com/fac ... sion=false
I mentioned earlier in the thread that a friend and I sat down once with a Bloomberg terminal, wrote a small R script, and backtested a simulated VFMF strategy. We then regressed the returns against various factor models and decided to invest in it ever since. The methodology was excellent from a factor exposure standpoint so far, which makes sense because it's very good methodology.

I won't share values but here's some commentary to get your brain juices flowing:
- From the methodology, VFMF targets momentum, value and quality. Its construction of equal weighting small/mid/large should shield a size tilt as well. And its low-volatility screen should produce at least neutral (and maybe even slightly positive) investment loading.
- In our data, we confirmed exactly that. Investment was about zero and statistically insignificant but every other load reasonably positive and very statistically significant. It doesn't load as much on each factor as a dedicated factor fund does. But I don't think you can reach as high of an overall load by having multiple, dedicated factor funds. In other words, VFMF > VFVA/3+VFMO/3+VFQY/3.
- The Vanguard factor funds are actively managed, which means Vanguard chooses, for instance, how often to rebalance. And they exploit that: during March, they waited to rebalance VFVA for instance, while they rebalanced VFMV. I personally like that since I prefer a strategy that rebalances based on certain signals by experts trying to obtain as high of a factor load, than just arbitrarily every quarter.
- The measures are all composites, an excellent choice by Vanguard. And they're all reasonably logical, nothing silly like "dividends".

I don't go out of my way to recommend funds, but this is one fund that is very impressive. I want them to come out with the International versions already!
muffins14 wrote: Wed Sep 16, 2020 7:18 am
YRT70 wrote: Wed Sep 16, 2020 7:00 am I just did a 5 factor analysis of VFMF. Only size and value get a significant loading, profitability and investment don't. Funds like SLYV and VIOV give stronger loading on size and value while they have lower expense ratios than VFMF. Can someone explain the appeal of VFMF?

https://www.portfoliovisualizer.com/fac ... sion=false
By design, I do not think VFMF is targeting 5 factors, but 4, so explicitly targeting momentum rather than profitability and investment. It does have significant loading on all factors in the 4-factor model

The draw then, is that you get more momentum and less size
It targets quality, which should result in a very strong profitability load as they're so tightly correlated.
MotoTrojan wrote: Wed Sep 16, 2020 7:19 am On that note, would love to hear more from the regression wizards on best practices for a proper regression, assuming you have good long-term data. Is the default PV 36-month rolling the way to go? Daily? Something else?
I don't use PV but I like Robert T's approach: Get monthly data and regress against the monthly Fama-French dataset

Rolling returns is strange. FF already has data with resolution as short as a month so that would give you the most independent observations for regression.

I wouldn't do anything less than a month though since FF doesn't provide that. I don't know how PV can do a FF regression with daily values, perhaps they're synthesizing FF regression data?
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MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Steve Reading wrote: Wed Sep 16, 2020 8:30 am
I mentioned earlier in the thread that a friend and I sat down once with a Bloomberg terminal, wrote a small R script, and backtested a simulated VFMF strategy. We then regressed the returns against various factor models and decided to invest in it ever since. The methodology was excellent from a factor exposure standpoint so far, which makes sense because it's very good methodology.
Sounds like fun! I spent a little more time recently reading through the Vanguard methodology again and I have to say it is well constructed indeed. I still haven't gotten onboard with momentum, and don't know much at all about low-volatility (another factor VFMF targets), but VFVA does sound like a great bang-for-your-buck. I think a Value & Quality composite fund would be the dream; essentially Avantis but with composite scores and split between size ranges.

It has had a strong negative alpha (-3%) but of course it hasn't lived a long life so this is noise. Shown here you could use MTUM, VFVA, and VBR to get pretty close 4-factor exposures without realizing that alpha-drag:

https://www.portfoliovisualizer.com/mat ... UAL_WEIGHT
Steve Reading wrote: Wed Sep 16, 2020 8:30 am
But I don't think you can reach as high of an overall load by having multiple, dedicated factor funds. In other words, VFMF > VFVA/3+VFMO/3+VFQY/3.
Interesting point. The distinction between mixing dedicated factor funds and using a composite fund is an area of interest. Seems like there are lots of contradictory opinions.
Steve Reading wrote: Wed Sep 16, 2020 8:30 am
I don't use PV but I like Robert T's approach: Get monthly data and regress against the monthly Fama-French dataset

Rolling returns is strange. FF already has data with resolution as short as a month so that would give you the most independent observations for regression.

I wouldn't do anything less than a month though since FF doesn't provide that. I don't know how PV can do a FF regression with daily values, perhaps they're synthesizing FF regression data?
Thanks for the advice. Upon taking another look I think the "Roll Period" input (12 - 60 months in 12 month increments a options) is not used for the actual regression, but only for the Rolling Factor Analysis in which they show how factor exposures change over time, so just smoothing that data to remove some of the noise.
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Steve Reading wrote: Wed Sep 16, 2020 8:30 am I mentioned earlier in the thread that a friend and I sat down once with a Bloomberg terminal, wrote a small R script, and backtested a simulated VFMF strategy. We then regressed the returns against various factor models and decided to invest in it ever since. The methodology was excellent from a factor exposure standpoint so far, which makes sense because it's very good methodology.
I liked VFMF when I first saw it. I had looked into using VFMF as my core US holding in lieu of VTI. But I also tilt small cap value via SLYV and now AVUV, and when I did some research back then with a friend (I have no idea what he did tbh), it looked like there could be situations where VFMF and SLYV cancelled each other out as something could sell from “value” and buy in “momentum” at the same instant. I’m probably not using the right terminology.

But is it safe to say something like VFMF would replace any other value tilts, at least domestically?
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

manlymatt83 wrote: Wed Sep 16, 2020 8:46 am
Steve Reading wrote: Wed Sep 16, 2020 8:30 am I mentioned earlier in the thread that a friend and I sat down once with a Bloomberg terminal, wrote a small R script, and backtested a simulated VFMF strategy. We then regressed the returns against various factor models and decided to invest in it ever since. The methodology was excellent from a factor exposure standpoint so far, which makes sense because it's very good methodology.
I liked VFMF when I first saw it. I had looked into using VFMF as my core US holding in lieu of VTI. But I also tilt small cap value via SLYV and now AVUV, and when I did some research back then with a friend (I have no idea what he did tbh), it looked like there could be situations where VFMF and SLYV cancelled each other out as something could sell from “value” and buy in “momentum” at the same instant. I’m probably not using the right terminology.

But is it safe to say something like VFMF would replace any other value tilts, at least domestically?
The value tilt of VFMF is mild, it's not meant to be a "value-replacing" fund. If you want value and size, stick to SLYV. If you, like me, wants value, profitability, while maintaining neutral to maybe even positive momentum (to offset negative momentum of other value holdings), and wants it distributed across all market caps then VFMF is a great choice.
MotoTrojan wrote: Wed Sep 16, 2020 8:45 am
Steve Reading wrote: Wed Sep 16, 2020 8:30 am
I mentioned earlier in the thread that a friend and I sat down once with a Bloomberg terminal, wrote a small R script, and backtested a simulated VFMF strategy. We then regressed the returns against various factor models and decided to invest in it ever since. The methodology was excellent from a factor exposure standpoint so far, which makes sense because it's very good methodology.
Sounds like fun! I spent a little more time recently reading through the Vanguard methodology again and I have to say it is well constructed indeed. I still haven't gotten onboard with momentum, and don't know much at all about low-volatility (another factor VFMF targets), but VFVA does sound like a great bang-for-your-buck. I think a Value & Quality composite fund would be the dream; essentially Avantis but with composite scores and split between size ranges.

It has had a strong negative alpha (-3%) but of course it hasn't lived a long life so this is noise. Shown here you could use MTUM, VFVA, and VBR to get pretty close 4-factor exposures without realizing that alpha-drag:

https://www.portfoliovisualizer.com/mat ... UAL_WEIGHT
I don't actively tilt to momentum, but my various value funds bring some negative momentum so actually VFMF's mild positive momentum is a feature, not a bug, for me. VFMF doesn't target low-volatility, it just has a screen for it. So you should expect a beta smaller than most small-cap funds (which already tends to be higher than 1.0). I found the beta was basically 1.0, which makes sense.

Agreed that an Avantis fund that split across size ranges, and used composites, would be the best IMO.

As for the alpha, it's not even statistically significant in a 4-Factor regression at PV. My simulated data has no negative or positive alpha, and very statistically insignificant. Somehow, alpha is just not something I'm worried about in this fund.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
HippoSir
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

Steve Reading wrote: Wed Sep 16, 2020 8:30 am I don't go out of my way to recommend funds, but this is one fund that is very impressive. I want them to come out with the International versions already!
Very much agree with this, and I really want an International version to replace my iShares multifactor.

One other thing I find quite attractive about VFMF (and other Vanguard factor funds), is the use of percentile score rather than z-score in weighting. It avoids watering down factor exposure with market cap weights, but simultaneously provides great diversification unlike a pure z-score weighting.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

HippoSir wrote: Wed Sep 16, 2020 10:19 am
Steve Reading wrote: Wed Sep 16, 2020 8:30 am I don't go out of my way to recommend funds, but this is one fund that is very impressive. I want them to come out with the International versions already!
Very much agree with this, and I really want an International version to replace my iShares multifactor.

One other thing I find quite attractive about VFMF (and other Vanguard factor funds), is the use of percentile score rather than z-score in weighting. It avoids watering down factor exposure with market cap weights, but simultaneously provides great diversification unlike a pure z-score weighting.
I’m not as familiar with Z-score vs. percentile. I know Avantis weights based on “expected return” composite of value and profitability, any idea what camp they fall into?
YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

With so many ways to calculate factor exposure and so many ways to compose portfolio's I'm a bit lost. Maybe some of you have some input.

My situation in short: early retiree with 50% fixed income 50% equity. (I'm using a rising equity glide path so looking to slowly increase my equity exposure over time). First life was simple. Because of European rules I could only access a very small selection of American based ETFs. So my equity portfolio became:
50% TSM (VTI/VXUS)
50% SCV (IJS/DLS/DGS)

Now due to some changes at my broker I can access every American based ETF. So AVUV, AVDV, VFMF, VIOV, everything is possible. Originally I was thinking to go to something like:
50% TSM (VTI/VXUS)
50% SCV (AVUV/AVDV/DGS)

But I don't know if I could better use something like VFMF or other ETFs.

Any advice?
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

I'm still not sure about momentum with small caps. Seems the transaction costs associated with the turnover is much higher in the small cap space. This was one thing that drew me towards Avantis is that they have some screens to avoid negative momentum and delay selling a stock exhibiting positive momentum but don't specifically target momentum stocks like they do with value and profitability. I will definitely be happier when there is more data to run the regressions against.
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

MotoTrojan wrote: Wed Sep 16, 2020 10:42 am
HippoSir wrote: Wed Sep 16, 2020 10:19 am
Steve Reading wrote: Wed Sep 16, 2020 8:30 am I don't go out of my way to recommend funds, but this is one fund that is very impressive. I want them to come out with the International versions already!
Very much agree with this, and I really want an International version to replace my iShares multifactor.

One other thing I find quite attractive about VFMF (and other Vanguard factor funds), is the use of percentile score rather than z-score in weighting. It avoids watering down factor exposure with market cap weights, but simultaneously provides great diversification unlike a pure z-score weighting.
I’m not as familiar with Z-score vs. percentile. I know Avantis weights based on “expected return” composite of value and profitability, any idea what camp they fall into?
How Avantis weighs is technically different than either but would be closer to a Z-score approach in that sense.
YRT70 wrote: Wed Sep 16, 2020 10:43 am With so many ways to calculate factor exposure and so many ways to compose portfolio's I'm a bit lost. Maybe some of you have some input.

My situation in short: early retiree with 50% fixed income 50% equity. (I'm using a rising equity glide path so looking to slowly increase my equity exposure over time). First life was simple. Because of European rules I could only access a very small selection of American based ETFs. So my equity portfolio became:
50% TSM (VTI/VXUS)
50% SCV (IJS/DLS/DGS)

Now due to some changes at my broker I can access every American based ETF. So AVUV, AVDV, VFMF, VIOV, everything is possible. Originally I was thinking to go to something like:
50% TSM (VTI/VXUS)
50% SCV (AVUV/AVDV/DGS)

But I don't know if I could better use something like VFMF or other ETFs.

Any advice?
I recommend you first take a step back and think about what your beliefs are. Do you believe that factor tilts should produce higher levels of returns? Many BHs don't believe that and it's a perfectly fair stance. An ex-Prof. in Econ (Ben) recently posted in this thread giving strong intuition as to why the factors shouldn't produce outperformance going forward. Read it and see how you feel.

If you've decided to believe that factors will produce outperformance, the next step is to consider if they'll produce higher risk-adjusted outperformance. You can always decrease your bonds and add more stocks for higher risk and higher return. So for you to tilt, you must believe in a free lunch with the tilt over just more stock. Here, people are divided as well. Posters like Dave, writers like Swedroe, folks at Avantis, etc will have you believe there is a diversification benefit and higher-risk adjusted returns. But even Fama himself has very clearly stated he doesn't believe factor tilts produce higher risk-adjusted return. This is the view of many other academics and writers such as Ghayur Khalid. I also concur with Fama and Khalid here.

Now if you've finally decided factors produce outperformance and higher risk-adjusted returns, then you should tilt as much as your tracking error will withstand. Why wouldn't you, it's a free lunch! So you'd go 100% VFMF in your USA holding perhaps, adding VTI only to the extent you need to stay the course.

That's one way to think about it.
Last edited by Steve Reading on Wed Sep 16, 2020 10:59 am, edited 1 time in total.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
nzahir
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Re: Small Cap Value heads Rejoice !!!

Post by nzahir »

MotoTrojan wrote: Tue Sep 15, 2020 4:46 pm
nzahir wrote: Tue Sep 15, 2020 4:44 pm Having a tough time figuring out what SCV fund to pick for the US and now I am wondering if I should have SCV for International or if it gets too complicated/not worth it

DFA is not available to me easily. I do have access to Avantis though
I think it’s reasonable to just start with US-only. Most of ex-US is a value stock by comparison already :).
I don't

International has outperformed the US in about 50% of the years in the past 50 years and US is now very overpriced and International is not.

I do want at least 25% international.

Think I will be:
50% Total Mkt
25% International
25% SCV

Just not sure which SCV etf to pick yet and even International


I will have a small amount of play money in a few indiv stocks likely
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

nzahir wrote: Wed Sep 16, 2020 10:59 am
MotoTrojan wrote: Tue Sep 15, 2020 4:46 pm
nzahir wrote: Tue Sep 15, 2020 4:44 pm Having a tough time figuring out what SCV fund to pick for the US and now I am wondering if I should have SCV for International or if it gets too complicated/not worth it

DFA is not available to me easily. I do have access to Avantis though
I think it’s reasonable to just start with US-only. Most of ex-US is a value stock by comparison already :).
I don't

International has outperformed the US in about 50% of the years in the past 50 years and US is now very overpriced and International is not.

I do want at least 25% international.

Think I will be:
50% Total Mkt
25% International
25% SCV

Just not sure which SCV etf to pick yet and even International


I will have a small amount of play money in a few indiv stocks likely
Apologies if my answer was unclear, but I was only answering with regards to whether or not to include small-value international stocks, not international at all (I absolutely suggest you include them).

The AA you mentioned sounds great to me. As I said before, 25% AVUV or VFVA is different than 25% VBR, so I can't really answer that question. If you think small/value will outperform and want to hold as much as you can tolerate, but have an emotional aversion to that number being bigger than 25%, then go with AVUV or VFVA; just realize that you could likely hold more VBR, maintain the same overall factor exposure, and pay less overall in expenses.

For international I would just go with VXUS. Although if you are comfortable holding a full 25% of portfolio in SCV I think that is large enough to justify splitting up between US & ex-US (say 15% US, 10% ex-US), but not a huge deal either way.
Last edited by MotoTrojan on Wed Sep 16, 2020 11:36 am, edited 2 times in total.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Steve Reading wrote: Wed Sep 16, 2020 10:59 am Here, people are divided as well. Posters like Dave, writers like Swedroe, folks at Avantis, etc will have you believe there is a diversification benefit and higher-risk adjusted returns. But even Fama himself has very clearly stated he doesn't believe factor tilts produce higher risk-adjusted return. This is the view of many other academics and writers such as Ghayur Khalid. I also concur with Fama and Khalid here.

I presume later in life you plan to incorporate some bonds, and I know right now you are using your tilts to help gain some extra leverage via higher expected-returns (albeit as you note you believe, with higher expected risk); do you plan to unwind your tilts or maintain them for life and just dilute with bonds? Sounds like you believe you could just start moving to global cap-weight while staying 100% equity, and then start adding bonds; that would be the lowest expense way to go about it at-least, per your belief.
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