Small Cap Value heads Rejoice !!!

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Anon9001
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

caklim00 wrote: Mon May 10, 2021 7:08 pm RZV from 2010 to 2020 would disagree. I firmly believe that while negative momentum hurt, it was missing out of the good performers directly a result of holding so few stocks.
The time period you chosen is where size, value factor premiums were both negative and S&P 600 Pure Value had high loadings on both along with negative loadings on Momentum factor. Remember with a diversified factor fund your factor loadings are lower in comparison to concentrated factor fund. There is no way to get same factor exposure with a diversified factor fund as you would with a concentrated factor fund. I would also recommend you to read the Alpha Architect article regarding this as he shows the only factor that benefits is Low Beta from diversification due to means not changing when going from 50 to 950 stocks. He covers time period from 1971 to 2020.
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Re: Small Cap Value heads Rejoice !!!

Post by cos »

RovenSkyfall wrote: Mon May 10, 2021 3:52 pm
FiveFactor wrote: Sun May 09, 2021 7:54 am To the comments about some in the RR community using leverage…. If you have both a mortgage and an investment account, you too are using leverage
This is true to some extent, but the volatility is not leveraged up. The probability distribution curves are different from someone who has conventional leverage and someone with a morgage. You may find this article informative: https://www.gordoni.com/effective-altru ... -etfs.html
I'd argue that leveraged ETFs aren't exactly conventional. When I hear "conventional leverage," I think margin loans and futures. Mortgages behave more similarly to those than to leveraged ETFs. Nonetheless, that article should be required reading for anyone deciding between these options. Thanks for sharing! :beer
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Re: Small Cap Value heads Rejoice !!!

Post by RovenSkyfall »

cos wrote: Tue May 11, 2021 6:15 am
RovenSkyfall wrote: Mon May 10, 2021 3:52 pm
FiveFactor wrote: Sun May 09, 2021 7:54 am To the comments about some in the RR community using leverage…. If you have both a mortgage and an investment account, you too are using leverage
This is true to some extent, but the volatility is not leveraged up. The probability distribution curves are different from someone who has conventional leverage and someone with a morgage. You may find this article informative: https://www.gordoni.com/effective-altru ... -etfs.html
I'd argue that leveraged ETFs aren't exactly conventional. When I hear "conventional leverage," I think margin loans and futures. Mortgages behave more similarly to those than to leveraged ETFs. Nonetheless, that article should be required reading for anyone deciding between these options. Thanks for sharing! :beer
Margin calls and friction costs are part of "conventional leverage" which play into the probability density functions and are not included in a mortgage. I am no expert on this and Steve Reading has many posts about this in his Lifecycle Investing post, but the risks of "conventional leverage" and a mortgage are not equivalent.

While a mortgage is theoretically "leverage" because money is fungible, consider these two scenarios and tell me if you think person A has a worse probability density function that person B.

Person A owns a home with a mortgage and their total housing expenses equal $1,500 per month (including insurance). They are in debt for some x due to the mortgage but max out their 401(k) every year.
Person B rents for $1,500 per month and maximizes their 401(k) every year.
Person A and Person B make the same amount of money and invest the same amount of money each year.

While in theory it is true to say that Person A is leveraged, their probability density function for their investment is not much different than Person B's. In reality, as time progresses, Person A's probability density function actually improves because they accumulate equity with their housing cost compared to Person B. I do admit it is possible that if they both lose their jobs, the housing market crashes, their money in the 401K goes to 0 and they cannot pay for housing then Person B is homeless with 0 net worth and Person A is homeless with -[(x- prinicipal payments)- current value of the house] net worth. BUT in this scenario, the person with 2x leverage (conventional or LETF) is much worse off than person A.
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Re: Small Cap Value heads Rejoice !!!

Post by grabiner »

RovenSkyfall wrote: Tue May 11, 2021 8:43 am Margin calls and friction costs are part of "conventional leverage" which play into the probability density functions and are not included in a mortgage. I am no expert on this and Steve Reading has many posts about this in his Lifecycle Investing post, but the risks of "conventional leverage" and a mortgage are not equivalent.

While a mortgage is theoretically "leverage" because money is fungible, consider these two scenarios and tell me if you think person A has a worse probability density function that person B.

Person A owns a home with a mortgage and their total housing expenses equal $1,500 per month (including insurance). They are in debt for some x due to the mortgage but max out their 401(k) every year.
Person B rents for $1,500 per month and maximizes their 401(k) every year.
Person A and Person B make the same amount of money and invest the same amount of money each year.

While in theory it is true to say that Person A is leveraged, their probability density function for their investment is not much different than Person B's.
To make a fair comparison, give them the same net worth. That is, let B have an additional amount invested equal to A's housing equity.

Now B has the option of becoming A at any time, using these investments for a down payment to buy a house comparable to A's.

I made this type of comparison previously: Thoughts on mortgage as a negative bond In that example, I suggested that A (Carol or Daniel in my example) should have a bond holding equal to the mortgage balance, and then have the rest of his portfolio invested with the same stock percentage as B (Bob in my example). Analogously, A could sell bonds to pay off her mortgage (Alice in my example) and then have the same allocation as B but in a smaller portfolio.

But this isn't really right, as the home is an annuity; a homeowner can afford a higher stock allocation because part of her standard of living comes from the home. (I did recognize this myself; I was Bob when I posted it, and become Carol a few months later, increasing my net stock allocation. If I had paid cash for the home as Alice did, I would have gone to 100% stock.)
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Re: Small Cap Value heads Rejoice !!!

Post by FiveFactor »

XacTactX wrote: Mon May 10, 2021 10:24 am I read that Alpha Architect article a week ago and I really enjoyed it. The data makes intuitive sense to me, since factors have a positive expected return, if you sort companies based on factor exposure and you hold a more concentrated portfolio you will have more exposure to factors and a higher expected return. I just wish the results of the Alpha Architect funds would match closer with this expectation so I could have peace of mind to follow the AA approach with QVAL and QMOM. I see the AA funds underperform more generic funds from Vanguard/iShares/Avantis and I hesitate to invest in them. I guess I have a weak stomach.

Moto, kudos for the thorough analysis that you're doing and posting on this forum. Your comments are really informative and helpful :sharebeer
I wouldn’t use them for value. Their value funds are more profitability funds with a value filter. I do own QMOM
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Re: Small Cap Value heads Rejoice !!!

Post by cos »

MotoTrojan wrote: Sat May 08, 2021 1:22 pm
cos wrote: Fri May 07, 2021 7:46 pm
and lacking entirely in emerging markets exposure. How do you justify these conditions?
This is a tougher one but here is my internal thoughts: I don't have a strong reason to overweight EM relative to my overall international, so that would put me at about 10% EM, which just doesn't quite seem like enough to move the needle. Between my 100% factor tilted portfolio and use of concentrated funds, I am already giving up on holding every stock, and in some cases tilting strongly into regions (IVAL has been 45-55% Japan lately), so I prefer to look more so at my overall diversification which I feel is sufficient, even if it has no EM. So for now I take simplicity and good-enough.

-snip-
cos wrote: Fri May 07, 2021 7:46 pm
Also, why not AVDV instead of IVAL?
I actively chose Alpha Architect over Avantis as I strongly believe in their use of an earnings based multiple (EV/EBIT) rather than P/B, and I am onboard with the concentrated value approach, along with their emphasis on quality companies, and believe it will outperform the Avantis/DFA SCV offerings in the long-term (just as it's net 2% costs index has).

-snip-
Whelp, you've convinced me! I'm adding QVAL/IVAL and foregoing AVEM to make more space for heavier factor loadings. Here's the latest iteration of my target portfolio:

10% AVUV
10% AVDV
10% QVAL
10% IVAL
10% QMOM
10% IMOM
40% EDV (GOVZ?)

I'm going to remain in 60/40 UPRO/TMF across accounts for now, but I plan to progressively switch over to the above as each account becomes eligible for portfolio margin or futures (taxes be damned). I'm a big fan of M1 Finance since they make it easy to remain near 100% invested with their "smart transfer" automation and one-click rebalancing, but they provide neither portfolio margin nor futures. It looks like Interactive Brokers might be the next step with these goals in mind since their debit card charges directly to portfolio margin, and they seem to offer similar automation with Capitalise.ai or, should that fail to meet my needs, their API.

Would you recommend any changes to this portfolio? Would you recommend a broker other than Interactive Brokers for implementing it with leverage? Also, while using portfolio margin to leverage this portfolio seems pretty straightforward, how would this work out using futures? Will I be able to safely achieve 180/120 stocks/bonds across accounts like I can with UPRO/TMF?
Last edited by cos on Tue May 18, 2021 7:11 am, edited 2 times in total.
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Re: Small Cap Value heads Rejoice !!!

Post by cos »

RovenSkyfall wrote: Tue May 11, 2021 8:43 am Margin calls and friction costs are part of "conventional leverage" which play into the probability density functions and are not included in a mortgage. I am no expert on this and Steve Reading has many posts about this in his Lifecycle Investing post, but the risks of "conventional leverage" and a mortgage are not equivalent.

While a mortgage is theoretically "leverage" because money is fungible, consider these two scenarios and tell me if you think person A has a worse probability density function that person B.

Person A owns a home with a mortgage and their total housing expenses equal $1,500 per month (including insurance). They are in debt for some x due to the mortgage but max out their 401(k) every year.
Person B rents for $1,500 per month and maximizes their 401(k) every year.
Person A and Person B make the same amount of money and invest the same amount of money each year.

While in theory it is true to say that Person A is leveraged, their probability density function for their investment is not much different than Person B's. In reality, as time progresses, Person A's probability density function actually improves because they accumulate equity with their housing cost compared to Person B. I do admit it is possible that if they both lose their jobs, the housing market crashes, their money in the 401K goes to 0 and they cannot pay for housing then Person B is homeless with 0 net worth and Person A is homeless with -[(x- prinicipal payments)- current value of the house] net worth. BUT in this scenario, the person with 2x leverage (conventional or LETF) is much worse off than person A.
Ah, yes, this makes a lot of sense. I definitely agree that mortgage loans, margin loans, futures, and LETFs each have different probability density functions.

However, I'd like to point out that Person B could similarly improve their PDF with time by paying down their margin loan (or transitioning from LETFs to their unleveraged counterparts) at the same rate that Person A pays down their mortgage. Just like Person A, they'd be accumulating equity but in their stock portfolio rather than their house. Also, if their portfolios were similarly diversified (maybe Person B holds REITs), neither would be significantly worse off in that worst-case scenario you proposed (barring government intervention).
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Re: Small Cap Value heads Rejoice !!!

Post by RovenSkyfall »

cos wrote: Tue May 18, 2021 4:09 am
Ah, yes, this makes a lot of sense. I definitely agree that mortgage loans, margin loans, futures, and LETFs each have different probability density functions.

However, I'd like to point out that Person B could similarly improve their PDF with time by paying down their margin loan (or transitioning from LETFs to their unleveraged counterparts) at the same rate that Person A pays down their mortgage. Just like Person A, they'd be accumulating equity but in their stock portfolio rather than their house. Also, if their portfolios were similarly diversified (maybe Person B holds REITs), neither would be significantly worse off in that worst-case scenario you proposed (barring government intervention).
Regarding the AA funds, it gets significantly more complex than what MotoTrojan wrote. There is a very lengthy discussion about the differences in the RR community forum here. I am still getting through that discussion, but you might want to dive into it if you havent already. A couple of things you might want to look into is how much sense EBIT/TEV makes to you (not straight forward), if you want more midcap exposure and if you think the smaller number of companies with increased ER (and tracking error) is worth it to you.

Regarding the example with renting vs having a mortgage, I may not have been clear enough. Neither person A or B has a margin loan. They have the same living expenses and are putting the same amount in the market. The only difference is that Person A is also paying principal (and interest) rather than a landlord. This decreases future living expenses (why it was previously referenced as an annuity) and can be more related to a bond. By calling mortgages leverage, one is saying person A is leveraged and person B is not, yet they have the same PDF for their investment (as they have the same amount invested in the market). For this reason I disagree with the statement that someone with a mortgage and someone with a margin loan have equal PDFs and leverage.

Now, if person A took out another mortgage on a new house and kept investing in the market I would think that more closely approximates a margin loan. The difference with this scenario is that person A didn't need to take out the mortgage (loan) for the second house to meet their housing needs.

Since everyone needs to pay for their housing, comparing a resident mortgage to rent is more appropriate than comparing a resident mortgage to a margin loan. You are always comparing your choice to the alternative.
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

cos wrote: Tue May 18, 2021 3:52 am
MotoTrojan wrote: Sat May 08, 2021 1:22 pm
cos wrote: Fri May 07, 2021 7:46 pm
and lacking entirely in emerging markets exposure. How do you justify these conditions?
This is a tougher one but here is my internal thoughts: I don't have a strong reason to overweight EM relative to my overall international, so that would put me at about 10% EM, which just doesn't quite seem like enough to move the needle. Between my 100% factor tilted portfolio and use of concentrated funds, I am already giving up on holding every stock, and in some cases tilting strongly into regions (IVAL has been 45-55% Japan lately), so I prefer to look more so at my overall diversification which I feel is sufficient, even if it has no EM. So for now I take simplicity and good-enough.

-snip-
cos wrote: Fri May 07, 2021 7:46 pm
Also, why not AVDV instead of IVAL?
I actively chose Alpha Architect over Avantis as I strongly believe in their use of an earnings based multiple (EV/EBIT) rather than P/B, and I am onboard with the concentrated value approach, along with their emphasis on quality companies, and believe it will outperform the Avantis/DFA SCV offerings in the long-term (just as it's net 2% costs index has).

-snip-
Whelp, you've convinced me! I'm adding QVAL/IVAL and foregoing AVEM to make more space for heavier factor loadings. Here's the latest iteration of my target portfolio:

10% AVUV
10% AVDV
10% QVAL
10% IVAL
10% QMOM
10% IMOM
40% EDV (GOVZ?)
I agree with excluding AVEM due to its low factor exposure, but I disagree with excluding EM entirely. EM is more volatile and less correlated with US equities, which makes it a better diversifier for a US based portfolio. I'm personally using FEMS, but I would also consider DGS, EMGF, and possibly others before excluding EM entirely.
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

Good Swedroe tweet. Small value is bang average in terms of historical valuation even after the recent run.
From Pioneer Amundi
Current P/E as percent of 20 year Average
SV 114%, LG 158%, SG 243%
And value earnings expected to grow faster than for growth (rebounding from steeper drop)
https://twitter.com/larryswedroe/status ... 01186?s=21
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

gtwhitegold wrote: Wed May 19, 2021 12:19 am

I agree with excluding AVEM due to its low factor exposure, but I disagree with excluding EM entirely. EM is more volatile and less correlated with US equities, which makes it a better diversifier for a US based portfolio. I'm personally using FEMS, but I would also consider DGS, EMGF, and possibly others before excluding EM entirely.
Avantis is said to be coming out with more funds later this year so I am hopeful they come out with an EM Value fund similar to DFA's DFEVX.

I am also looking to add some EM exposure, but want a stiffer value tilt. FNDE is my current plan and is quite valuey. Regressions are similar to DFEVX other than a big negative size loading. PXH is a similar version from Invesco (uses book as well, doesn't include buybacks with dividends, believe only rebalances annually where-as FNDE uses a quarterly traunch) which has been around longer and also mirrors DFEVX quite well in returns/regressions.

EMGF looks nice but even less value than AVEM so no-go there. DGS also appealing for smaller-cap but not totally sold on it.

EYLD looks fantastic on characteristics but too much of a black-box for me, I would trust Schwab to have lower cost trading in EM too.

FEMS doesn't seem to have any statistically significant value loading for what it is worth. SmB the only thing with statistical relevance on 3, 4, 5 factor FF EM regression.
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

MotoTrojan wrote: Mon May 24, 2021 9:32 am
gtwhitegold wrote: Wed May 19, 2021 12:19 am

I agree with excluding AVEM due to its low factor exposure, but I disagree with excluding EM entirely. EM is more volatile and less correlated with US equities, which makes it a better diversifier for a US based portfolio. I'm personally using FEMS, but I would also consider DGS, EMGF, and possibly others before excluding EM entirely.
Avantis is said to be coming out with more funds later this year so I am hopeful they come out with an EM Value fund similar to DFA's DFEVX.

I am also looking to add some EM exposure, but want a stiffer value tilt. FNDE is my current plan and is quite valuey. Regressions are similar to DFEVX other than a big negative size loading. PXH is a similar version from Invesco (uses book as well, doesn't include buybacks with dividends, believe only rebalances annually where-as FNDE uses a quarterly traunch) which has been around longer and also mirrors DFEVX quite well in returns/regressions.

EMGF looks nice but even less value than AVEM so no-go there. DGS also appealing for smaller-cap but not totally sold on it.

EYLD looks fantastic on characteristics but too much of a black-box for me, I would trust Schwab to have lower cost trading in EM too.

FEMS doesn't seem to have any statistically significant value loading for what it is worth. SmB the only thing with statistical relevance on 3, 4, 5 factor FF EM regression.
I'm not holding my breath on a SCV EM fund. If trading costs are truly the issue then could just exclude large companies and have it be more of a targeted value EM fund. I decided against FNDE, not a fan of it only holding large companies. AVEM is less tilt but at least I know there is a value, profitability, and negative momentum screens. There do seem to be flaws with all options though. My decision has less to do with the fact that I feel that's the right decision and more to do with the fact that I'm not thrilled with any options.
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

I do wish Avantis would just come out and say which new funds they will be releasing later this year. My hunch is its in the Fixed Income space since they just have 2 funds at the moment. If they are going to do an EM fund they better announce it soon before NTSE gets volume and assets up.
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Re: Small Cap Value heads Rejoice !!!

Post by SafeBonds »

Factorheads,

I have two questions for you about which funds to use in a 401k when you have limited options.

I have the following 3 fund options in my 401k, which fund or combination of funds would you use?

DFA International Value (DFIVX)
DFA International Small (DFISX)
DFA International Vector Equity (DFVQX)

If I had access to DFA International Small Value I would use that 100% but I do not. Portfolio visualizer factor regressions show a 50/50 split of the Value & Small funds has nearly exactly the same factor loadings as a the Vector Equity fund. On one hand we say to use multifactor funds instead of multiple single factor funds to reduce turnover, but the example usually given is a value fund selling a stock right when your momentum fund buys it, so I'm not sure if that argument applies here. Another argument is for simplicity but I don't mind 2 funds vs 1 for this scenario. I suspect you all will suggest using Vector Equity but I have used about a 2:1 split between the Value fund and the Small fund representing my confidence in the factors. I have a large allocation to international and if I had only a small Boglehead-sized international allocation small stocks might be better diversifiers. I own AVDV and DFA International Core in other accounts.

I have the following 2 fund options in my 401k, which would you use?

Institutional S&P 500 fund (very low expense ratio)
Fidelity Large Cap Value Index Fund (FLCOX, very low expense ratio)

Now FLCOX is no AVUV or IJS. In my other accounts I do own AVUV and IJS. I want to tilt as much as possible because I believe these factor funds have market beta around 1 and I would like to diversify among factors and not put all my eggs in the market beta basket. So therefore should I use FLCOX in this account instead of the S&P 500 index fund? I believe so but I want to check with you all.
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

MotoTrojan wrote: Mon May 24, 2021 9:32 am EMGF looks nice but even less value than AVEM so no-go there. DGS also appealing for smaller-cap but not totally sold on it.
Minor thing, but it depends on the metric you measure. EMGF (and most of the iShares multifactor funds) rank poorly on B/P, but do better on P/CF and P/E.

See the factor comparison here: https://www.etf.com/etfanalytics/etf-co ... GF-vs-AVEM

And check out alphaarchitect to see individual metrics.
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Re: Small Cap Value heads Rejoice !!!

Post by XacTactX »

SafeBonds wrote: Tue May 25, 2021 9:51 am Factorheads,

I have two questions for you about which funds to use in a 401k when you have limited options.

I have the following 3 fund options in my 401k, which fund or combination of funds would you use?

DFA International Value (DFIVX)
DFA International Small (DFISX)
DFA International Vector Equity (DFVQX)

If I had access to DFA International Small Value I would use that 100% but I do not. Portfolio visualizer factor regressions show a 50/50 split of the Value & Small funds has nearly exactly the same factor loadings as a the Vector Equity fund. On one hand we say to use multifactor funds instead of multiple single factor funds to reduce turnover, but the example usually given is a value fund selling a stock right when your momentum fund buys it, so I'm not sure if that argument applies here. Another argument is for simplicity but I don't mind 2 funds vs 1 for this scenario. I suspect you all will suggest using Vector Equity but I have used about a 2:1 split between the Value fund and the Small fund representing my confidence in the factors. I have a large allocation to international and if I had only a small Boglehead-sized international allocation small stocks might be better diversifiers. I own AVDV and DFA International Core in other accounts.

I have the following 2 fund options in my 401k, which would you use?

Institutional S&P 500 fund (very low expense ratio)
Fidelity Large Cap Value Index Fund (FLCOX, very low expense ratio)

Now FLCOX is no AVUV or IJS. In my other accounts I do own AVUV and IJS. I want to tilt as much as possible because I believe these factor funds have market beta around 1 and I would like to diversify among factors and not put all my eggs in the market beta basket. So therefore should I use FLCOX in this account instead of the S&P 500 index fund? I believe so but I want to check with you all.
Factor Regression for all three DFA funds

Factor Regression for 66% DFIVX and 34% DFISX

Factor Regression for 50% DFIVX and DFISX

Looking over this data, what I see is that DFVQX is similar to a 50/50 combination of DFIVX and DFISX, the factor exposures are identical. The option that you are considering is 66/34, with that ratio you will have more exposure to value and less exposure to size. If you choose the 66/34 option, you will be able to choose the amount of size/value in your portfolio, and based on what you wrote this would be closer to the factor exposure that you want to have. The expense ratio of this strategy will be 0.51%, it's 0.11% higher than DFVQX, but I don't think that's a big deal if it's closer to what you want to achieve. I don't have any concerns about what you're asking, I think it would be okay to do DFIVX and DFISX in a 66/34 ratio.

Factor Regression for VOO, VTV, and FLCOX

The factor exposure of FLCOX is almost identical to VTV, and it is more valuey than VOO. If you want to own large cap value, it seems like a reasonable choice, I don't have any concerns about holding FLCOX.
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Re: Small Cap Value heads Rejoice !!!

Post by Jebediah »

MotoTrojan wrote: Mon May 24, 2021 9:32 am
gtwhitegold wrote: Wed May 19, 2021 12:19 am

I agree with excluding AVEM due to its low factor exposure, but I disagree with excluding EM entirely. EM is more volatile and less correlated with US equities, which makes it a better diversifier for a US based portfolio. I'm personally using FEMS, but I would also consider DGS, EMGF, and possibly others before excluding EM entirely.
Avantis is said to be coming out with more funds later this year so I am hopeful they come out with an EM Value fund similar to DFA's DFEVX.

I am also looking to add some EM exposure, but want a stiffer value tilt. FNDE is my current plan and is quite valuey. Regressions are similar to DFEVX other than a big negative size loading. PXH is a similar version from Invesco (uses book as well, doesn't include buybacks with dividends, believe only rebalances annually where-as FNDE uses a quarterly traunch) which has been around longer and also mirrors DFEVX quite well in returns/regressions.

EMGF looks nice but even less value than AVEM so no-go there. DGS also appealing for smaller-cap but not totally sold on it.

EYLD looks fantastic on characteristics but too much of a black-box for me, I would trust Schwab to have lower cost trading in EM too.

FEMS doesn't seem to have any statistically significant value loading for what it is worth. SmB the only thing with statistical relevance on 3, 4, 5 factor FF EM regression.
I split EM halfsies between FNDE and DGS. Seems good enough for all-cap EM value exposure. DGS is a little expensive, which is a bummer. Also all the better if you have room for it in tax-sheltered with that big dividend.
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

I've started putting new money towards EMGF to get some factor exposure in EMs. I would be interested in an Avantis fund that has more factor exposure than AVEM. I wish I knew if it was coming or not.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Jebediah wrote: Tue May 25, 2021 9:29 pm

I split EM halfsies between FNDE and DGS. Seems good enough for all-cap EM value exposure. DGS is a little expensive, which is a bummer. Also all the better if you have room for it in tax-sheltered with that big dividend.
Seems like a solid approach there. DGS in taxable is not ideal indeed.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

Massdriver wrote: Wed May 26, 2021 11:42 am I've started putting new money towards EMGF to get some factor exposure in EMs.
Does it get significant exposure?

I checked it on PV, it's getting significant negative value exposure in F&F 3 factor model. In 5 factor model it does get profitability exposure but still negative value (not stat. sign.).

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

Post by Massdriver »

YRT70 wrote: Thu May 27, 2021 12:41 am
Massdriver wrote: Wed May 26, 2021 11:42 am I've started putting new money towards EMGF to get some factor exposure in EMs.
Does it get significant exposure?

I checked it on PV, it's getting significant negative value exposure in F&F 3 factor model. In 5 factor model it does get profitability exposure but still negative value (not stat. sign.).

https://www.portfoliovisualizer.com/fac ... sion=false
https://www.etf.com/EMGF#overview

ETF.com's regression seems to contradict PV.

Unless something has changed in the last 3 months, I don't trust PV for factor regressions in EMs. I got some weird results checking out a variety of EM factor funds, even while using the Emerging Market stock market. If I remember correctly, I believe Steve stood by EMGF when he used to post here which counts a lot for me.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

Massdriver wrote: Thu May 27, 2021 8:53 am Unless something has changed in the last 3 months, I don't trust PV for factor regressions in EMs. I got some weird results checking out a variety of EM factor funds, even while using the Emerging Market stock market.
I think you're right. For example: DGS looks very cheap on all value metrics but fails to get significant value exposure on PV. That doesn't seem right.
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Re: Small Cap Value heads Rejoice !!!

Post by jason2459 »

jason2459 wrote: Fri Apr 30, 2021 2:50 pm
MotoTrojan wrote: Fri Apr 30, 2021 2:46 pm
jason2459 wrote: Fri Apr 30, 2021 2:38 pm I would expect momentum funds should be shifting if the momentum in value keeps going this year.

https://hsainvestments.com/fundperforma ... ketcycles/
MSCI rebalances late next month :). Alpha Architect's was in February if memory serves so didn't quite get the value rise (Tesla still in both... will take a bit for that to fall off).

Vanguard's VFMO is probably an interesting one to look at more often since it is unconstrained and can trade daily. Unless you specifically want some large/mega-cap exposure with US momentum I think VFMO really deserves some consideration. Way more diverse than QMOM, 13bp vs 49bp, and impressive exposure still.


I'm looking forward to November's reconstitution for MTUM honestly. Assuming value continues as it has been the past 6 months. That will give value the 12/6 month look MTUM is looking for.

If value stays ahead the next 6 months again and MTUM comes out all LCG after November then it's broken IMO and I'll no longer like it. :D
MTUM has started to shift to some value but still pretty heavy large growth. If value keeps it's momentum up for the next 6 months it will be interesting to see how much further MTUM will shift.

I am looking more at VFMO too.
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

YRT70 wrote: Thu May 27, 2021 11:20 am
Massdriver wrote: Thu May 27, 2021 8:53 am Unless something has changed in the last 3 months, I don't trust PV for factor regressions in EMs. I got some weird results checking out a variety of EM factor funds, even while using the Emerging Market stock market.
I think you're right. For example: DGS looks very cheap on all value metrics but fails to get significant value exposure on PV. That doesn't seem right.
I've brought this up in other threads. Any fund that invests in more than one country does not resolve very well in factor regressions. I recommend looking at the style loadings listed on Morningstar. While it's imperfect, it's probably as good as you're going to get.
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

gtwhitegold wrote: Sat May 29, 2021 12:25 pm
YRT70 wrote: Thu May 27, 2021 11:20 am
Massdriver wrote: Thu May 27, 2021 8:53 am Unless something has changed in the last 3 months, I don't trust PV for factor regressions in EMs. I got some weird results checking out a variety of EM factor funds, even while using the Emerging Market stock market.
I think you're right. For example: DGS looks very cheap on all value metrics but fails to get significant value exposure on PV. That doesn't seem right.
I've brought this up in other threads. Any fund that invests in more than one country does not resolve very well in factor regressions. I recommend looking at the style loadings listed on Morningstar. While it's imperfect, it's probably as good as you're going to get.
I find https://alphaarchitect.com/fundscreener/ to do a much better job than the morningstar style loadings.
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Re: Small Cap Value heads Rejoice !!!

Post by raven15 »

MotoTrojan wrote: Mon May 24, 2021 9:32 am I am also looking to add some EM exposure, but want a stiffer value tilt. FNDE is my current plan and is quite valuey. Regressions are similar to DFEVX other than a big negative size loading. PXH is a similar version from Invesco (uses book as well, doesn't include buybacks with dividends, believe only rebalances annually where-as FNDE uses a quarterly traunch) which has been around longer and also mirrors DFEVX quite well in returns/regressions.
You can look at SFENX, the mutual fund version of FNDE, if you want a longer history of the method.
Similarly SFILX/FNDC.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

gtwhitegold wrote: Sat May 29, 2021 12:25 pm
YRT70 wrote: Thu May 27, 2021 11:20 am
Massdriver wrote: Thu May 27, 2021 8:53 am Unless something has changed in the last 3 months, I don't trust PV for factor regressions in EMs. I got some weird results checking out a variety of EM factor funds, even while using the Emerging Market stock market.
I think you're right. For example: DGS looks very cheap on all value metrics but fails to get significant value exposure on PV. That doesn't seem right.
I've brought this up in other threads. Any fund that invests in more than one country does not resolve very well in factor regressions. I recommend looking at the style loadings listed on Morningstar. While it's imperfect, it's probably as good as you're going to get.
Interesting. Any idea why funds like DFEVX and DEMSX don't seem to be affected by it?
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

HippoSir wrote: Sat May 29, 2021 1:06 pm
gtwhitegold wrote: Sat May 29, 2021 12:25 pm
YRT70 wrote: Thu May 27, 2021 11:20 am
Massdriver wrote: Thu May 27, 2021 8:53 am Unless something has changed in the last 3 months, I don't trust PV for factor regressions in EMs. I got some weird results checking out a variety of EM factor funds, even while using the Emerging Market stock market.
I think you're right. For example: DGS looks very cheap on all value metrics but fails to get significant value exposure on PV. That doesn't seem right.
I've brought this up in other threads. Any fund that invests in more than one country does not resolve very well in factor regressions. I recommend looking at the style loadings listed on Morningstar. While it's imperfect, it's probably as good as you're going to get.
I find https://alphaarchitect.com/fundscreener/ to do a much better job than the morningstar style loadings.
How did you get access? I didn't get it.
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Re: Small Cap Value heads Rejoice !!!

Post by grabiner »

gtwhitegold wrote: Sat May 29, 2021 12:25 pm
YRT70 wrote: Thu May 27, 2021 11:20 am
Massdriver wrote: Thu May 27, 2021 8:53 am Unless something has changed in the last 3 months, I don't trust PV for factor regressions in EMs. I got some weird results checking out a variety of EM factor funds, even while using the Emerging Market stock market.
I think you're right. For example: DGS looks very cheap on all value metrics but fails to get significant value exposure on PV. That doesn't seem right.
I've brought this up in other threads. Any fund that invests in more than one country does not resolve very well in factor regressions. I recommend looking at the style loadings listed on Morningstar. While it's imperfect, it's probably as good as you're going to get.
I would also expect factor regressions to be less reliable for international funds which have different country allocations. Different funds have different definitions of which markets are emerging; if the countries excluded by DGS did well when value outperformed growth, then DGS won't show a correlation to the value factor.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

raven15 wrote: Sat May 29, 2021 2:18 pm
MotoTrojan wrote: Mon May 24, 2021 9:32 am I am also looking to add some EM exposure, but want a stiffer value tilt. FNDE is my current plan and is quite valuey. Regressions are similar to DFEVX other than a big negative size loading. PXH is a similar version from Invesco (uses book as well, doesn't include buybacks with dividends, believe only rebalances annually where-as FNDE uses a quarterly traunch) which has been around longer and also mirrors DFEVX quite well in returns/regressions.
You can look at SFENX, the mutual fund version of FNDE, if you want a longer history of the method.
Similarly SFILX/FNDC.
Thanks! Seeing the same thing; similar loadings to DFELX across the board, outside of a negative SmB loading. Looks like SFENX loaded a bit less negatively on size than PXH.

I am still sold that this is the best ETF option out there for EM value exposure at the moment, until Avantis or DFA come out with something :twisted:.
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

grabiner wrote: Sat May 29, 2021 3:41 pm
gtwhitegold wrote: Sat May 29, 2021 12:25 pm
YRT70 wrote: Thu May 27, 2021 11:20 am
Massdriver wrote: Thu May 27, 2021 8:53 am Unless something has changed in the last 3 months, I don't trust PV for factor regressions in EMs. I got some weird results checking out a variety of EM factor funds, even while using the Emerging Market stock market.
I think you're right. For example: DGS looks very cheap on all value metrics but fails to get significant value exposure on PV. That doesn't seem right.
I've brought this up in other threads. Any fund that invests in more than one country does not resolve very well in factor regressions. I recommend looking at the style loadings listed on Morningstar. While it's imperfect, it's probably as good as you're going to get.
I would also expect factor regressions to be less reliable for international funds which have different country allocations. Different funds have different definitions of which markets are emerging; if the countries excluded by DGS did well when value outperformed growth, then DGS won't show a correlation to the value factor.
Yes. It doesn't just involve exclusions, but also being underweight or overweight. I don't think that there are any funds that keep the same country allocation as the data from Dr. French's website. Doing so would be extremely difficult and wouldn't likely provide much of a benefit to investors.
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

How SCV helps a portfolio

Image
Small cap value is a slow and steady grind, dependent more on the state of the economy than the state of the markets.

Large cap growth shifts between decades of feast and decades of famine.

I think much of value's out-performance over time is that it avoids large cap manias.
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Re: Small Cap Value heads Rejoice !!!

Post by XacTactX »

HippoSir wrote: Sat May 29, 2021 1:06 pm
gtwhitegold wrote: Sat May 29, 2021 12:25 pm
YRT70 wrote: Thu May 27, 2021 11:20 am
Massdriver wrote: Thu May 27, 2021 8:53 am Unless something has changed in the last 3 months, I don't trust PV for factor regressions in EMs. I got some weird results checking out a variety of EM factor funds, even while using the Emerging Market stock market.
I think you're right. For example: DGS looks very cheap on all value metrics but fails to get significant value exposure on PV. That doesn't seem right.
I've brought this up in other threads. Any fund that invests in more than one country does not resolve very well in factor regressions. I recommend looking at the style loadings listed on Morningstar. While it's imperfect, it's probably as good as you're going to get.
I find https://alphaarchitect.com/fundscreener/ to do a much better job than the morningstar style loadings.
This fund screener is wonderful, it's the only free tool I've seen that shows EVIT/TEV. Thanks for posting this, it's going into my personal list of investment analysis tools
SMLF | ISCF | EMGF | LendingClub | Cash
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

YRT70 wrote: Sat May 29, 2021 2:27 pm How did you get access? I didn't get it.
Access is free you just have to sign up for an account. If you're an alphaarchitect client apparently you get access to a fancier/more capable version, but the free one is pretty decent.
XacTactX wrote: Tue Jun 01, 2021 1:07 pm This fund screener is wonderful, it's the only free tool I've seen that shows EVIT/TEV. Thanks for posting this, it's going into my personal list of investment analysis tools
Agreed, it really disappoints me that a company like Morningstar puts out such a barebones/near useless factor tool when the alphaarchitect guys are giving this level of information out for free.
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Re: Small Cap Value heads Rejoice !!!

Post by XacTactX »

Hey everyone Dr. Elisabetta Basilico just published a fantastic article where she looked at a new study about the P/B value factor. The study is free to read on SSRN. I'm going to read the paper soon, her summary basically says that P/B has become less useful over time and P/B can be modified to be more useful. This conclusion is the same as a research paper done by Research Affiliates.

Elisabetta Basilico: Still Using Book to Market for a Value Metric? Read This.

And I'd like some advice from you folks. Has anyone seen any ETF tools that show the Gross Profit/Assets of an ETF? My understand is that GP/A is one of the best descriptors for profitability and I'd like to compare ETFs for GP/A. I know that the Fama-French Profitability factor uses GP/A but I want to see the raw number for each fund.
SMLF | ISCF | EMGF | LendingClub | Cash
HippoSir
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

XacTactX wrote: Wed Jun 09, 2021 1:13 pm Hey everyone Dr. Elisabetta Basilico just published a fantastic article where she looked at a new study about the P/B value factor. The study is free to read on SSRN. I'm going to read the paper soon, her summary basically says that P/B has become less useful over time and P/B can be modified to be more useful. This conclusion is the same as a research paper done by Research Affiliates.
I hold AVUV which I believe is based on P/B and profitability. I'd love to know if the Avantis folks are considering alternatives to P/B or if they have come to a different conclusion on its effectiveness...
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Re: Small Cap Value heads Rejoice !!!

Post by garlandwhizzer »

I agree with the main point of Elisabetta Basilico's paper listed above that B/M is increasingly ineffective at selecting outperforming value stocks in the current rapidly evolving information economy. B/M worked quite well in the manufacturing, industrial production, bricks-and-mortar economy. That is why it backtested so well in 1992 that F&F used it to define the value premium. However it's a different economy now. The economy goes relentlessly forward and the secular shifts in winners versus losers now shifts to intangible assets like knowledge, innovation, information, and brand loyalty which do not show up in B/M or other traditionally based measures of value.

AMZN has had outrageously terrible measures by all value criteria since its inception more than 20 years ago. I know this because I looked at it and passed it by. You could have bought AMZN for less than 6 dollars a share on 9/28/2001 but it had negative profits, almost no book value, lots of debt, and no dividend. Clearly, by all value criteria it was a sure loser. Now about 20 years later, that same share sells for $3283. It was atrocious from a value point of view by any measure in 2001 and is still a very unattractive value stock. Ironically, less so now, to the point that Buffett bought a billion dollars of it in 2019. The only thing it did have in 2001 was a compelling bullet proof business model and the anticipation of unimaginable and completely disruptive growth ahead of it. Anticipation of a bright growth future is notably absent in all value criteria. In fact, just the opposite, value relies on reversion to the mean that existed in the past.

In point of fact what traditional value parameters end up measuring is solid underpriced numbers from past performance. Those numbers are attractive simply because the market does not anticipate future profit growth in these companies. In fact, often just the opposite. Market prices reflect that the market expects these struggling value companies to continue to struggle and fall by the wayside. That in fact is why they carry low P/B, P/E, P/CF. and high DIV. If we could only go backward in time value stocks would work reliably. Whether it will work going forward in a rapidly evolving information based economy is a different matter.

How to measure real value now, how to separate future winners from future losers, is a topic of intense discussion and debate currently among academics. There is no real agreement on this point. In retrospect AMZN was an incredibly great value stock in 2001 while dirt cheap steel mills, regional banks, auto makers, etc., proved to provide the opposite of value for 20 years. Harvesting value after costs is more a rare art than predictable science IMO.

Garland Whizzer
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Re: Small Cap Value heads Rejoice !!!

Post by XacTactX »

HippoSir wrote: Wed Jun 09, 2021 3:02 pm
XacTactX wrote: Wed Jun 09, 2021 1:13 pm Hey everyone Dr. Elisabetta Basilico just published a fantastic article where she looked at a new study about the P/B value factor. The study is free to read on SSRN. I'm going to read the paper soon, her summary basically says that P/B has become less useful over time and P/B can be modified to be more useful. This conclusion is the same as a research paper done by Research Affiliates.
I hold AVUV which I believe is based on P/B and profitability. I'd love to know if the Avantis folks are considering alternatives to P/B or if they have come to a different conclusion on its effectiveness...
This is the closest thing I can find:

Dimensional's Marlena Lee: How to Measure Value
Marlena Lee: We run an ongoing test to see how the relation between price-to-book and subsequent returns has evolved over time. The test examines five-year rolling averages of the absolute value of t-statistics from cross-sectional regressions of stock returns on lagged price-to-book.

T-statistics from these regressions have not shown any downward trend in the informational content of price-to-book about the cross-section of returns. In other words, price-to-book still has information about cross-sectional dispersion in returns. If price-to-book were no longer relevant, we should expect to see a decline in its ability to produce spreads in returns.

One characteristic that many investors cite as a concern with using price-to-book is intangible assets. Dimensional has conducted extensive research on different metrics for measuring value versus growth, including adjustments to reflect intangibles (e.g., trademarks, copyrights, patents, franchises, computer software, reputation and brand name). We do not find adjustments for intangibles to have a big impact on the magnitude of the value premium.

Under current accounting practices, externally acquired intangibles are reported on the balance sheet. For example, they currently represent about a quarter of the book value of assets for the average US company. We account for these assets when computing book values. Internally developed intangibles, on the other hand, are expensed and thus reflected on the income statement.

We have conducted research to estimate internal intangibles for publicly traded companies over time. The data suggest that there have not been meaningful trends in these intangibles over the past number of decades for the overall market.

Moreover, we observe strong premiums sector by sector when sorting stocks on price-to-book—including sectors that tend to involve more intangible assets such as technology and healthcare.

-Dr. Marlena Lee, DFA
This conclusion disagrees with the paper that I posted above, DFA says that accounting for intangibles doesn't change the result in a significant way. I guess this shows that there is not a clear consensus among academics/practitioners about how to apply the value factor. I would imagine that Avantis has the same opinion as DFA since it is using P/B for the value factor. Truth be told, I'm not sure if DFA/Avantis is more correct or if the research paper that I posted above is more correct, this level of debate is getting above my knowledge and skill level.
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Re: Small Cap Value heads Rejoice !!!

Post by donaldfair71 »

:D
garlandwhizzer wrote: Wed Jun 09, 2021 3:18 pm I agree with the main point of Elisabetta Basilico's paper listed above that B/M is increasingly ineffective at selecting outperforming value stocks in the current rapidly evolving information economy. B/M worked quite well in the manufacturing, industrial production, bricks-and-mortar economy. That is why it backtested so well in 1992 that F&F used it to define the value premium. However it's a different economy now. The economy goes relentlessly forward and the secular shifts in winners versus losers now shifts to intangible assets like knowledge, innovation, information, and brand loyalty which do not show up in B/M or other traditionally based measures of value.

AMZN has had outrageously terrible measures by all value criteria since its inception more than 20 years ago. I know this because I looked at it and passed it by. You could have bought AMZN for less than 6 dollars a share on 9/28/2001 but it had negative profits, almost no book value, lots of debt, and no dividend. Clearly, by all value criteria it was a sure loser. Now about 20 years later, that same share sells for $3283. It was atrocious from a value point of view by any measure in 2001 and is still a very unattractive value stock. Ironically, less so now, to the point that Buffett bought a billion dollars of it in 2019. The only thing it did have in 2001 was a compelling bullet proof business model and the anticipation of unimaginable and completely disruptive growth ahead of it. Anticipation of a bright growth future is notably absent in all value criteria. In fact, just the opposite, value relies on reversion to the mean that existed in the past.

In point of fact what traditional value parameters end up measuring is solid underpriced numbers from past performance. Those numbers are attractive simply because the market does not anticipate future profit growth in these companies. In fact, often just the opposite. Market prices reflect that the market expects these struggling value companies to continue to struggle and fall by the wayside. That in fact is why they carry low P/B, P/E, P/CF. and high DIV. If we could only go backward in time value stocks would work reliably. Whether it will work going forward in a rapidly evolving information based economy is a different matter.

How to measure real value now, how to separate future winners from future losers, is a topic of intense discussion and debate currently among academics. There is no real agreement on this point. In retrospect AMZN was an incredibly great value stock in 2001 while dirt cheap steel mills, regional banks, auto makers, etc., proved to provide the opposite of value for 20 years. Harvesting value after costs is more a rare art than predictable science IMO.

Garland Whizzer
Excellent post.

Should we begin to lean more on screens to quality and momentum, like AVUV and DFA Small Value (or more accurately, it screens out negative momentum), as a tool in our toolbox? In other words, do you think such screens would help to stay out of the value traps, insofar as weeding out “good cheap small companies” from “small cheap companies” in any meaningful way?

This is not a rhetorical question in any way. I know next to nothing about value and small value to begin with, but I always like to learn.
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Re: Small Cap Value heads Rejoice !!!

Post by james22 »

garlandwhizzer wrote: Wed Jun 09, 2021 3:18 pm I agree with the main point of Elisabetta Basilico's paper listed above that B/M is increasingly ineffective at selecting outperforming value stocks in the current rapidly evolving information economy. ...
+1

I'm hoping my newly adopted signature will remind me.

You've read Howard Mark's memo on the topic?

https://www.oaktreecapital.com/docs/def ... -value.pdf
When people say things are different, 20 percent of the time they are right. John Templeton
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Re: Small Cap Value heads Rejoice !!!

Post by jason2459 »

donaldfair71 wrote: Wed Jun 09, 2021 8:01 pm
Excellent post.

Should we begin to lean more on screens to quality and momentum, like AVUV and DFA Small Value (or more accurately, it screens out negative momentum), as a tool in our toolbox? In other words, do you think such screens would help to stay out of the value traps, insofar as weeding out “good cheap small companies” from “small cheap companies” in any meaningful way?

This is not a rhetorical question in any way. I know next to nothing about value and small value to begin with, but I always like to learn.
I think quality is a good factor to include. Why I do like the S&P SCV funds if wanting a purely passive indexed SCV fund as there's some quality built in to getting onto the S&P parent index in the first place. Many actively managed SCV funds have some form of quality screening as well.

I'm not a big fan of mashing together to many factors together though. I.e multi factor funds. I'd much rather hold the factors separately. I'm liking more and more the mom and SCV split. I prefer to have quality screens in those two and I don't care about volatility as much.
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
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