Large Cap stocks

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pachha
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Large Cap stocks

Post by pachha »

VV ETF(Vanguard large cap) is a blend and contains VTV ETF(Vanguard value) plus VUG ETF(Vanguard growth) stocks ? Am I correct? What percentage of large-cap stocks are value stocks and growth stocks?
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Re: Large Cap stocks

Post by alex_686 »

You are thinking about this the wrong way.

You start out with a universe of stocks. In this case the S&P 500.

You then dived those stocks into value stocks and growth stocks (well, technically not-value-stocks). Those who are the most value like are put in the value bucket. i.e., 50%. That is, the value qualifier is a relative measure, not a absolute measure.

Other indexes do it differently. 1/3 value, 1/3 core, 1/3, growth. Or 1/2 value and 1/2 growth with some stocks assigned to both.

There is no right way to do this. Free float market cap is fairly objective and the mythology is stable. Value is not. There are questions on what the value factor actually means, if it still exists, and the best way to measure it.

As a result, the measure has to be relative. i.e., how value like is a stock relative to the rest of the market.

As a aside, I feel that statistical power of the value factor is wanning. One of the metrics it is tied to is book value. As more and more assets are shifted to intangible property the less relevant book value is. There are exceptions. Book value still matters with banks and other financials.
Last edited by alex_686 on Thu Sep 22, 2022 1:48 pm, edited 1 time in total.
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livesoft
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Re: Large Cap stocks

Post by livesoft »

One may wish to explore all these funds/ETFs and their contents by using Vanguard.com and Morningstar.com. Morningstar.com sort of made the 9-box style grid popular. I own VV / VLCAX, but I haven't looked in a long time to what its holdings are. I am sure it owns many stocks found in VTV and VUG, but it likely also owns stocks not found in either of those. It is also likely that it does not own some stocks that are found in VTV and VUG.

If you explore more, then let us know.
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hiddenpower
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Re: Large Cap stocks

Post by hiddenpower »

alex_686 wrote: Thu Sep 22, 2022 1:40 pm You then dived those stocks into value stocks and growth stocks (well, technically not-value-stocks). Those who are the most value like are put in the value bucket. i.e., 50%. That is, the value qualifier is a relative measure, not a absolute measure.
Are you saying that he even split among S&P isn't a good follower of value rules? What about growth? I see specialized funds for avantis / dfa for value that I assume are more intricate than VTV. But I never hear much about growth other than the split among S&P -> VUG, SCHG, ...

edit: fixed typos
Last edited by hiddenpower on Mon Jun 10, 2024 8:48 am, edited 1 time in total.
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Re: Large Cap stocks

Post by alex_686 »

hiddenpower wrote: Mon Jun 10, 2024 8:20 am
alex_686 wrote: Thu Sep 22, 2022 1:40 pm You then dived those stocks into value stocks and growth stocks (well, technically not-value-stocks). Those who are the most value like are put in the value bucket. i.e., 50%. That is, the value qualifier is a relative measure, not a absolute measure.
Are you saying that he even split among S&P isn't a good follower of value rules? What about growth? I see specialized funds for avantis / dfa for value that I assume are more intricate than VTV. But I never hear much about value other than the split among S&P -> VUG, SCHG, ...
The question was “what percentage of the S&P are value stocks”. Depending on the definition used, it is either 33% or 50%.

Investable indexes tend to be heavily objective. i.e. mechanical - with the rules set ahead of time with few subjective judgments. Hence, my use of “by definition”.

Active funds are not limited by these constraints. If you dig into the financial statements you can see that while objectively some companies are value they really are not.
Not saying they are bad companies, but they are like a man in a kilt - objective rules might classify that kilt as a dress, and thus that bearded many as a woman.
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Re: Large Cap stocks

Post by livesoft »

hiddenpower wrote: Mon Jun 10, 2024 8:20 am
alex_686 wrote: Thu Sep 22, 2022 1:40 pm You then dived those stocks into value stocks and growth stocks (well, technically not-value-stocks). Those who are the most value like are put in the value bucket. i.e., 50%. That is, the value qualifier is a relative measure, not a absolute measure.
Are you saying that he even split among S&P isn't a good follower of value rules? What about growth? I see specialized funds for avantis / dfa for value that I assume are more intricate than VTV. But I never hear much about value other than the split among S&P -> VUG, SCHG, ...
Here is the Morningstar 9-box style grid for VFIAX the Vanguard S&P500 index fund:

Image

One can directly see how Morningstar divides up the S&P500 from the above. I don't see 50% or 33% in that graphic. Do you?

So whatever "rules" Morningstar has will probably be different from somebody else's "rules." You can make your own rules if you like, too. :)

Oh, I should mention that everyone (including Morningstar) is totally free to change their rules whenever they want to.
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Re: Large Cap stocks

Post by hiddenpower »

alex_686 wrote: Mon Jun 10, 2024 8:34 am
hiddenpower wrote: Mon Jun 10, 2024 8:20 am
alex_686 wrote: Thu Sep 22, 2022 1:40 pm You then dived those stocks into value stocks and growth stocks (well, technically not-value-stocks). Those who are the most value like are put in the value bucket. i.e., 50%. That is, the value qualifier is a relative measure, not a absolute measure.
Are you saying that he even split among S&P isn't a good follower of value rules? What about growth? I see specialized funds for avantis / dfa for value that I assume are more intricate than VTV. But I never hear much about value other than the split among S&P -> VUG, SCHG, ...
The question was “what percentage of the S&P are value stocks”. Depending on the definition used, it is either 33% or 50%.

Investable indexes tend to be heavily objective. i.e. mechanical - with the rules set ahead of time with few subjective judgments. Hence, my use of “by definition”.

Active funds are not limited by these constraints. If you dig into the financial statements you can see that while objectively some companies are value they really are not.
Not saying they are bad companies, but they are like a man in a kilt - objective rules might classify that kilt as a dress, and thus that bearded many as a woman.
Do rules based funds like avantis/dfa fall into the objective mechanical classification bucket? Sounds like you're implying true stock picking through an active manager can draw a better line.

livesoft wrote: Mon Jun 10, 2024 8:44 am Here is the Morningstar 9-box style grid for VFIAX the Vanguard S&P500 index fund:

Image

One can directly see how Morningstar divides up the S&P500 from the above. I don't see 50% or 33% in that graphic. Do you?

So whatever "rules" Morningstar has will probably be different from somebody else's "rules." You can make your own rules if you like, too. :)

Oh, I should mention that everyone (including Morningstar) is totally free to change their rules whenever they want to.
Yeah that's interesting. Are a combination of VUG + VTV even still a fair representation then? It would require each to have some form of blend. I always thought you could do 50/50 on these to approximate S&P.


I was reading the missing billionaires book this weekend which shies away from factor investing in favor of blend. And one callout was that each person taking either side is making a bet with the expectation of superior returns.

However, if this is so definition based, can't both be right? For example, can't you have a fund or methodology that picks out growth funds that consistently beat the market, and at the same time a counter value fund that beats out the market as well?
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Re: Large Cap stocks

Post by nisiprius »

Actually, many stocks are considered by Vanguard's index provider to be both growth and value stocks at the same time.

Source

Image

They call out these stocks as being in both ETFs:

THERMO FISHER SCIENTIFIC INC
WALT DISNEY CO/THE
GENERAL ELECTRIC COMPANY
FISERV, INC.
COLGATE-PALMOLIVE CO

In other words: do not take this stuff too seriously. The dividing lines are arbitrary and inconsistent.
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Re: Large Cap stocks

Post by nisiprius »

hiddenpower wrote: Mon Jun 10, 2024 9:01 am ...Do rules based funds like avantis/dfa fall into the objective mechanical classification bucket? Sounds like you're implying true stock picking through an active manager can draw a better line...
Bill Miller's Legg Mason Value Trust outperformed the S&P 500 in 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, and 2005, and during that time was considered by many to be proof of the superiority of active management. One of the discussion topics was that he insisted that he was a "value investor," but he made heavy investments in tech stocks that most investors did not consider to be "value." In other words, rather than measuring "value" objectively in terms of book-to-earnings ratio, he took the position of "I know it when I see it." While he was outperforming, many value fans pointed to him as proof of the success of value investing. They were willing to go along and say "his genius is that he can spot true value that doesn't show up in accounting ratios." After he crashed, many of them said "O, I never thought he was really a value investor."

Did Bill Miller "draw a better line" in identifying value?

For an interesting example of "is it objective mechanical classification?" consider Dimensional Fund Advisors' (DFA's) criterion of what counts as "small-cap value." DFA is important because they have Fama and French on their board, and are one of the firms with the purest attitude toward factor investing. But they don't classify stocks as "small-cap value" purely on accounting numbers. They add an additional screening rule: they exclude utilities. In other words, there is whole group of stocks which meet the objective mechanical classification of "small-cap value," which they leave out because they don't like them. Interpreters of DFA's strategies say "because DFA found that they don't 'behave like' small-cap value."

Did DFA "draw a better line" when excluding small-cap value utilities from small-cap value?
Last edited by nisiprius on Mon Jun 10, 2024 10:09 am, edited 3 times in total.
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Re: Large Cap stocks

Post by Dave55 »

pachha wrote: Thu Sep 22, 2022 1:36 pm VV ETF(Vanguard large cap) is a blend and contains VTV ETF(Vanguard value) plus VUG ETF(Vanguard growth) stocks ? Am I correct? What percentage of large-cap stocks are value stocks and growth stocks?
VV ETF (Vanguard large cap) contains 514 companies of (the largest US companies) and VOO (Vanguard 500 ETF) contains 504 companies, the 2 funds are virtually identical.

Dave
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Re: Large Cap stocks

Post by alex_686 »

hiddenpower wrote: Mon Jun 10, 2024 9:01 am Do rules based funds like avantis/dfa fall into the objective mechanical classification bucket? Sounds like you're implying true stock picking through an active manager can draw a better line.
Indexes are used for many things. One thing they are used for are to measure performance. As such you want your measuring stick to be constant - or at least as constant as one can get when measuring a thing that society has constructed. As such, changes to the rules are rare. You want to be measuring the same thing now as 10 years ago as 10 years in the future.

Avantis / DFA are "quant funds". They throw lots of math and computers and stock market data and come to conclusions. i.e., rules. Sometimes the output is dirty and needs some human help. Sometimes the rules stop working - in which case you quickly toss out the rule. During 2008 the all of the rules across all of the funds stopped working. They had to unplug the computers. Sometimes somebody has a new cool idea - sometime it works, sometimes it works for a while, sometimes not.

In short, quant funds are not in it to test pure theory or whatever. They are in it to make money. As such, their "rules' are highly dynamic and are subject to human overrides. It is a tool, not a end process.
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Re: Large Cap stocks

Post by nisiprius »

Dave55 wrote: Mon Jun 10, 2024 9:28 am
pachha wrote: Thu Sep 22, 2022 1:36 pm VV ETF(Vanguard large cap) is a blend and contains VTV ETF(Vanguard value) plus VUG ETF(Vanguard growth) stocks ? Am I correct? What percentage of large-cap stocks are value stocks and growth stocks?
VV ETF (Vanguard large cap) contains 514 companies of (the largest US companies) and VOO (Vanguard 500 ETF) contains 504 companies, the 2 funds are virtually identical.

Dave
The funds have behaved virtually identically. But as a matter of nit-picking technicality, they are very similar, but "virtually identical" is an exaggeration.

The S&P 500 is a curated list of "leading companies in leading industries," it is not and was never meant to be a mechanical selection of the 500 largest stocks. It contains a meaningful number of mid-caps, and is missing a meaningful number of large-caps. The list of names in the VV and VOO have nearly 90% overlap, not close to 100%.

Source

Image

However, the stocks in common are much bigger than the stocks that aren't, so by cap-weight there's 96% overlap.

The historical background is that before the publication of a seminal paper by Rolf Banz in 1981, which seemed to say small-caps were better than large-caps, people didn't think of market cap as being a primary characteristic of stocks. When the S&P 500 was launched in 1957, The S&P 500 wasn't limited to 500 in order to focus on large-caps. It was limited to 500 by the available computing power and the wish to be able to calculate it hourly. They were not thinking about drawing a cap-weight boundary, they were thinking "we can only use 500 stocks, which stocks should we use to fill up those precious 500 slots?"

The common idea that it is "a large-cap index" in the sense of being an index of the 500 largest-cap stocks is due to confusion with the fact that it a) is an index, and b) contains stocks whose average market cap falls in the "large-cap" category.
Last edited by nisiprius on Mon Jun 10, 2024 10:07 am, edited 1 time in total.
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Re: Large Cap stocks

Post by Dave55 »

nisiprius wrote: Mon Jun 10, 2024 10:00 am
Dave55 wrote: Mon Jun 10, 2024 9:28 am
pachha wrote: Thu Sep 22, 2022 1:36 pm VV ETF(Vanguard large cap) is a blend and contains VTV ETF(Vanguard value) plus VUG ETF(Vanguard growth) stocks ? Am I correct? What percentage of large-cap stocks are value stocks and growth stocks?
VV ETF (Vanguard large cap) contains 514 companies of (the largest US companies) and VOO (Vanguard 500 ETF) contains 504 companies, the 2 funds are virtually identical.

Dave
The funds have behaved virtually identically. But as a matter of nit-picking technicality, they are very similar, but "virtually identical" is an exaggeration.

The S&P 500 is a curated list of "leading companies in leading industries," it is not and was never meant to be a mechanical selection of the 500 largest stocks. It contains a meaningful number of mid-caps, and is missing a meaningful number of large-caps. The list of names in the VV and VOO have about 90% overlap, not close to 100%.

Source

Image

However, the stocks in common are much bigger than the stocks that aren't, so by cap-weight there's 96% overlap.

The historical background is that before the publication of a seminal paper by Rolf Banz in 1981, which seemed to say small-caps were better than large-caps, people didn't think of market cap as being a primary characteristic of stocks. When the S&P 500 was launched in 1957, The S&P 500 wasn't limited to 500 in order to focus on large-caps. It was limited to 500 by the available computing power and the wish to be able to calculate it hourly. They were not thinking about drawing a cap-weight boundary, they were thinking "we can only use 500 stocks, which stocks should we use to fill up those precious 500 slots?"

The common idea that it is "a large-cap index" in the sense of being an index of the largest-cap stocks is due to confusion with the fact that it a) is an index, and b) contains stocks whose average market cap falls in the "large-cap" category.
I am honored by your critique of my "exaggeration". :wink:

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Re: Large Cap stocks

Post by hiddenpower »

nisiprius wrote: Mon Jun 10, 2024 10:00 am
Dave55 wrote: Mon Jun 10, 2024 9:28 am
pachha wrote: Thu Sep 22, 2022 1:36 pm VV ETF(Vanguard large cap) is a blend and contains VTV ETF(Vanguard value) plus VUG ETF(Vanguard growth) stocks ? Am I correct? What percentage of large-cap stocks are value stocks and growth stocks?
VV ETF (Vanguard large cap) contains 514 companies of (the largest US companies) and VOO (Vanguard 500 ETF) contains 504 companies, the 2 funds are virtually identical.

Dave
The funds have behaved virtually identically. But as a matter of nit-picking technicality, they are very similar, but "virtually identical" is an exaggeration.

The S&P 500 is a curated list of "leading companies in leading industries," it is not and was never meant to be a mechanical selection of the 500 largest stocks. It contains a meaningful number of mid-caps, and is missing a meaningful number of large-caps. The list of names in the VV and VOO have nearly 90% overlap, not close to 100%.

Source

Image

However, the stocks in common are much bigger than the stocks that aren't, so by cap-weight there's 96% overlap.

The historical background is that before the publication of a seminal paper by Rolf Banz in 1981, which seemed to say small-caps were better than large-caps, people didn't think of market cap as being a primary characteristic of stocks. When the S&P 500 was launched in 1957, The S&P 500 wasn't limited to 500 in order to focus on large-caps. It was limited to 500 by the available computing power and the wish to be able to calculate it hourly. They were not thinking about drawing a cap-weight boundary, they were thinking "we can only use 500 stocks, which stocks should we use to fill up those precious 500 slots?"

The common idea that it is "a large-cap index" in the sense of being an index of the 500 largest-cap stocks is due to confusion with the fact that it a) is an index, and b) contains stocks whose average market cap falls in the "large-cap" category.

Ok that's interesting, so in theory S&P500 could have some small caps? I thought it was still purely large and those not in it just didn't fit the profitability requirement.

I hear what you're saying that there's fluiditiy in DFAs methodology over time. I guess my point is that if you found two rules based "quant" funds where 1 was growth focused and 1 was value focused, they could each beat SPY. Whereas with VUG + VTV they are basically a strict split of VV with strict rules so only one can win of a given time period. Sound right?
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Re: Large Cap stocks

Post by nisiprius »

hiddenpower wrote: Mon Jun 10, 2024 4:16 pm ...Ok that's interesting, so in theory S&P500 could have some small caps? I thought it was still purely large and those not in it just didn't fit the profitability requirement.
According to Morningstar's classification of large-cap, mid-cap, and small-cap--which isn't necessarily the same as anybody else's--

Source (click on the "weight" tab)

Image

--the S&P 500 index ETF, VOO, does not contain small-caps, but does contain 19% midcaps. But, you know... it's probably mostly larger midcaps.

There is actually a clean division between the S&P 500, tracked by VOO, and the S&P 500 Completion Index, tracked by VXF. The S&P 500 Completion Index includes exactly all those stocks that the S&P 500 does not include, and the etfrc.com overlap tool says that VOO and VXF have:
0 overlapping holdings
0% of VOO's 508 holdings also in VXF
0% of VXF's 3591 holdings also in VOO
According to Morningstar, VXF--the stocks that are not in the S&P 500--

Image

are, by cap weight, 7% large-caps, 36% midcaps, 56% small-caps.
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Re: Large Cap stocks

Post by Gaston »

Not that it matters much to the above conversation, but Vanguard’s VV, VTV and VUG ETFs track CRSP indices, not S&P indices.

If you want to understand how CRSP defines value and growth, this document provides an overview:

https://www.crsp.org/wp-content/uploads ... _Guide.pdf
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Re: Large Cap stocks

Post by hiddenpower »

Ok so in conclusion, value and growth can have several different definitions which could result in each beating out SPY over the time same time period. But when it comes to VTV and VUG they are really static implementations that pretty evenly split VV. Moreover, VTV behaves like VOO but VOO has more intricate inclusion rules by a board so can include midcaps and only profitable stocks. I recall reading that it's better to get the wider reaching ETF over the standard ones becuase right before inclusion in an index, stucks tend to experience growth. As we can see though its basically moot when we look at VV and VOO per their performance and for our purposes they're interchangeable.

It makes me wonder why folks like VUG and VTV specifically though. In this case to pick either one seems like a strict bet against the other.
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Re: Large Cap stocks

Post by TimeIsYourFriend »

hiddenpower wrote: Tue Jun 11, 2024 7:15 am Ok so in conclusion, value and growth can have several different definitions which could result in each beating out SPY over the time same time period. But when it comes to VTV and VUG they are really static implementations that pretty evenly split VV. Moreover, VTV behaves like VOO but VOO has more intricate inclusion rules by a board so can include midcaps and only profitable stocks. I recall reading that it's better to get the wider reaching ETF over the standard ones becuase right before inclusion in an index, stucks tend to experience growth. As we can see though its basically moot when we look at VV and VOO per their performance and for our purposes they're interchangeable.

It makes me wonder why folks like VUG and VTV specifically though. In this case to pick either one seems like a strict bet against the other.
Could be they are only trying to split it to place VUG in taxable and VTV in tax protected account to save on taxes. We need more info from the OP.
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Re: Large Cap stocks

Post by Walkure »

hiddenpower wrote: Mon Jun 10, 2024 8:20 am
alex_686 wrote: Thu Sep 22, 2022 1:40 pm You then dived those stocks into value stocks and growth stocks (well, technically not-value-stocks). Those who are the most value like are put in the value bucket. i.e., 50%. That is, the value qualifier is a relative measure, not a absolute measure.
Are you saying that he even split among S&P isn't a good follower of value rules? What about growth? I see specialized funds for avantis / dfa for value that I assume are more intricate than VTV. But I never hear much about growth other than the split among S&P -> VUG, SCHG, ...

edit: fixed typos
That's because people who preferentially seek value believe it is a unique return factor, and therefore work themselves into all sorts of pretzels trying to get the highest factor loading, whereas people who are simply looking for a quick quantification of the relative outperformance of growth over some shorter time period aren't as picky.
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Re: Large Cap stocks

Post by hiddenpower »

TimeIsYourFriend wrote: Tue Jun 11, 2024 7:22 am
hiddenpower wrote: Tue Jun 11, 2024 7:15 am Ok so in conclusion, value and growth can have several different definitions which could result in each beating out SPY over the time same time period. But when it comes to VTV and VUG they are really static implementations that pretty evenly split VV. Moreover, VTV behaves like VOO but VOO has more intricate inclusion rules by a board so can include midcaps and only profitable stocks. I recall reading that it's better to get the wider reaching ETF over the standard ones becuase right before inclusion in an index, stucks tend to experience growth. As we can see though its basically moot when we look at VV and VOO per their performance and for our purposes they're interchangeable.

It makes me wonder why folks like VUG and VTV specifically though. In this case to pick either one seems like a strict bet against the other.
Could be they are only trying to split it to place VUG in taxable and VTV in tax protected account to save on taxes. We need more info from the OP.
Yeah I'm specifically not referring to that case. For example HEDGEFUNDIE, and many others, go all in SCHG in taxable account (for the tax benefit) without the corresponding value pairing in IRAs. Same goes ballpark for folks buying in QQQs etc.
Walkure wrote: Tue Jun 11, 2024 7:32 am
hiddenpower wrote: Mon Jun 10, 2024 8:20 am
alex_686 wrote: Thu Sep 22, 2022 1:40 pm You then dived those stocks into value stocks and growth stocks (well, technically not-value-stocks). Those who are the most value like are put in the value bucket. i.e., 50%. That is, the value qualifier is a relative measure, not a absolute measure.
Are you saying that he even split among S&P isn't a good follower of value rules? What about growth? I see specialized funds for avantis / dfa for value that I assume are more intricate than VTV. But I never hear much about growth other than the split among S&P -> VUG, SCHG, ...

edit: fixed typos
That's because people who preferentially seek value believe it is a unique return factor, and therefore work themselves into all sorts of pretzels trying to get the highest factor loading, whereas people who are simply looking for a quick quantification of the relative outperformance of growth over some shorter time period aren't as picky.

True although looking at the leapfrogging chart of value to growth (using the fixed vtv / vug split), that I've seen nispirius post before, you'd think there would be more pause in going all in on growth now yet we see it all the time. In fact it would have been the optimal short term place over the most recent interest rate decline as it crashed the hardest and mean reverted back up in full force. but regardless it appears more timing dependent.
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