DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
KJVanguard
Posts: 222
Joined: Fri Oct 05, 2018 3:39 am

DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by KJVanguard » Fri Oct 12, 2018 4:35 pm

DGS would be WISDOMTREE EMERGING MARKETS SMALL CAP DIVIDEND ETF.

It's one of the rare non-Vanguard funds that I own. The only real negative I see in it is a 63 basis point expense ratio, which looks obscene by Vanguard standards. We all know Vanguard could provide an equivalent fund for less, but getting them to drink the Kool Aid that makes one believe in a small value premium seems unlikely for the powers that be at Vanguard. Of course we can all still ask, as tens of thousands of suggestions might eventually give them the hint they need.

I was just curious if others owned it and what they thought about it. I have seen it mentioned here in times gone by.

Seems a very DFA-type fund, except DFA would go with book to market instead of dividends, though both will give you value stocks. Dividends seem a prudent idea in EM, since a common argument is that accounting standards may be lax in EM. Accounting standards were lax in 19th century America too, and many companies published annual reports that were fairy tales. Back then before the SEC watched over companies, companies had to pay cash dividends to prove they were in good fiscal health. Anyone can fake a report, but it's hard to fake a cash payout.

sillysaver
Posts: 181
Joined: Thu Oct 08, 2015 5:24 pm

Re: DGS: Own it? Opinions on it?

Post by sillysaver » Fri Oct 12, 2018 4:47 pm

I own a bit in a Roth account. Seems like a good proxy for value and a good way to get small-cap exposure. I'm not going crazy with tilting but this is a good option.

Longtermgrowth
Posts: 609
Joined: Thu Nov 26, 2015 1:59 pm

Re: DGS: Own it? Opinions on it?

Post by Longtermgrowth » Sat Oct 13, 2018 4:41 am

KJVanguard wrote:
Fri Oct 12, 2018 4:35 pm
Seems a very DFA-type fund, except DFA would go with book to market instead of dividends, though both will give you value stocks. Dividends seem a prudent idea in EM, since a common argument is that accounting standards may be lax in EM. Accounting standards were lax in 19th century America too, and many companies published annual reports that were fairy tales. Back then before the SEC watched over companies, companies had to pay cash dividends to prove they were in good fiscal health. Anyone can fake a report, but it's hard to fake a cash payout.
I agree, the WisdomTree funds I researched for small value actually compared closely to DFA on portfoliovisualizer last I looked in 2016.
Also like that thought process on dividends, especially in emerging markets.

I do hold some DGS, along with DLS for developed small value and unlike most here, even DES for my U.S. small value exposure.

Hopefully WisdomTree gets a little more competitive with their expense ratios. It has limited how much I am willing to put in the funds. I get the rest of my desired international small cap exposure through VSS (Vanguard FTSE All-World ex-US Small-Cap ETF).

livesoft
Posts: 66990
Joined: Thu Mar 01, 2007 8:00 pm

Re: DGS: Own it? Opinions on it?

Post by livesoft » Sat Oct 13, 2018 5:33 am

I own DGS and DLS. I'm not sure what you mean by opinion.

DGS is the worst performer in my portfolio for 2018, but has been one of the best in past years. I like the asset niche that it fulfills, but it can be terribly volatile, though not so much this year. It is a decent ETF to use for my RBD strategy, so I am not afraid to buy it and to sell it in a short period of time. It is a free trade at 3 of my brokers.
Last edited by livesoft on Sat Oct 13, 2018 5:35 am, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.

gclancer
Posts: 628
Joined: Sat Apr 27, 2013 10:34 am

Re: DGS: Own it? Opinions on it?

Post by gclancer » Sat Oct 13, 2018 5:34 am

sillysaver wrote:
Fri Oct 12, 2018 4:47 pm
I'm not going crazy with tilting but this is a good option.
I’m getting a tad over-tilted at this point. I’ve “tactically rebalanced” into DGS twice in the last month (failed at calling the bottom both times). I realize this is not Boglehead-approved, but at the margins it adds some spice to life (but I officially have to stop tactically rebalancing lest my emerging market exposure goes beyond the “margins”).

AlohaJoe
Posts: 4568
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: DGS: Own it? Opinions on it?

Post by AlohaJoe » Sat Oct 13, 2018 5:44 am

KJVanguard wrote:
Fri Oct 12, 2018 4:35 pm
but getting them to drink the Kool Aid that makes one believe in a small value premium seems unlikely for the powers that be at Vanguard.
Vanguard has small value funds.

They "believe" in it. Or at least, they believe people will buy it. Vanguard sells lots of things. I'm not sure they "believe" all of them.

sillysaver
Posts: 181
Joined: Thu Oct 08, 2015 5:24 pm

Re: DGS: Own it? Opinions on it?

Post by sillysaver » Sat Oct 13, 2018 8:16 am

livesoft wrote:
Sat Oct 13, 2018 5:33 am
It is a free trade at 3 of my brokers.
Which ones?

garlandwhizzer
Posts: 2331
Joined: Fri Aug 06, 2010 3:42 pm

Re: DGS: Own it? Opinions on it?

Post by garlandwhizzer » Sat Oct 13, 2018 12:45 pm

Those who want a fund with exposure to the EM SC space have limited choices unless they have access to DFA which has a EM SCV fund. I am aware of 3 options: DGS, EWX, and EEMS, all of which have performed similarly. DGS, using a dividend strategy, in theory tends more toward value/low vol than the others, but looking at performance graphs of 1, 3, 5, 10 yr they're all very similar. I own DGS but its appeal has been more theoretical than real while I've held it.

Garland Whizzer

User avatar
whodidntante
Posts: 5623
Joined: Thu Jan 21, 2016 11:11 pm

Re: DGS: Own it? Opinions on it?

Post by whodidntante » Sat Oct 13, 2018 12:47 pm

I've owned it a few times, and each time I ended up TLH'ing out of it. It's fine and doesn't really have a competitor but the ER is high.

User avatar
Alexa9
Posts: 1872
Joined: Tue Aug 30, 2016 9:41 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by Alexa9 » Sat Oct 13, 2018 12:59 pm

Seems like the only alternative to DFA and a mediocre one (dividend play rather than pure value, higher ER). I'd somewhat rather use VSS. Surprising there aren't more options with all the kooky ETFs out there.

livesoft
Posts: 66990
Joined: Thu Mar 01, 2007 8:00 pm

Re: DGS: Own it? Opinions on it?

Post by livesoft » Sat Oct 13, 2018 1:27 pm

sillysaver wrote:
Sat Oct 13, 2018 8:16 am
livesoft wrote:
Sat Oct 13, 2018 5:33 am
It is a free trade at 3 of my brokers.
Which ones?
WellsTrade, TDAmeritrade, and I think Vanguard
Wiki This signature message sponsored by sscritic: Learn to fish.

Topic Author
KJVanguard
Posts: 222
Joined: Fri Oct 05, 2018 3:39 am

Re: DGS: Own it? Opinions on it?

Post by KJVanguard » Sat Oct 13, 2018 4:02 pm

AlohaJoe wrote:
Sat Oct 13, 2018 5:44 am
KJVanguard wrote:
Fri Oct 12, 2018 4:35 pm
but getting them to drink the Kool Aid that makes one believe in a small value premium seems unlikely for the powers that be at Vanguard.
Vanguard has small value funds.

They "believe" in it. Or at least, they believe people will buy it. Vanguard sells lots of things. I'm not sure they "believe" all of them.
With a median market cap of $3.9B Small Cap Value Index isn't very small, nor is it very "valuey." DFA would view it as Mid Cap & rather "Growthy." None of their value funds are deep value like DFA.

Well, they don't believe in small value enough to give us a small value international fund, as one example of a fund many on this board including me would like. Now DFA it a true believer in such funds. Us retail investors have to hold our nose and pay Wisdom Tree expenses.

I am not too sure how much Vanguard really believes in actively managed funds, but you're right that they offer them because they sell. I very much doubt they believe in sector funds either though they do offer various sector ETFs. They also offer an International (Large Cap) Dividend fund because it evidently sells too. I would buy that fund if it was International Small-Cap Dividend, but Vanguard has a mega-cap fetish.

Overall I think Vanguard tends to believe in much of what they offer. They don't offer funds that are truly ridiculous as many firms do simply because you can sell lunacy (for a nice profit). I'm confident Vanguard won't ever offer a 3X inverse silver fund simply because some folks actually buy such crazy things.

Topic Author
KJVanguard
Posts: 222
Joined: Fri Oct 05, 2018 3:39 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by KJVanguard » Sat Oct 13, 2018 4:03 pm

Alexa9 wrote:
Sat Oct 13, 2018 12:59 pm
Seems like the only alternative to DFA and a mediocre one (dividend play rather than pure value, higher ER). I'd somewhat rather use VSS. Surprising there aren't more options with all the kooky ETFs out there.
I do use VSS as well. Actually I own quite a bit of VSS.

Topic Author
KJVanguard
Posts: 222
Joined: Fri Oct 05, 2018 3:39 am

Re: DGS: Own it? Opinions on it?

Post by KJVanguard » Sat Oct 13, 2018 5:05 pm

whodidntante wrote:
Sat Oct 13, 2018 12:47 pm
It's fine and doesn't really have a competitor but the ER is high.
Yeah, the expenses bother me too. Really the only fault I can find with it. Once you get used to Vanguard everything else looks way too expensive. Expenses are the only thing we can control and I fear that a small value tilt may not in the long run be able to outperform the much cheaper Vanguard EM fund that's 0.14%. Hell, even before expenses small & value may underperform -- my crystal ball doesn't work.

Early this year I sold FRN (a Frontier Markets EFT) in part because I didn't want to pay a whopping 70 basis points. I went with the 14 points of Vanguard EM as an alternative. I also felt FRN was too concentrated in its top holdings (and didn't have all that many holdings in grand total). I assumed Vanguard EM would be lower risk than FRN over time, and Vanguard has a much lower ER which is the only certainty.

Above EWX & EEMS were suggested alternatives to DGS, both small cap (but no value tilt). If I'm going to pay over 60 bps, I would really like them to toss in a value tilt to give me more for my ER. Dividends are not value as defined by DFA, but they tend to lead to much the same result. My DGS is in IRAs, so tax efficiency of a dividend fund doesn't matter.

I will have to wait decades to see if DGS was worth it or if Vanguard EM would have been better (or if both stunk, and I should have gone with Total International or VSS).

AlohaJoe
Posts: 4568
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: DGS: Own it? Opinions on it?

Post by AlohaJoe » Sat Oct 13, 2018 9:45 pm

KJVanguard wrote:
Sat Oct 13, 2018 4:02 pm
With a median market cap of $3.9B Small Cap Value Index isn't very small, nor is it very "valuey." DFA would view it as Mid Cap & rather "Growthy." None of their value funds are deep value like DFA.
VIOV has a median market cap of $1.7 billion. And more importantly its SMB is 0.79. The HML is 0.40, making it in no way "growthy".
Well, they don't believe in small value enough to give us a small value international fund
I don't see why someone would make that assumption. My guess is that Vanguard operates like a business and puts out funds that they think will sell to their customers and is hesitant to offer funds that won't sell, regardless of their academic or intellectual merit. VIOV only has $430 million in AUM after nearly 5 years. The mutual fund class only has $30 million in AUM. Presumably international small cap would have even lower AUM. Maybe not even $100 million combined, given the strong US bias of US investors.
Last edited by AlohaJoe on Sat Oct 13, 2018 9:56 pm, edited 1 time in total.

fennewaldaj
Posts: 742
Joined: Sun Oct 22, 2017 11:30 pm

Re: DGS: Own it? Opinions on it?

Post by fennewaldaj » Sat Oct 13, 2018 9:52 pm

AlohaJoe wrote:
Sat Oct 13, 2018 9:45 pm
KJVanguard wrote:
Sat Oct 13, 2018 4:02 pm
With a median market cap of $3.9B Small Cap Value Index isn't very small, nor is it very "valuey." DFA would view it as Mid Cap & rather "Growthy." None of their value funds are deep value like DFA.
VIOV has a median market cap of $1.7 billion. And more importantly its SMB is 0.79. The HMB is 0.40, making it in no way "growthy".
Well, they don't believe in small value enough to give us a small value international fund
I don't see why someone would make that assumption. My guess is that Vanguard operates like a business and puts out funds that they think will sell to their customers and is hesitant to offer funds that won't sell, regardless of their academic or intellectual merit. VIOV only has $430 million in AUM after nearly 5 years. The mutual fund class only has $30 million in AUM. Presumably international small cap would have even lower AUM. Maybe not even $100 million combined, given the strong US bias of US investors.
Their international small blend fund (VSS) is fairly popular though (~6B in assets between all share classes). I suspect an international small value fund would do alright.

3504PIR
Posts: 772
Joined: Mon Jul 26, 2010 2:46 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by 3504PIR » Sat Oct 13, 2018 11:58 pm

I love dividends, and appreciate that my views on them run contrary to most BHs. That being said, I would never buy a small cap fund or stock that had a dividend or dividend focus. Mature companies paying a dividend is fine, given a reasonable payout ratio measured against earnings. Small cap issues should solely be focusing on growth. If they are paying a dividend, then not only is that dividend risky, it hinders growth significantly. That may be one reason for its lagging performance.

typical.investor
Posts: 933
Joined: Mon Jun 11, 2018 3:17 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by typical.investor » Sun Oct 14, 2018 12:06 am

3504PIR wrote:
Sat Oct 13, 2018 11:58 pm
I love dividends, and appreciate that my views on them run contrary to most BHs. That being said, I would never buy a small cap fund or stock that had a dividend or dividend focus. Mature companies paying a dividend is fine, given a reasonable payout ratio measured against earnings. Small cap issues should solely be focusing on growth. If they are paying a dividend, then not only is that dividend risky, it hinders growth significantly. That may be one reason for its lagging performance.
I suppose.

One reason I chose DGS was the dividends. My concern with EM (especially smaller companies) was fraud and I thought that the dividend was at least a tangible measure. But I do hold EWX which is market cap weighted too.

Longtermgrowth
Posts: 609
Joined: Thu Nov 26, 2015 1:59 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by Longtermgrowth » Sun Oct 14, 2018 12:33 am

3504PIR wrote:
Sat Oct 13, 2018 11:58 pm
I love dividends, and appreciate that my views on them run contrary to most BHs. That being said, I would never buy a small cap fund or stock that had a dividend or dividend focus. Mature companies paying a dividend is fine, given a reasonable payout ratio measured against earnings. Small cap issues should solely be focusing on growth. If they are paying a dividend, then not only is that dividend risky, it hinders growth significantly. That may be one reason for its lagging performance.
I don't know about that. Would probably end up completely in the small growth side of the morningstar style box if taking that view to the extreme and filtering for no dividends.

If it's such a bad way to invest in small cap value stocks, Paul Merriman wouldn't have DLS listed as best in class ETF for developed small value. He has also recommended DES in the past.

3504PIR
Posts: 772
Joined: Mon Jul 26, 2010 2:46 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by 3504PIR » Sun Oct 14, 2018 12:37 am

Longtermgrowth wrote:
Sun Oct 14, 2018 12:33 am
3504PIR wrote:
Sat Oct 13, 2018 11:58 pm
I love dividends, and appreciate that my views on them run contrary to most BHs. That being said, I would never buy a small cap fund or stock that had a dividend or dividend focus. Mature companies paying a dividend is fine, given a reasonable payout ratio measured against earnings. Small cap issues should solely be focusing on growth. If they are paying a dividend, then not only is that dividend risky, it hinders growth significantly. That may be one reason for its lagging performance.
I don't know about that. Would probably end up completely in the small growth side of the morningstar style box if taking that view to the extreme and filtering for no dividends.

If it's such a bad way to invest in small cap value stocks, Paul Merriman wouldn't have DLS listed as best in class ETF for developed small value. He has also recommended DES in the past.
Fair enough. I don’t know specifics about the fund. I was just stating my thought on small caps and dividends in general.

Theoretical
Posts: 1476
Joined: Tue Aug 19, 2014 10:09 pm

Re: DGS: Own it? Opinions on it?

Post by Theoretical » Sun Oct 14, 2018 4:47 am

KJVanguard wrote:
Sat Oct 13, 2018 5:05 pm
whodidntante wrote:
Sat Oct 13, 2018 12:47 pm
It's fine and doesn't really have a competitor but the ER is high.
Yeah, the expenses bother me too. Really the only fault I can find with it. Once you get used to Vanguard everything else looks way too expensive. Expenses are the only thing we can control and I fear that a small value tilt may not in the long run be able to outperform the much cheaper Vanguard EM fund that's 0.14%. Hell, even before expenses small & value may underperform -- my crystal ball doesn't work.

Early this year I sold FRN (a Frontier Markets EFT) in part because I didn't want to pay a whopping 70 basis points. I went with the 14 points of Vanguard EM as an alternative. I also felt FRN was too concentrated in its top holdings (and didn't have all that many holdings in grand total). I assumed Vanguard EM would be lower risk than FRN over time, and Vanguard has a much lower ER which is the only certainty.

Above EWX & EEMS were suggested alternatives to DGS, both small cap (but no value tilt). If I'm going to pay over 60 bps, I would really like them to toss in a value tilt to give me more for my ER. Dividends are not value as defined by DFA, but they tend to lead to much the same result. My DGS is in IRAs, so tax efficiency of a dividend fund doesn't matter.

I will have to wait decades to see if DGS was worth it or if Vanguard EM would have been better (or if both stunk, and I should have gone with Total International or VSS).
One note about EWX and EEMS is that while they don't have the inherent value tilt of DGS, they make money hand over fist on securities lending that makes up for the ER. EWX is notoriously tax inefficient, but can even get a negative expense ratio. EEMS is tax efficient and also makes tons of money on the lending. WisdomTree does less of it, so the effective ER is closer to .4-.45 for them

Topic Author
KJVanguard
Posts: 222
Joined: Fri Oct 05, 2018 3:39 am

Re: DGS: Own it? Opinions on it?

Post by KJVanguard » Sun Oct 14, 2018 12:14 pm

Theoretical wrote:
Sun Oct 14, 2018 4:47 am
One note about EWX and EEMS is that while they don't have the inherent value tilt of DGS, they make money hand over fist on securities lending that makes up for the ER. EWX is notoriously tax inefficient, but can even get a negative expense ratio. EEMS is tax efficient and also makes tons of money on the lending. WisdomTree does less of it, so the effective ER is closer to .4-.45 for them
Thanks for that note. I wonder why Wisdom tree does less lending? I would have expected every fund to lend securities up to the legal limit of lending.

Topic Author
KJVanguard
Posts: 222
Joined: Fri Oct 05, 2018 3:39 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by KJVanguard » Sun Oct 14, 2018 12:21 pm

typical.investor wrote:
Sun Oct 14, 2018 12:06 am
One reason I chose DGS was the dividends. My concern with EM (especially smaller companies) was fraud and I thought that the dividend was at least a tangible measure.
I originally bought DGS because I liked a small value tilt to EM.

It was later that I thought about dividends being a tangible measure. I remember my late father's World Com going from $22,000 to $Zero due to their fraud that even the SEC failed to catch. Proof you can pull off the biggest accounting fraud in history even right under the nose of the SEC. You can fake profits -- and they did -- but nobody can fake a cash dividend.

If not for the income tax, it would be optimal for all companies to pay out substantially all profits as dividends. It's clear that companies do NOT do well with the way they invest retained earnings, regularly investing in projects the market would never give a thumbs up to.

Topic Author
KJVanguard
Posts: 222
Joined: Fri Oct 05, 2018 3:39 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by KJVanguard » Sun Oct 14, 2018 12:23 pm

KJVanguard wrote:
Sun Oct 14, 2018 12:21 pm
typical.investor wrote:
Sun Oct 14, 2018 12:06 am
One reason I chose DGS was the dividends. My concern with EM (especially smaller companies) was fraud and I thought that the dividend was at least a tangible measure.
I originally bought DGS because I liked a small value tilt to EM.

It was later that I thought about dividends being a tangible measure. I remember my late father's World Com going from $22,000 to $Zero due to their fraud that even the SEC failed to catch. Proof you can pull off the biggest accounting fraud in history even right under the nose of the SEC. You can fake profits -- and they did -- but nobody can fake a cash dividend.

If not for the income tax, it would be optimal for all companies to pay out substantially all profits as dividends. It's clear that companies do NOT do well with the way they invest retained earnings, regularly investing in projects the market would never give a thumbs up to.
...and I had to accept dividends as my measure of value since there is no retail EM small value fund. EM SV will only be found at DFA.

User avatar
whodidntante
Posts: 5623
Joined: Thu Jan 21, 2016 11:11 pm

Re: DGS: Own it? Opinions on it?

Post by whodidntante » Sun Oct 14, 2018 12:31 pm

Theoretical wrote:
Sun Oct 14, 2018 4:47 am
One note about EWX and EEMS is that while they don't have the inherent value tilt of DGS, they make money hand over fist on securities lending that makes up for the ER.
EEMS made $906k in securities lending revenue in 2017, versus expenses of 1.3 million.

https://www.ishares.com/us/library/stre ... -08-31.pdf

Longtermgrowth
Posts: 609
Joined: Thu Nov 26, 2015 1:59 pm

Re: DGS: Own it? Opinions on it?

Post by Longtermgrowth » Tue Oct 16, 2018 4:51 pm

Theoretical wrote:
Sun Oct 14, 2018 4:47 am
One note about EWX and EEMS is that while they don't have the inherent value tilt of DGS, they make money hand over fist on securities lending that makes up for the ER. EWX is notoriously tax inefficient, but can even get a negative expense ratio. EEMS is tax efficient and also makes tons of money on the lending. WisdomTree does less of it, so the effective ER is closer to .4-.45 for them
I was just looking at "Median Tracking Difference (12 Mo)" on ETF.com, and was surprised to see that number, -0.80%, currently exceeds DGS' ER.
I then looked at EWX, and that number is currently -0.04%, much less than the funds 0.65% ER: https://www.etf.com/EWX#efficiency
It would be nice if they included that info for more than just the past 12 months.

This is a big reason I like VSS. It has positive tracking, paying us to hold it after securities lending revenue.

comeinvest
Posts: 243
Joined: Mon Mar 12, 2012 6:57 pm

Re: DGS: Own it? Opinions on it?

Post by comeinvest » Tue Mar 26, 2019 4:04 pm

Theoretical wrote:
Sun Oct 14, 2018 4:47 am
One note about EWX and EEMS is that while they don't have the inherent value tilt of DGS, they make money hand over fist on securities lending that makes up for the ER. EWX is notoriously tax inefficient, but can even get a negative expense ratio. EEMS is tax efficient and also makes tons of money on the lending. WisdomTree does less of it, so the effective ER is closer to .4-.45 for them
If the assumptions of the researchaffiliates expected returns are only half way correct, DGS should outperform both EWS, EEMS, and handily recoup its expense ratio and some more. The problem is the "IF".
What bothers me is that I estimate the total cost of ownership to be ca. 1.5% annually, because of the high dividends and foreign withholding was ca. 12-13% last time I checked, and the unevitable trading cost because of the relatively high turnover. The foreign withholding can't be recouped in tax-advantaged accounts, so it's a real drag vs. the index. Every time I look at my portfolio, I'm thinking of how to replace DGS. I replaced already part of it with a selection of individual EM value securities, hoping to achieve a 1.5% higher expected return.

caklim00
Posts: 1769
Joined: Mon May 26, 2008 10:09 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by caklim00 » Tue Mar 26, 2019 6:08 pm

Yep, own it and having the same issues right now with it. I'm contemplating using DFEVX and/or EMGF instead: viewtopic.php?f=1&t=276853&newpost=4457559

Wisdomtree isn't going to reduce its ER from .63. They have had plenty of chances but the fund has become so large why would they.

User avatar
vineviz
Posts: 4420
Joined: Tue May 15, 2018 1:55 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by vineviz » Tue Mar 26, 2019 6:45 pm

I don't know why Invesco FTSE RAFI Emerging Markets ETF (PXH) doesn't get more love.

It's demonstrated considerably more small value factor exposure than the competition. It's suffered a bit as momentum has been in vogue, but if I were using a fund in this category it's one I'd consider.

IMHO, though, emerging markets is a place where cheap beta is probably a "good enough" solution. Accessing SMB and HML is much easier and cheaper in the US, so I see no reason to pay out the nose for it in emerging markets. I've been using IEMG and SPEM happily.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

comeinvest
Posts: 243
Joined: Mon Mar 12, 2012 6:57 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by comeinvest » Tue Mar 26, 2019 8:01 pm

vineviz wrote:
Tue Mar 26, 2019 6:45 pm
I don't know why Invesco FTSE RAFI Emerging Markets ETF (PXH) doesn't get more love.

It's demonstrated considerably more small value factor exposure than the competition. It's suffered a bit as momentum has been in vogue, but if I were using a fund in this category it's one I'd consider.

IMHO, though, emerging markets is a place where cheap beta is probably a "good enough" solution. Accessing SMB and HML is much easier and cheaper in the US, so I see no reason to pay out the nose for it in emerging markets. I've been using IEMG and SPEM happily.
PXH on Morningstar is mostly "giant", some "large" and less than 10% "medium". Not small.
Nothing is "good enough" as a compensation for my risk of investing. Diversification of factor strategies across geographical regions and markets is important, in case they fail in one or more markets. As we all know, all the factor theory is based on assumptions that extrapolate the past into the future, and that may or may not materialize in the future, and/or depend on the market or the maturity of a market.
In other words: I want my factors, and I want them cheap ;)
Last edited by comeinvest on Tue Mar 26, 2019 8:13 pm, edited 1 time in total.

garlandwhizzer
Posts: 2331
Joined: Fri Aug 06, 2010 3:42 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by garlandwhizzer » Tue Mar 26, 2019 8:06 pm

If you're looking for small cap or small cap value exposure in emerging markets I believe DGS is as good as any option you can get other than DEMSX which most of us cannot access without an advisor. I use DGS for EM SCV exposure. I believe factors like size and value may work better in international markets in general and in emerging markets in particular than in US markets which I believe to be more efficient and less exploitable. I'm a fan of INTL SC because it offers more diversification relative to a US equity portfolio than INTL LC whose firms operate in the same global markets as US LC. I also believe the expected long term returns of INTL SC may be higher than INTL LC. Two other options to check out for EM SC exposure are EWX and EEMS.

Garland Whizzer

User avatar
vineviz
Posts: 4420
Joined: Tue May 15, 2018 1:55 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by vineviz » Tue Mar 26, 2019 8:19 pm

comeinvest wrote:
Tue Mar 26, 2019 8:01 pm
PXH on Morningstar is mostly "giant", some "large" and less than 10% "medium". Not small.
Nothing is "good enough" as a compensation for my risk of investing. Diversification of factor strategies across geographical regions and markets is important, in case they fail in one or more markets. As we all know, all the factor theory is based on assumptions that extrapolate the past into the future, and that may or may not materialize in the future, and/or depend on the market or the maturity of a market.
If you're going to try to build a serious portfolio around factor tilts, you'll be well-suited to find a better data source than Morningstar.

And while you won't find a bigger proponent of diversification than me, the diversification has be be real and not illusory. Not only has the global ex-US size premium been virtually invisible as far back as we have data, funds like DGS don't even capture enough exposure to it to be statistically significant.

PXH at least does that, and has much stronger exposure to the value premium as well. If a fund is going to take from me more than 200 bps in alpha due to management expenses, turnover, etc. then it had better have a solid case for giving me back at least that much in factor beta.

I'd be pleased to be proven wrong, but I've never seen evidence strong enough to make a convincing case for small cap emerging market funds. My conclusion is that cheap market beta in those markets has to be "good enough" because it's the best there is for retail investors.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

comeinvest
Posts: 243
Joined: Mon Mar 12, 2012 6:57 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by comeinvest » Tue Mar 26, 2019 8:27 pm

garlandwhizzer wrote:
Tue Mar 26, 2019 8:06 pm
I'm a fan of INTL SC because it offers more diversification relative to a US equity portfolio than INTL LC whose firms operate in the same global markets as US LC. I also believe the expected long term returns of INTL SC may be higher than INTL LC.
Garland Whizzer
Did you look at https://interactive.researchaffiliates.com/smart-beta -> Developed -> Strategies -> Size -> Small Cap ? It shows -2% annual expected outunderperformance. EM -> Strategies -> Size -> Small is at -4%. Granted, the fortunes turn into the opposite when you go to Factors -> Small -> Value. Int'l/EM small without value seems a bit like financial suicide. The famous last words, standing at a cliff "... but they told me to stay the course." That's why I definitely prefer DGS over EWX or EEMS. And for the record, if somebody considers this a valuation based tactical allocation (alias market timing): I'm having a hard time "staying the course" with that big of a difference in valuation based expected returns.
Last edited by comeinvest on Tue Mar 26, 2019 8:40 pm, edited 3 times in total.

User avatar
asset_chaos
Posts: 1560
Joined: Tue Feb 27, 2007 6:13 pm
Location: Melbourne

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by asset_chaos » Tue Mar 26, 2019 8:33 pm

I invest in dgs as part of a modest global small-value tilt with dls (wisdomtree developed ex US small value) and vsiax (vanguard US small-value). If invested at roughly global market cap proportions of US 50%, developed ex-US 40% and emerging 10%, portfoliovisualizer says this global small-value 3 fund portfolio loads (using the AQR global factors) as

Code: Select all

Factor 		Loading 	
Market (Rm-Rf) 	1.09 	
Size (SMB) 	0.66 	
Value (HML) 	0.23 	
Quality (QMJ) 	0.33
with an R^2 of 0.95, weighted cost around 35 bp, and a negative but not reliably different from zero alpha. I.e. the three funds together do about what I'd expect; although, sure I'd prefer lower cost and more value loading. I suspect wisdomtree's dividend weighting reduces somewhat the value loading and increases the quality loading; although, vsiax by itself loads on quality. Nonetheless, you can see that alongside a global cap-weighted index fund, the overall portfolio loading on factors will be modest to a fault.

Parenthetically, if dgs is dropped and it's allocation distributed equally to the other two funds, none of the numbers changes by much, which is as much due to emerging markets being a small part of a global portfolio, as to anything else.
Regards, | | Guy

User avatar
vineviz
Posts: 4420
Joined: Tue May 15, 2018 1:55 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by vineviz » Tue Mar 26, 2019 8:46 pm

asset_chaos wrote:
Tue Mar 26, 2019 8:33 pm

Code: Select all

Factor 		Loading 	
Market (Rm-Rf) 	1.09 	
Size (SMB) 	0.66 	
Value (HML) 	0.23 	
Quality (QMJ) 	0.33
For DGS, the size loading isn't statistically significant from zero. Especially for a fund that most investors are holding at small weights, it seems like that'd be more discouraging than it seems to be for people.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

comeinvest
Posts: 243
Joined: Mon Mar 12, 2012 6:57 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by comeinvest » Tue Mar 26, 2019 8:49 pm

vineviz wrote:
Tue Mar 26, 2019 8:19 pm
comeinvest wrote:
Tue Mar 26, 2019 8:01 pm
PXH on Morningstar is mostly "giant", some "large" and less than 10% "medium". Not small.
Nothing is "good enough" as a compensation for my risk of investing. Diversification of factor strategies across geographical regions and markets is important, in case they fail in one or more markets. As we all know, all the factor theory is based on assumptions that extrapolate the past into the future, and that may or may not materialize in the future, and/or depend on the market or the maturity of a market.
If you're going to try to build a serious portfolio around factor tilts, you'll be well-suited to find a better data source than Morningstar.

And while you won't find a bigger proponent of diversification than me, the diversification has be be real and not illusory. Not only has the global ex-US size premium been virtually invisible as far back as we have data, funds like DGS don't even capture enough exposure to it to be statistically significant.

PXH at least does that, and has much stronger exposure to the value premium as well. If a fund is going to take from me more than 200 bps in alpha due to management expenses, turnover, etc. then it had better have a solid case for giving me back at least that much in factor beta.

I'd be pleased to be proven wrong, but I've never seen evidence strong enough to make a convincing case for small cap emerging market funds. My conclusion is that cheap market beta in those markets has to be "good enough" because it's the best there is for retail investors.
I agree with you about int'l and EM small cap. The case for small appears to be weak, although I see the argument that int'l small has better diversification benefits than int'l large.
For small + value however, the opposite is true. It has one of the biggest historical and expected outperformances of any factor or strategy that I can think of. We care basically filtering out the "lottery ticket" stocks with phantom balance sheets and fantasy income items here.
Last edited by comeinvest on Tue Mar 26, 2019 8:59 pm, edited 2 times in total.

comeinvest
Posts: 243
Joined: Mon Mar 12, 2012 6:57 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by comeinvest » Tue Mar 26, 2019 8:58 pm

vineviz wrote:
Tue Mar 26, 2019 8:46 pm
For DGS, the size loading isn't statistically significant from zero. Especially for a fund that most investors are holding at small weights, it seems like that'd be more discouraging than it seems to be for people.
I'm not a statistician, but DGS constituents have an average market cap of 1,285 Mil vs. benchmark market cap of 31,009 Mil. How is that a size loading "statistically insignificant from zero"? I'm confused.

comeinvest
Posts: 243
Joined: Mon Mar 12, 2012 6:57 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by comeinvest » Tue Mar 26, 2019 9:02 pm

vineviz wrote:
Tue Mar 26, 2019 8:19 pm
comeinvest wrote:
Tue Mar 26, 2019 8:01 pm
PXH on Morningstar is mostly "giant", some "large" and less than 10% "medium". Not small.
If you're going to try to build a serious portfolio around factor tilts, you'll be well-suited to find a better data source than Morningstar.
Then what is the real large/mid/small distribution of PXH ?

User avatar
vineviz
Posts: 4420
Joined: Tue May 15, 2018 1:55 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by vineviz » Tue Mar 26, 2019 9:21 pm

comeinvest wrote:
Tue Mar 26, 2019 8:58 pm
vineviz wrote:
Tue Mar 26, 2019 8:46 pm
For DGS, the size loading isn't statistically significant from zero. Especially for a fund that most investors are holding at small weights, it seems like that'd be more discouraging than it seems to be for people.
I'm not a statistician, but DGS constituents have an average market cap of 1,285 Mil vs. benchmark market cap of 31,009 Mil. How is that a size loading "statistically insignificant from zero"? I'm confused.
Factor exposures are measured by regressing the returns of a fund or portfolio against the returns of special long/short "factor portfolios", to examine statistically how well the factors explain the returns of the fund. These regressions produce coefficients for each factor (called factor betas): a positive coefficient means the fund moves with the factor, and negative coefficient means it moves against it.

From Portfolio Visualizer, here are the regression results for DGS.

Image

You can see that the size factor coefficient (AQR-SMB) is positive, just barely. The low t-stat and high p-value tell you that the size factor coefficient is so small the it could be positive just by random chance. That's what it means to not be statistically significantly different from zero.

Such a fund might still have a role in the portfolio, but the alpha is hugely negative which means you're paying a huge premium for a factor exposure (the one that is the whole point fo the fund) that may or not be real and is tiny even if it is.

I'm oversimplifying and glossing over a lot of detail, but that's the gist of it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

comeinvest
Posts: 243
Joined: Mon Mar 12, 2012 6:57 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by comeinvest » Tue Mar 26, 2019 9:50 pm

vineviz wrote:
Tue Mar 26, 2019 9:21 pm
comeinvest wrote:
Tue Mar 26, 2019 8:58 pm
vineviz wrote:
Tue Mar 26, 2019 8:46 pm
For DGS, the size loading isn't statistically significant from zero. Especially for a fund that most investors are holding at small weights, it seems like that'd be more discouraging than it seems to be for people.
I'm not a statistician, but DGS constituents have an average market cap of 1,285 Mil vs. benchmark market cap of 31,009 Mil. How is that a size loading "statistically insignificant from zero"? I'm confused.
Factor exposures are measured by regressing the returns of a fund or portfolio against the returns of special long/short "factor portfolios", to examine statistically how well the factors explain the returns of the fund. These regressions produce coefficients for each factor (called factor betas): a positive coefficient means the fund moves with the factor, and negative coefficient means it moves against it.

From Portfolio Visualizer, here are the regression results for DGS.

Image

You can see that the size factor coefficient (AQR-SMB) is positive, just barely. The low t-stat and high p-value tell you that the size factor coefficient is so small the it could be positive just by random chance. That's what it means to not be statistically significantly different from zero.

Such a fund might still have a role in the portfolio, but the alpha is hugely negative which means you're paying a huge premium for a factor exposure (the one that is the whole point fo the fund) that may or not be real and is tiny even if it is.

I'm oversimplifying and glossing over a lot of detail, but that's the gist of it.
Thanks for the illustration of factor regression. You are much better at statistics than I am. However, sometimes one can lose sight of the forest for all the trees. Are you seriously telling me that WistromTree selected 865 EM small cap securities that "coincidentally" in lockstep all behaved like large cap or total market over a 7 year time span, and forgot that they "should" behave like small caps given their 1,285 Mil average market cap? Lol :)
Let's take a step back and try to find the forest again.
Your screenshot doesn't clearly show what market your benchmark long/short portfolio was derived, but given the hugely negative annual alpha, I assume the benchmark was based on U.S. markets. It makes zero sense to me to compare a specific ETF invested in EM to a U.S. benchmark, especially for a factor regression. What you found out is that the EM small caps in DGS did not really closely follow the market movements of the U.S. small caps in relation to U.S. large caps - no surprise.
I also wouldn't consider the -15% alpha p.a. a cost or "premium" of owning DGS. It was just how EM performed over that period.
If I think with DGS I have EM small cap and value exposure with 865 stocks with an 1,285 Mil average market cap, and you don't think so based on numbers output from what I find, respectfully, nonsensical input into a piece of software, then we might just agree to disagree.
It never hurts to do a sanity check on numbers that a piece of software is spitting out.
Last edited by comeinvest on Tue Mar 26, 2019 10:00 pm, edited 5 times in total.

HEDGEFUNDIE
Posts: 2773
Joined: Sun Oct 22, 2017 2:06 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by HEDGEFUNDIE » Tue Mar 26, 2019 9:57 pm

comeinvest wrote:
Tue Mar 26, 2019 9:50 pm
Your screenshot doesn't clearly show what market your benchmark long/short portfolio was derived, but given the hugely negative annual alpha, I assume the benchmark was based on U.S. markets. It makes zero sense to me to compare a specific ETF invested in EM to a U.S. benchmark, especially for a factor regression. What you found out is that the EM small caps in DGS did not really follow the market movements of the U.S. small caps in relation to U.S. large caps - no surprise.
Here are DGS and PXH factor regressed against "Asia ex-Japan" which I think represents a majority of the EM.

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

Neither fund shows a size tilt, but both funds do show value.

User avatar
hdas
Posts: 970
Joined: Thu Jun 11, 2015 8:24 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by hdas » Tue Mar 26, 2019 10:05 pm

comeinvest wrote:
Tue Mar 26, 2019 9:50 pm
vineviz wrote:
Tue Mar 26, 2019 9:21 pm
comeinvest wrote:
Tue Mar 26, 2019 8:58 pm
vineviz wrote:
Tue Mar 26, 2019 8:46 pm
For DGS, the size loading isn't statistically significant from zero. Especially for a fund that most investors are holding at small weights, it seems like that'd be more discouraging than it seems to be for people.
I'm not a statistician, but DGS constituents have an average market cap of 1,285 Mil vs. benchmark market cap of 31,009 Mil. How is that a size loading "statistically insignificant from zero"? I'm confused.
Factor exposures are measured by regressing the returns of a fund or portfolio against the returns of special long/short "factor portfolios", to examine statistically how well the factors explain the returns of the fund. These regressions produce coefficients for each factor (called factor betas): a positive coefficient means the fund moves with the factor, and negative coefficient means it moves against it.

From Portfolio Visualizer, here are the regression results for DGS.

Image

You can see that the size factor coefficient (AQR-SMB) is positive, just barely. The low t-stat and high p-value tell you that the size factor coefficient is so small the it could be positive just by random chance. That's what it means to not be statistically significantly different from zero.

Such a fund might still have a role in the portfolio, but the alpha is hugely negative which means you're paying a huge premium for a factor exposure (the one that is the whole point fo the fund) that may or not be real and is tiny even if it is.

I'm oversimplifying and glossing over a lot of detail, but that's the gist of it.
Thanks for the illustration of factor regression. You are much better at statistics than I am. However, sometimes one can lose sight of the forest for all the trees. Are you seriously telling me that WistromTree selected 865 EM small cap securities that "coincidentally" in lockstep all behaved like large cap or total market over a 7 year time span, and forgot that they "should" behave like small caps given their 1,285 Mil average market cap? Lol :)
Let's take a step back and try to find the forest again.
Your screenshot doesn't clearly show what market your benchmark long/short portfolio was derived, but given the hugely negative annual alpha, I assume the benchmark was based on U.S. markets. It makes zero sense to me to compare a specific ETF invested in EM to a U.S. benchmark, especially for a factor regression. What you found out is that the EM small caps in DGS did not really closely follow the market movements of the U.S. small caps in relation to U.S. large caps - no surprise.
I also wouldn't consider the -15% alpha p.a. a cost or "premium" of owning DGS. It was just how EM performed over that period.
If I think with DGS I have EM small cap and value exposure with 865 stocks with an 1,285 Mil average market cap, and you don't think so based on numbers output from what I find, respectfully, nonsensical input into a piece of software, then we might just agree to disagree.
It never hurts to do a sanity check on numbers that a piece of software is spitting out.
You are correct. Vineviz really botched it. The alpha is positive and the size loading looks better when comparing with ex US. However, even this is not apt....But PV doesn’t do regressions for EM specifically. Cheers
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

comeinvest
Posts: 243
Joined: Mon Mar 12, 2012 6:57 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by comeinvest » Tue Mar 26, 2019 10:27 pm

HEDGEFUNDIE wrote:
Tue Mar 26, 2019 9:57 pm
Here are DGS and PXH factor regressed against "Asia ex-Japan" which I think represents a majority of the EM.

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

Neither fund shows a size tilt, but both funds do show value.
Your regression seems to support the thesis that DGS does not provide "small" exposure. I don't mean to be defensive, but let's do some more analysis. Comparing the graphs of DGS, EWX, EEMS, and VWO on Google Finance shows that all of those indeed behave very similar over the time span in question. Except starting 01/2019 when EWX and EEMS dropped sharply in relation to VWO and DGS. Why that happened is anyone's guess. Maybe SG lottery tickets failed starting this year, which both VWO and DGS naturally underweight? Not sure if that implies I don't have small cap exposure with DGS. I think I do.
I am also noticing that large and small caps often behave very similar over periods of time, while relative performance between them diverges only over rather long periods. I am also noticing that the above EM symbols seem to be more similar to each other than e.g. VBR vs. SPY in the U.S., the latter diverging relatively strongly over the past 5 years. But then again VBR and SPY had very similar performance over the past 15 years, sort of catching up with each other at times.
Question to the regression gurus: Does the regression analysis capture correlation over short periods (daily? monthly?), of does it take into account long periods?
Just like "volatility" vs. "maximum drawdown", I believe short term statistics are rather meaningless for the purpose of portfolio construction. What I care about for the purpose of diversification is divergence (or the lack of it) over long periods.
On another note, it was often mentioned in this forum that factor loading of specific funds often changes over time, so it would appear to be a moving target, where the future loading is to some extent unknown.
Long story short, with 865 stocks with average market caps of ca. 1 billion, I think I have a good amount of "small" (and some value) exposure in the market in question. If, when, and how that plays out, is another topic.
Last edited by comeinvest on Tue Mar 26, 2019 11:59 pm, edited 1 time in total.

Theoretical
Posts: 1476
Joined: Tue Aug 19, 2014 10:09 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by Theoretical » Tue Mar 26, 2019 11:51 pm

In my view, the other big thing DGS brings to the table, especially if paired with a fundamental ETF like FNDE/PXH is much lower concentration and fewer sector bets, with some country weighting adjustments.

The other thing is that you basically can’t measure the factors a la fama French with the commercially available data.

The best you could do is make some long-short data using MSCI indexes, though they’re constructed as 50/50 instead of long 33/short 33.

It would be something like

Market: EM IMI index less 1 month bill rates
Size: Small Cap less Large Cap
Value: EM Value less EM growth - but no small value and small growth.

Alternately, you could build factors by long-shorting DFA fund categories.

typical.investor
Posts: 933
Joined: Mon Jun 11, 2018 3:17 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by typical.investor » Wed Mar 27, 2019 12:59 am

I question if there really is a size premium at all. I also question if using EX_US and Asia ex-Japan regions tell us much at all.

I read a paper today that looked at size, value and momentum effects in 18 emerging stock markets during the period 1990 − 2013.
We find that size and momentum strategies generally fail to generate superior returns in emerging markets.
Small value did do better than large value. Actually, what's interesting is they did a 2012 paper and one in 2016. In, 2012 they only looked at EM regions -Asia, Latin America and Eastern Europe. At that time they found no difference between small value and large value. [periods were slightly different 1990 to 2011 vs 1990 − 2013]
We find that in all of the four emerging markets, the value premia point estimates are similar for big and small stocks, both in magnitude and in statistical significance. This result contrasts with the US and the Global Developed region results. Because in US and Global Developed regions, the small stock value premium is much larger than the big stock value premium; and while small stock premium is statistically significant, big stock premium is not.
In the 2016 paper, they looked at each country individually and found:
the average HML_S is between 0.53% per month in Brazil to 2.30% per month in Indonesia, and is statistically significant in 14 markets. On the other hand, the average HML_B is between 0.34% in Chile and 2.38% in Indonesia, and is statistically significant only in seven markets. Moreover, the average difference between HML_S and HML_B is positive in 12 markets, and is statistically significant only in South Korea and Thailand.
In any case, DGS is obviously much, much smaller than PXH by market cap size. PXH seems to have a stronger loading on value.

7% of my equities are FNDE which is much akin to PXH. 5% is DGS. And 3% is in the Pimco multi-factor fund MFEM. Portfolio Visualizer is all over the map on SMB loadings so I just go by ave. market cap -- FNDE 32B, MFEM 16B, DGS 1.2B.

Momentum seems to be weak in emerging so not sure if I need the MFEM. The three funds have different sector and region exposures. I don't think I can get accurate loadings so kind of default to fund construction (especially for MFEM which is new).

2012 http://www.primeglobus.com/Size_Value_Momentum.pdf
2016 https://papers.ssrn.com/sol3/papers.cfm ... wnload=yes

User avatar
vineviz
Posts: 4420
Joined: Tue May 15, 2018 1:55 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by vineviz » Wed Mar 27, 2019 6:11 am

hdas wrote:
Tue Mar 26, 2019 10:05 pm
You are correct. Vineviz really botched it.
Slow down, Jack.

I used the global ex US benchmark, as one should. This isn't my first rodeo.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

User avatar
vineviz
Posts: 4420
Joined: Tue May 15, 2018 1:55 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by vineviz » Wed Mar 27, 2019 6:26 am

comeinvest wrote:
Tue Mar 26, 2019 9:50 pm
Let's take a step back and try to find the forest again.
The forest is this: it's up to the investor to make sure that what they THINK they are buying is is what they ACTUALLY buy.

Morningstar looks at the holdings at a snapshot of time, which has the benefit of being easy and cheap to do in mass scale.

But when we try to gain exposure to factors like size and value, what's really important is the actual exposure to those factors. Regressions measure that directly instead of indirectly.

Direct exposure to the factor is the risk you are getting paid (or not) to take. If you're paying for it but not getting it, that's a bad deal. There are lots of ways that fund can try but fail to capture a particular premium, including turnover issues and secondary screens among others. You could write a whole thesis about it and, honestly, it's a dirty semi-open secret in the smart beta world.
comeinvest wrote:
Tue Mar 26, 2019 9:50 pm
If I think with DGS I have EM small cap and value exposure with 865 stocks with an 1,285 Mil average market cap, and you don't think so based on numbers output from what I find, respectfully, nonsensical input into a piece of software, then we might just agree to disagree.
You might find it nonsensical, but factor regressions are not only the gold standard for this work but are represent the very definition of factor exposure.

It'd be like saying you don't trust thermometers to tell you the temperature.

These kind of regressions can be difficult to get right, and there are lots of ways to mess them up, but they are crucial to this field. They are called Fama-MacBeth regressions, after all: it was Fama'a pioneering development of the technique that made factor investing possible to begin with.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

User avatar
vineviz
Posts: 4420
Joined: Tue May 15, 2018 1:55 pm

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by vineviz » Wed Mar 27, 2019 7:02 am

comeinvest wrote:
Tue Mar 26, 2019 9:50 pm
I also wouldn't consider the -15% alpha p.a. a cost or "premium" of owning DGS. It was just how EM performed over that period.
Well, negative alpha is absolutely a cost. It's where all the returns that aren't explained by the factors end up.

Because there is no "emerging markets" factor, you are right that general geographic performance gets included there and we should hold that geographic performance against funds like DGS and PXH.

The way to control for this is to include some "cheap beta" funds (like VWO and IEMG) in the regression and then compare THEIR alphas with the alphas of the smart beta funds. Their negative alphas average to about -12.9% versus -14.8% for DGS & PXH.

The difference of 190 bps is headwind that these small cap emerging factors funds are fighting: they've got to gain 190bps of premium from their factor exposure every year just to earn back their higher costs.

That's a big hurdle to clear, and about four times the headwind that a US small cap value fund faces relative to its broad market.

I hate that I sound so negative about DGS, because I WANT funds like that to be great choices. I need to see evidence, though, not guesswork that they are good choices. I think you should too.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

typical.investor
Posts: 933
Joined: Mon Jun 11, 2018 3:17 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by typical.investor » Wed Mar 27, 2019 7:36 am

vineviz wrote:
Wed Mar 27, 2019 6:26 am
comeinvest wrote:
Tue Mar 26, 2019 9:50 pm
Let's take a step back and try to find the forest again.
The forest is this: it's up to the investor to make sure that what they THINK they are buying is is what they ACTUALLY buy.

Morningstar looks at the holdings at a snapshot of time, which has the benefit of being easy and cheap to do in mass scale.

But when we try to gain exposure to factors like size and value, what's really important is the actual exposure to those factors. Regressions measure that directly instead of indirectly.

Direct exposure to the factor is the risk you are getting paid (or not) to take. If you're paying for it but not getting it, that's a bad deal. There are lots of ways that fund can try but fail to capture a particular premium, including turnover issues and secondary screens among others. You could write a whole thesis about it and, honestly, it's a dirty semi-open secret in the smart beta world.
comeinvest wrote:
Tue Mar 26, 2019 9:50 pm
If I think with DGS I have EM small cap and value exposure with 865 stocks with an 1,285 Mil average market cap, and you don't think so based on numbers output from what I find, respectfully, nonsensical input into a piece of software, then we might just agree to disagree.
You might find it nonsensical, but factor regressions are not only the gold standard for this work but are represent the very definition of factor exposure.

It'd be like saying you don't trust thermometers to tell you the temperature.

These kind of regressions can be difficult to get right, and there are lots of ways to mess them up, but they are crucial to this field. They are called Fama-MacBeth regressions, after all: it was Fama'a pioneering development of the technique that made factor investing possible to begin with.
I simply conclude Portfolio Visualizer is unable to do a reasonable factor analysis of emerging market funds.

It returns about the same SMB (small size loading) for DGS and SFENX (very similar to PXH) which is about 15X as large. HML is strongly negative for DGS and alpha very positive. That's using ex-US. Using Asia ex-Japan you get extremely suspect numbers that obviously get resolved in the strong alphas (catch all category to make the math work and not manager skill here).

There is no reason to doubt that DGS isn't loading on size. For other factors such as momentum, quality, and even value it might be more difficult to know if a fund actually contains stocks that has those qualities. Size is easily measurable by market cap.

I trust thermometers and I trust angle-of-attack sensors and I trust the pilot to know when it's clearly not working.

caklim00
Posts: 1769
Joined: Mon May 26, 2008 10:09 am

Re: DGS: Own it? Opinions on it? [WisdomTree Emerging Mkts SmallCap Dividend]

Post by caklim00 » Wed Mar 27, 2019 9:33 am

I'm seriously considering just using DFEVX (DFA EM Value) instead of DGS and calling it a day. I wish DFEVX was smaller. Its supposed to be all cap value, but its definitely has more of a larger cap feel (Avg Mkt Cap is 9.37M). Unfortunately I don't have access to DFA EM Small or this would be an easy decision for me. I'm not sure EMGF would really provide significant value over just using DFEVX.

Post Reply