Small Cap Value heads Rejoice !!!

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RussellWilson
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Re: Small Cap Value heads Rejoice !!!

Post by RussellWilson »

Sorry if this has been asked before/frequently, I've read a lot of this thread and others...

Is there a compelling reason to view the attributes of a fund on its own as opposed to in the context of the portfolio? For example VBR by itself is bigger and less value-y, but is there a meaningful difference between, for example:

60% TSM 40% VBR, and
80% TSM 20% (fund with stronger factors)?

Assume the above is a hypothetical where the collective size and value loadings were the same for each combination.

This assumes that there is a combination that would make them the same...I get that a more loaded fund would provide more of its factors per dollar invested, so if one believed strongly in SCV they would get more bang for their buck. But essentially, couldn't they then just increase the ratio of SCV against TSM? Obviously it would matter if someone were a true believer and was 100% SCV, but as long as they are mixing it with other stuff, aren't they just giving away ER as well as having increased closure risk by using anything other than VBR?
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Uncorrelated
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Re: Small Cap Value heads Rejoice !!!

Post by Uncorrelated »

RussellWilson wrote: Sun Apr 26, 2020 2:12 pm Sorry if this has been asked before/frequently, I've read a lot of this thread and others...

Is there a compelling reason to view the attributes of a fund on its own as opposed to in the context of the portfolio? For example VBR by itself is bigger and less value-y, but is there a meaningful difference between, for example:

60% TSM 40% VBR, and
80% TSM 20% (fund with stronger factors)?

Assume the above is a hypothetical where the collective size and value loadings were the same for each combination.

This assumes that there is a combination that would make them the same...I get that a more loaded fund would provide more of its factors per dollar invested, so if one believed strongly in SCV they would get more bang for their buck. But essentially, couldn't they then just increase the ratio of SCV against TSM? Obviously it would matter if someone were a true believer and was 100% SCV, but as long as they are mixing it with other stuff, aren't they just giving away ER as well as having increased closure risk by using anything other than VBR?
If the factor loading are identical, then the funds have the same expected returns.

But if you get your factor exposure with deep factor funds with few holdings, you will get higher idiosyncratic risk. With our current factor models it's pretty difficult to model this risk, but my impression is that you probably want to skip funds with less than 200 holdings.

For some literature, you can refer to How Diversification Impacts the Reliability of Outcomes (DFA research).
RussellWilson
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Re: Small Cap Value heads Rejoice !!!

Post by RussellWilson »

Thank you Uncorrelated, I'll read that.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

RussellWilson wrote: Sun Apr 26, 2020 2:12 pm Sorry if this has been asked before/frequently, I've read a lot of this thread and others...

Is there a compelling reason to view the attributes of a fund on its own as opposed to in the context of the portfolio? For example VBR by itself is bigger and less value-y, but is there a meaningful difference between, for example:

60% TSM 40% VBR, and
80% TSM 20% (fund with stronger factors)?

Assume the above is a hypothetical where the collective size and value loadings were the same for each combination.

This assumes that there is a combination that would make them the same...I get that a more loaded fund would provide more of its factors per dollar invested, so if one believed strongly in SCV they would get more bang for their buck. But essentially, couldn't they then just increase the ratio of SCV against TSM? Obviously it would matter if someone were a true believer and was 100% SCV, but as long as they are mixing it with other stuff, aren't they just giving away ER as well as having increased closure risk by using anything other than VBR?
Yes, holding more VBR could be equivalent to less VIOV for example. VIOV has a higher expense ratio but if you hold less of it and more total market, it’s much closer to a wash. Tax-efficiency also matters (VBR holds more higher yielding REITs).

It may also be difficult or impossible to hit your target size and value loading with VBR, you’d have to adjust AA to zero in on one of them more than the other.
whereskyle
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Re: Small Cap Value heads Rejoice !!!

Post by whereskyle »

Hello all, I could use some advice on alternatives to an apparently overpriced fund in my mother's 401K. The fund is the JP Morgan Small-cap value fund. The ER is basically 1%, the fund seems to be actively managed, and it does not seem to produce above-average returns. Who'd have guessed, right? Anyways, my mother has been invested for about 20 years and hasn't seen the payoff that a diligent SCV investor deserves. I don't want her to miss out on the return that Reversion to the Mean will eventually bestow on SCV, but I expect this is not the best fund for her to achieve that goal. Any advice on where to start in my search for an alternative for her?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Forester
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

whereskyle wrote: Sun Apr 26, 2020 6:11 pm Hello all, I could use some advice on alternatives to an apparently overpriced fund in my mother's 401K. The fund is the JP Morgan Small-cap value fund. The ER is basically 1%, the fund seems to be actively managed, and it does not seem to produce above-average returns. Who'd have guessed, right? Anyways, my mother has been invested for about 20 years and hasn't seen the payoff that a diligent SCV investor deserves. I don't want her to miss out on the return that Reversion to the Mean will eventually bestow on SCV, but I expect this is not the best fund for her to achieve that goal. Any advice on where to start in my search for an alternative for her?
IJS would be the mainstream cheap safe choice.
rascott
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Re: Small Cap Value heads Rejoice !!!

Post by rascott »

whereskyle wrote: Sun Apr 26, 2020 6:11 pm Hello all, I could use some advice on alternatives to an apparently overpriced fund in my mother's 401K. The fund is the JP Morgan Small-cap value fund. The ER is basically 1%, the fund seems to be actively managed, and it does not seem to produce above-average returns. Who'd have guessed, right? Anyways, my mother has been invested for about 20 years and hasn't seen the payoff that a diligent SCV investor deserves. I don't want her to miss out on the return that Reversion to the Mean will eventually bestow on SCV, but I expect this is not the best fund for her to achieve that goal. Any advice on where to start in my search for an alternative for her?
SP600 value index (IJS/SLYV/VIOV) the most popular choice around here.

It's possible the actively managed fund has even deeper small/ value tilts. I have one of those in my 401k. When SCV is hot it's on fire..... when it's cold, it's an iceberg.
whereskyle
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Re: Small Cap Value heads Rejoice !!!

Post by whereskyle »

rascott wrote: Sun Apr 26, 2020 6:41 pm
whereskyle wrote: Sun Apr 26, 2020 6:11 pm Hello all, I could use some advice on alternatives to an apparently overpriced fund in my mother's 401K. The fund is the JP Morgan Small-cap value fund. The ER is basically 1%, the fund seems to be actively managed, and it does not seem to produce above-average returns. Who'd have guessed, right? Anyways, my mother has been invested for about 20 years and hasn't seen the payoff that a diligent SCV investor deserves. I don't want her to miss out on the return that Reversion to the Mean will eventually bestow on SCV, but I expect this is not the best fund for her to achieve that goal. Any advice on where to start in my search for an alternative for her?
SP600 value index (IJS/SLYV/VIOV) the most popular choice around here.

It's possible the actively managed fund has even deeper small/ value tilts. I have one of those in my 401k. When SCV is hot it's on fire..... when it's cold, it's an iceberg.
Thank you. I do not generally invest in active funds, and I don't invest in funds with ERs coming close to 1%, but would you encourage me to consider whether the active fund might be worth the price in this case?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

RussellWilson wrote: Sun Apr 26, 2020 2:12 pm Sorry if this has been asked before/frequently, I've read a lot of this thread and others...

Is there a compelling reason to view the attributes of a fund on its own as opposed to in the context of the portfolio? For example VBR by itself is bigger and less value-y, but is there a meaningful difference between, for example:

60% TSM 40% VBR, and
80% TSM 20% (fund with stronger factors)?

Assume the above is a hypothetical where the collective size and value loadings were the same for each combination.

This assumes that there is a combination that would make them the same...I get that a more loaded fund would provide more of its factors per dollar invested, so if one believed strongly in SCV they would get more bang for their buck. But essentially, couldn't they then just increase the ratio of SCV against TSM? Obviously it would matter if someone were a true believer and was 100% SCV, but as long as they are mixing it with other stuff, aren't they just giving away ER as well as having increased closure risk by using anything other than VBR?
I showed on some other thread where 100% VBR tracked 50% VTI/50%DFSVX.
rascott
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Re: Small Cap Value heads Rejoice !!!

Post by rascott »

whereskyle wrote: Sun Apr 26, 2020 6:54 pm
rascott wrote: Sun Apr 26, 2020 6:41 pm
whereskyle wrote: Sun Apr 26, 2020 6:11 pm Hello all, I could use some advice on alternatives to an apparently overpriced fund in my mother's 401K. The fund is the JP Morgan Small-cap value fund. The ER is basically 1%, the fund seems to be actively managed, and it does not seem to produce above-average returns. Who'd have guessed, right? Anyways, my mother has been invested for about 20 years and hasn't seen the payoff that a diligent SCV investor deserves. I don't want her to miss out on the return that Reversion to the Mean will eventually bestow on SCV, but I expect this is not the best fund for her to achieve that goal. Any advice on where to start in my search for an alternative for her?
SP600 value index (IJS/SLYV/VIOV) the most popular choice around here.

It's possible the actively managed fund has even deeper small/ value tilts. I have one of those in my 401k. When SCV is hot it's on fire..... when it's cold, it's an iceberg.
Thank you. I do not generally invest in active funds, and I don't invest in funds with ERs coming close to 1%, but would you encourage me to consider whether the active fund might be worth the price in this case?
What's the fund? That's the issue..... unless you dig and see what level of factor exposure the fund has..... its hard to really compare it and say if it's done good/ bad. More than likely you are better off in a cheap SCV index.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

whereskyle wrote: Sun Apr 26, 2020 6:54 pm
rascott wrote: Sun Apr 26, 2020 6:41 pm
whereskyle wrote: Sun Apr 26, 2020 6:11 pm Hello all, I could use some advice on alternatives to an apparently overpriced fund in my mother's 401K. The fund is the JP Morgan Small-cap value fund. The ER is basically 1%, the fund seems to be actively managed, and it does not seem to produce above-average returns. Who'd have guessed, right? Anyways, my mother has been invested for about 20 years and hasn't seen the payoff that a diligent SCV investor deserves. I don't want her to miss out on the return that Reversion to the Mean will eventually bestow on SCV, but I expect this is not the best fund for her to achieve that goal. Any advice on where to start in my search for an alternative for her?
SP600 value index (IJS/SLYV/VIOV) the most popular choice around here.

It's possible the actively managed fund has even deeper small/ value tilts. I have one of those in my 401k. When SCV is hot it's on fire..... when it's cold, it's an iceberg.
Thank you. I do not generally invest in active funds, and I don't invest in funds with ERs coming close to 1%, but would you encourage me to consider whether the active fund might be worth the price in this case?
I would never personally but I can understand why she wouldn’t want to bail now after paying it for 20 years. Could she move the 401k to a lower cost holding and move an IRA into small-value?
whereskyle
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Re: Small Cap Value heads Rejoice !!!

Post by whereskyle »

MotoTrojan wrote: Sun Apr 26, 2020 9:08 pm
whereskyle wrote: Sun Apr 26, 2020 6:54 pm
rascott wrote: Sun Apr 26, 2020 6:41 pm
whereskyle wrote: Sun Apr 26, 2020 6:11 pm Hello all, I could use some advice on alternatives to an apparently overpriced fund in my mother's 401K. The fund is the JP Morgan Small-cap value fund. The ER is basically 1%, the fund seems to be actively managed, and it does not seem to produce above-average returns. Who'd have guessed, right? Anyways, my mother has been invested for about 20 years and hasn't seen the payoff that a diligent SCV investor deserves. I don't want her to miss out on the return that Reversion to the Mean will eventually bestow on SCV, but I expect this is not the best fund for her to achieve that goal. Any advice on where to start in my search for an alternative for her?
SP600 value index (IJS/SLYV/VIOV) the most popular choice around here.

It's possible the actively managed fund has even deeper small/ value tilts. I have one of those in my 401k. When SCV is hot it's on fire..... when it's cold, it's an iceberg.
Thank you. I do not generally invest in active funds, and I don't invest in funds with ERs coming close to 1%, but would you encourage me to consider whether the active fund might be worth the price in this case?
I would never personally but I can understand why she wouldn’t want to bail now after paying it for 20 years. Could she move the 401k to a lower cost holding and move an IRA into small-value?
Considering moving it to a low cost index fund. I figure the opportunity cost of her investing with this recently underperforming class of stocks means she should stick with them to get the return she invested for. But I think she should do it in a low-cost way if possible. Is VBR recommended here? I am generally a total-market indexer. I don't know much about poring over spreadsheets to measure the value factor of companies in the index. Is that what SCV-heads do?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
Random Walker
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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker »

RussellWilson wrote: Sun Apr 26, 2020 2:12 pm Sorry if this has been asked before/frequently, I've read a lot of this thread and others...

Is there a compelling reason to view the attributes of a fund on its own as opposed to in the context of the portfolio? For example VBR by itself is bigger and less value-y, but is there a meaningful difference between, for example:

60% TSM 40% VBR, and
80% TSM 20% (fund with stronger factors)?

Assume the above is a hypothetical where the collective size and value loadings were the same for each combination.

This assumes that there is a combination that would make them the same...I get that a more loaded fund would provide more of its factors per dollar invested, so if one believed strongly in SCV they would get more bang for their buck. But essentially, couldn't they then just increase the ratio of SCV against TSM? Obviously it would matter if someone were a true believer and was 100% SCV, but as long as they are mixing it with other stuff, aren't they just giving away ER as well as having increased closure risk by using anything other than VBR?
Market beta is the dominant factor in all of our portfolios. The goal of tilting to SV is to diversify across factors, spread the portfolio risks more evenly across factors. All of our long only SV funds will have a market factor loading of about 1. By using a SV fund with deeper exposures to size and value, we need to use less of it to obtain the portfolio exposures we want. This means taking on less of the market factor, the factor that we are trying to diversify away from. So deeper exposures can lead to a somewhat more efficient portfolio.
Also, typically SV funds more expensive than TSM or core funds. And SV funds with deeper exposures might be somewhat more expensive than SV funds with less deep exposures. But realize the investor needs less of the fund with deeper exposures to obtain the overall portfolio exposures he desires. This means that expense ratio differences are not as significant as they initially appear.

Dave
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

whereskyle wrote: Sun Apr 26, 2020 9:36 pm
MotoTrojan wrote: Sun Apr 26, 2020 9:08 pm
whereskyle wrote: Sun Apr 26, 2020 6:54 pm
rascott wrote: Sun Apr 26, 2020 6:41 pm
whereskyle wrote: Sun Apr 26, 2020 6:11 pm Hello all, I could use some advice on alternatives to an apparently overpriced fund in my mother's 401K. The fund is the JP Morgan Small-cap value fund. The ER is basically 1%, the fund seems to be actively managed, and it does not seem to produce above-average returns. Who'd have guessed, right? Anyways, my mother has been invested for about 20 years and hasn't seen the payoff that a diligent SCV investor deserves. I don't want her to miss out on the return that Reversion to the Mean will eventually bestow on SCV, but I expect this is not the best fund for her to achieve that goal. Any advice on where to start in my search for an alternative for her?
SP600 value index (IJS/SLYV/VIOV) the most popular choice around here.

It's possible the actively managed fund has even deeper small/ value tilts. I have one of those in my 401k. When SCV is hot it's on fire..... when it's cold, it's an iceberg.
Thank you. I do not generally invest in active funds, and I don't invest in funds with ERs coming close to 1%, but would you encourage me to consider whether the active fund might be worth the price in this case?
I would never personally but I can understand why she wouldn’t want to bail now after paying it for 20 years. Could she move the 401k to a lower cost holding and move an IRA into small-value?
Considering moving it to a low cost index fund. I figure the opportunity cost of her investing with this recently underperforming class of stocks means she should stick with them to get the return she invested for. But I think she should do it in a low-cost way if possible. Is VBR recommended here? I am generally a total-market indexer. I don't know much about poring over spreadsheets to measure the value factor of companies in the index. Is that what SCV-heads do?
Factor exposure of the index is what matters. VBR is fine but VIOV/SLYV/IJS track the S&P600 which has deeper small/value exposure at a good price.
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nedsaid
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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid »

MotoTrojan wrote: Sun Apr 26, 2020 10:25 pm
Factor exposure of the index is what matters. VBR is fine but VIOV/SLYV/IJS track the S&P600 which has deeper small/value exposure at a good price.
I agree with this. If you want even better Small Value factor loading than the S&P 600 Small-Cap Value Index you could try the Bridgeway mutual funds and the Avantis ETFs. I did a lot of analysis of what I already owned vs. the new Avantis ETFs, mostly looking at Morningstar data, and decided that my VBR and IJS investments were good enough. VBR, the Vanguard product has a lot of Mid-Caps in it and isn't really deep Value but good enough. I also did a comparison for International Small Value comparing the Wisdom Tree International Small Cap Dividend ETF with the Avantis International Small Cap Value ETF and chose to stay with the Wisdom Tree product. Sort of like wine tasting, I guess my taste buds aren't very refined. I don't have snooty tastes.
A fool and his money are good for business.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

nedsaid wrote: Sun Apr 26, 2020 10:41 pm
MotoTrojan wrote: Sun Apr 26, 2020 10:25 pm
Factor exposure of the index is what matters. VBR is fine but VIOV/SLYV/IJS track the S&P600 which has deeper small/value exposure at a good price.
I agree with this. If you want even better Small Value factor loading than the S&P 600 Small-Cap Value Index you could try the Bridgeway mutual funds and the Avantis ETFs. I did a lot of analysis of what I already owned vs. the new Avantis ETFs, mostly looking at Morningstar data, and decided that my VBR and IJS investments were good enough. VBR, the Vanguard product has a lot of Mid-Caps in it and isn't really deep Value but good enough. I also did a comparison for International Small Value comparing the Wisdom Tree International Small Cap Dividend ETF with the Avantis International Small Cap Value ETF and chose to stay with the Wisdom Tree product. Sort of like wine tasting, I guess my taste buds aren't very refined. I don't have snooty tastes.
I don’t know, happily paying 60% more for DLS sounds snooty to me ;).
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nedsaid
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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid »

MotoTrojan wrote: Mon Apr 27, 2020 7:35 am
nedsaid wrote: Sun Apr 26, 2020 10:41 pm
MotoTrojan wrote: Sun Apr 26, 2020 10:25 pm
Factor exposure of the index is what matters. VBR is fine but VIOV/SLYV/IJS track the S&P600 which has deeper small/value exposure at a good price.
I agree with this. If you want even better Small Value factor loading than the S&P 600 Small-Cap Value Index you could try the Bridgeway mutual funds and the Avantis ETFs. I did a lot of analysis of what I already owned vs. the new Avantis ETFs, mostly looking at Morningstar data, and decided that my VBR and IJS investments were good enough. VBR, the Vanguard product has a lot of Mid-Caps in it and isn't really deep Value but good enough. I also did a comparison for International Small Value comparing the Wisdom Tree International Small Cap Dividend ETF with the Avantis International Small Cap Value ETF and chose to stay with the Wisdom Tree product. Sort of like wine tasting, I guess my taste buds aren't very refined. I don't have snooty tastes.
I don’t know, happily paying 60% more for DLS sounds snooty to me ;).
You have to consider that DLS was about the only game in town when I bought it. Avantis came along just recently and I took a hard look at it but I just didn't see from the Morningstar data a compelling enough case to switch. The thing is, the parsing of the data is getting to be pretty complex, Avantis is making adjustments to the calculation of book value. Their analysts were also making other refinements to data analysis, this is where my comment about refined taste buds came from. On the surface, Avantis didn't seem to get me any better Size or Value factor loading, I would probably have to do a much deeper analysis to see if the analysts at Avantis are correct. I just don't have their tools, I am pretty much eyeballing the data from Morningstar. If Avantis says they are doing a better job with factor loading, I have to take their word for it. They also seemed a bit vague on exactly what they were doing not wanting to give away the secret sauce. This is getting to the point of trying to distinguish the subtle differences between the finest of wines when my tastebuds are used to the $8 a bottle kind.
A fool and his money are good for business.
mesaverde
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Re: Small Cap Value heads Rejoice !!!

Post by mesaverde »

The bulk of my portfolio is the three fund portfolio (Total U.S. stock index, Total international stock index, Total U.S. bond index).

However, in my Vanguard Roth IRA I only hold Vanguard small value index.
Today I happily contributed $6,000 to the Roth for 2020 contribution. This is my only deviation from the three fund portfolio and odds are that small value will perform well over the coming years. I have plenty of time to wait and see.
"Learn from the past, live in the present, plan for the future"
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

nedsaid wrote: Mon Apr 27, 2020 9:28 am
MotoTrojan wrote: Mon Apr 27, 2020 7:35 am
nedsaid wrote: Sun Apr 26, 2020 10:41 pm
MotoTrojan wrote: Sun Apr 26, 2020 10:25 pm
Factor exposure of the index is what matters. VBR is fine but VIOV/SLYV/IJS track the S&P600 which has deeper small/value exposure at a good price.
I agree with this. If you want even better Small Value factor loading than the S&P 600 Small-Cap Value Index you could try the Bridgeway mutual funds and the Avantis ETFs. I did a lot of analysis of what I already owned vs. the new Avantis ETFs, mostly looking at Morningstar data, and decided that my VBR and IJS investments were good enough. VBR, the Vanguard product has a lot of Mid-Caps in it and isn't really deep Value but good enough. I also did a comparison for International Small Value comparing the Wisdom Tree International Small Cap Dividend ETF with the Avantis International Small Cap Value ETF and chose to stay with the Wisdom Tree product. Sort of like wine tasting, I guess my taste buds aren't very refined. I don't have snooty tastes.
I don’t know, happily paying 60% more for DLS sounds snooty to me ;).
You have to consider that DLS was about the only game in town when I bought it. Avantis came along just recently and I took a hard look at it but I just didn't see from the Morningstar data a compelling enough case to switch. The thing is, the parsing of the data is getting to be pretty complex, Avantis is making adjustments to the calculation of book value. Their analysts were also making other refinements to data analysis, this is where my comment about refined taste buds came from. On the surface, Avantis didn't seem to get me any better Size or Value factor loading, I would probably have to do a much deeper analysis to see if the analysts at Avantis are correct. I just don't have their tools, I am pretty much eyeballing the data from Morningstar. If Avantis says they are doing a better job with factor loading, I have to take their word for it. They also seemed a bit vague on exactly what they were doing not wanting to give away the secret sauce. This is getting to the point of trying to distinguish the subtle differences between the finest of wines when my tastebuds are used to the $8 a bottle kind.
All makes sense but I’m not even getting into a factor comparison, just ER. If their differences are in the noise then I would argue you are paying $13 for $8 bottles.
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Post by Taylor Larimore »

mesaverde wrote: Mon Apr 27, 2020 9:57 am odds are that small value will perform well over the coming years.
mesaverde:

That is what investors were told by the financial industry 10 years ago. Perhaps they will be right this time. But why gamble?

Best wishes.
Taylor
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caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

nedsaid wrote: Mon Apr 27, 2020 9:28 am
MotoTrojan wrote: Mon Apr 27, 2020 7:35 am
nedsaid wrote: Sun Apr 26, 2020 10:41 pm
MotoTrojan wrote: Sun Apr 26, 2020 10:25 pm
Factor exposure of the index is what matters. VBR is fine but VIOV/SLYV/IJS track the S&P600 which has deeper small/value exposure at a good price.
I agree with this. If you want even better Small Value factor loading than the S&P 600 Small-Cap Value Index you could try the Bridgeway mutual funds and the Avantis ETFs. I did a lot of analysis of what I already owned vs. the new Avantis ETFs, mostly looking at Morningstar data, and decided that my VBR and IJS investments were good enough. VBR, the Vanguard product has a lot of Mid-Caps in it and isn't really deep Value but good enough. I also did a comparison for International Small Value comparing the Wisdom Tree International Small Cap Dividend ETF with the Avantis International Small Cap Value ETF and chose to stay with the Wisdom Tree product. Sort of like wine tasting, I guess my taste buds aren't very refined. I don't have snooty tastes.
I don’t know, happily paying 60% more for DLS sounds snooty to me ;).
You have to consider that DLS was about the only game in town when I bought it. Avantis came along just recently and I took a hard look at it but I just didn't see from the Morningstar data a compelling enough case to switch. The thing is, the parsing of the data is getting to be pretty complex, Avantis is making adjustments to the calculation of book value. Their analysts were also making other refinements to data analysis, this is where my comment about refined taste buds came from. On the surface, Avantis didn't seem to get me any better Size or Value factor loading, I would probably have to do a much deeper analysis to see if the analysts at Avantis are correct. I just don't have their tools, I am pretty much eyeballing the data from Morningstar. If Avantis says they are doing a better job with factor loading, I have to take their word for it. They also seemed a bit vague on exactly what they were doing not wanting to give away the secret sauce. This is getting to the point of trying to distinguish the subtle differences between the finest of wines when my tastebuds are used to the $8 a bottle kind.
There is an 8 page pdf that another poster linked to that does a good job of explaining the approach by Avantis.
Our weighting schema uses a joint metric that combines adjusted
book-to-market and cash-based operating profitability together with
the company’s total market capitalization, ranking each security in
the universe from highest to lowest expected return. These rankings
determine how much we want to overweight or underweight a
security relative to its market cap weight. Joint weightings using
equity and flow variables are a reliable way to assess differences
in expected returns across stocks. The joint metric also reduces
unintended biases toward certain sectors or companies with high
levels of accruals and goodwill that could adversely affect the
expected return profile of our strategies.
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nedsaid
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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid »

MotoTrojan wrote: Mon Apr 27, 2020 10:40 am
nedsaid wrote: Mon Apr 27, 2020 9:28 am
MotoTrojan wrote: Mon Apr 27, 2020 7:35 am
nedsaid wrote: Sun Apr 26, 2020 10:41 pm
MotoTrojan wrote: Sun Apr 26, 2020 10:25 pm
Factor exposure of the index is what matters. VBR is fine but VIOV/SLYV/IJS track the S&P600 which has deeper small/value exposure at a good price.
I agree with this. If you want even better Small Value factor loading than the S&P 600 Small-Cap Value Index you could try the Bridgeway mutual funds and the Avantis ETFs. I did a lot of analysis of what I already owned vs. the new Avantis ETFs, mostly looking at Morningstar data, and decided that my VBR and IJS investments were good enough. VBR, the Vanguard product has a lot of Mid-Caps in it and isn't really deep Value but good enough. I also did a comparison for International Small Value comparing the Wisdom Tree International Small Cap Dividend ETF with the Avantis International Small Cap Value ETF and chose to stay with the Wisdom Tree product. Sort of like wine tasting, I guess my taste buds aren't very refined. I don't have snooty tastes.
I don’t know, happily paying 60% more for DLS sounds snooty to me ;).
You have to consider that DLS was about the only game in town when I bought it. Avantis came along just recently and I took a hard look at it but I just didn't see from the Morningstar data a compelling enough case to switch. The thing is, the parsing of the data is getting to be pretty complex, Avantis is making adjustments to the calculation of book value. Their analysts were also making other refinements to data analysis, this is where my comment about refined taste buds came from. On the surface, Avantis didn't seem to get me any better Size or Value factor loading, I would probably have to do a much deeper analysis to see if the analysts at Avantis are correct. I just don't have their tools, I am pretty much eyeballing the data from Morningstar. If Avantis says they are doing a better job with factor loading, I have to take their word for it. They also seemed a bit vague on exactly what they were doing not wanting to give away the secret sauce. This is getting to the point of trying to distinguish the subtle differences between the finest of wines when my tastebuds are used to the $8 a bottle kind.
All makes sense but I’m not even getting into a factor comparison, just ER. If their differences are in the noise then I would argue you are paying $13 for $8 bottles.
I scanned through my old posts, it seemed that AVDV loaded better on Value and DLS loaded better on Size. There was a poster that thought DLS loaded better on Quality. Again, this was eyeballing, from what I could see there was not a compelling reason to switch. Also DLS has a track record, AVDV was very new at the time. My thinking might change at some point and I might switch but I made the decision at the time to stick with what I had. Not saying anything bad about Avantis, in fact I was pretty excited when the new ETFs came out. My thinking is not set in concrete here.
A fool and his money are good for business.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

caklim00 wrote: Mon Apr 27, 2020 11:15 am
There is an 8 page pdf that another poster linked to that does a good job of explaining the approach by Avantis.
Our weighting schema uses a joint metric that combines adjusted
book-to-market and cash-based operating profitability together with
the company’s total market capitalization, ranking each security in
the universe from highest to lowest expected return. These rankings
determine how much we want to overweight or underweight a
security relative to its market cap weight. Joint weightings using
equity and flow variables are a reliable way to assess differences
in expected returns across stocks. The joint metric also reduces
unintended biases toward certain sectors or companies with high
levels of accruals and goodwill that could adversely affect the
expected return profile of our strategies.
Interesting read, thanks caklim00. I still like my fundamental index which makes sense to me as a deviation from market-cap weighting stocks overall (or stocks with certain value levels like a value traditional index fund would). Will be interesting to see how they all compare in the coming decade(s).
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

This thread is getting too into the weeds for me... nice spread above the overall market today, rejoice everyone! :sharebeer
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Re: Small Cap Value heads Rejoice !!!

Post by imak »

MotoTrojan wrote: Mon Apr 27, 2020 11:38 am
caklim00 wrote: Mon Apr 27, 2020 11:15 am
There is an 8 page pdf that another poster linked to that does a good job of explaining the approach by Avantis.
Our weighting schema uses a joint metric that combines adjusted
book-to-market and cash-based operating profitability together with
the company’s total market capitalization, ranking each security in
the universe from highest to lowest expected return. These rankings
determine how much we want to overweight or underweight a
security relative to its market cap weight. Joint weightings using
equity and flow variables are a reliable way to assess differences
in expected returns across stocks. The joint metric also reduces
unintended biases toward certain sectors or companies with high
levels of accruals and goodwill that could adversely affect the
expected return profile of our strategies.
Interesting read, thanks caklim00. I still like my fundamental index which makes sense to me as a deviation from market-cap weighting stocks overall (or stocks with certain value levels like a value traditional index fund would). Will be interesting to see how they all compare in the coming decade(s).
Indeed, many of these new value factor ETFs are approaching the process of weighting/ranking securities in a manner quite similar to fundamental index.
Asset Allocation: 30% FNDX, 30% FNDA, 10% FNDF, 10% FNDC, 5% REET, 5% VWO, 10% TMF; Emergency fund: 40% Stocks, 60% Long-bonds; "Discipline matters more than asset allocation" ~W Bernstein
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Re: Small Cap Value heads Rejoice !!!

Post by oneleaf »

imak wrote: Mon Apr 27, 2020 2:15 pm Indeed, many of these new value factor ETFs are approaching the process of weighting/ranking securities in a manner quite similar to fundamental index.
It sure seems like it. Back when the fundamental indices came out, the DFA people treated them like gimmicks, but they have proven to be excellent ways to construct a portfolio, and have even been tax efficient.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

oneleaf wrote: Mon Apr 27, 2020 2:30 pm
imak wrote: Mon Apr 27, 2020 2:15 pm Indeed, many of these new value factor ETFs are approaching the process of weighting/ranking securities in a manner quite similar to fundamental index.
It sure seems like it. Back when the fundamental indices came out, the DFA people treated them like gimmicks, but they have proven to be excellent ways to construct a portfolio, and have even been tax efficient.
They just make sense to me. My only asset class which my core desired index is not fundamental is US small-value. Now I do hold a lot of VTSAX and some VTIAX in my 401k (along with VSIAX) but in taxable/IRA I am using FNDX for US Large Fundamental, and then nearly all of my ex-US is in FNDC (ex-US Developed Small Fundamental). If there was a US small fundamental index that had a deeper size tilt I would consider it, but FNDA's median market-cap is $4.67B which is significantly larger than my US small-value holdings; FNDC also has a larger market-cap than say AVDV or DLS, but given that I hold no dedicated ex-US large cap I don't mind as my overall ex-US size tilt is still extreme.
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Re: Small Cap Value heads Rejoice !!!

Post by Day9 »

Larry Swedroe on the new Avantis ETFs on Twitter. Read the tweet and his short responses. Cheers fellow factorheads :beer

https://twitter.com/larryswedroe/status ... 2723604482
I'm just a fan of the person I got my user name from
YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

S&P’s Small-Cap Stocks Post Largest Edge Over Megacaps in 11 Years
https://www.bloomberg.com/amp/news/arti ... ler-stocks

Making up a little for some lost ground.
Massdriver
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

S&P 500 is down and SLYV is up 2%+ as I'm writing this!
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

YRT70 wrote: Mon Apr 27, 2020 9:50 pm S&P’s Small-Cap Stocks Post Largest Edge Over Megacaps in 11 Years
https://www.bloomberg.com/amp/news/arti ... ler-stocks

Making up a little for some lost ground.
2 days doesn't make up for the previous negative divergence but it feels great for at least a moment finally.
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

Day9 wrote: Mon Apr 27, 2020 6:23 pm Larry Swedroe on the new Avantis ETFs on Twitter. Read the tweet and his short responses. Cheers fellow factorheads :beer

https://twitter.com/larryswedroe/status ... 2723604482
Glad to see him plugging this. DFA and Bridgeway aren't attainable by most of us peons. Will be interesting to see the asset growth on these funds. DFA is already reducing their prices due to competition. I do wish Avantis had a more heavily tilted EM fund (AVEM seems to have mild value and profitability tilts). I'm afraid to move out of DFA EM Value because this exact divergence has a good probability of occuring.
decapod10
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Re: Small Cap Value heads Rejoice !!!

Post by decapod10 »

caklim00 wrote: Tue Apr 28, 2020 11:13 am
Day9 wrote: Mon Apr 27, 2020 6:23 pm Larry Swedroe on the new Avantis ETFs on Twitter. Read the tweet and his short responses. Cheers fellow factorheads :beer

https://twitter.com/larryswedroe/status ... 2723604482
Glad to see him plugging this. DFA and Bridgeway aren't attainable by most of us peons. Will be interesting to see the asset growth on these funds. DFA is already reducing their prices due to competition. I do wish Avantis had a more heavily tilted EM fund (AVEM seems to have mild value and profitability tilts). I'm afraid to move out of DFA EM Value because this exact divergence has a good probability of occuring.
Thanks for the info. What do you think would be the advantages of AVUV over IJS/SLYV ? AVUV expense ratio doesn't seem bad considering it's an active fund.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

decapod10 wrote: Tue Apr 28, 2020 1:26 pm
caklim00 wrote: Tue Apr 28, 2020 11:13 am
Day9 wrote: Mon Apr 27, 2020 6:23 pm Larry Swedroe on the new Avantis ETFs on Twitter. Read the tweet and his short responses. Cheers fellow factorheads :beer

https://twitter.com/larryswedroe/status ... 2723604482
Glad to see him plugging this. DFA and Bridgeway aren't attainable by most of us peons. Will be interesting to see the asset growth on these funds. DFA is already reducing their prices due to competition. I do wish Avantis had a more heavily tilted EM fund (AVEM seems to have mild value and profitability tilts). I'm afraid to move out of DFA EM Value because this exact divergence has a good probability of occuring.
Thanks for the info. What do you think would be the advantages of AVUV over IJS/SLYV ? AVUV expense ratio doesn't seem bad considering it's an active fund.
While AVUV doesn't follow an index, I would say it is a passive fund in the purest sense of it. Do they have screening methods for selection that a human makes? Yes, but so does the S&P600 (IJS/SLYV). The main advantages would be a bit deeper factor exposure, and also more consistent factor exposure. Most index funds rebalance quarterly, so throughout a volatile quarter their factor exposure can drift (generally reduce) and then get replenished each quarter; because AVUV is not constrained to an index it can trade every day as-needed to maintain its target exposure through time.

Same thing applies to funds like VFVA, which is Vanguard's non-index based value fund.
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

MotoTrojan wrote: Tue Apr 28, 2020 1:30 pm
decapod10 wrote: Tue Apr 28, 2020 1:26 pm
caklim00 wrote: Tue Apr 28, 2020 11:13 am
Day9 wrote: Mon Apr 27, 2020 6:23 pm Larry Swedroe on the new Avantis ETFs on Twitter. Read the tweet and his short responses. Cheers fellow factorheads :beer

https://twitter.com/larryswedroe/status ... 2723604482
Glad to see him plugging this. DFA and Bridgeway aren't attainable by most of us peons. Will be interesting to see the asset growth on these funds. DFA is already reducing their prices due to competition. I do wish Avantis had a more heavily tilted EM fund (AVEM seems to have mild value and profitability tilts). I'm afraid to move out of DFA EM Value because this exact divergence has a good probability of occuring.
Thanks for the info. What do you think would be the advantages of AVUV over IJS/SLYV ? AVUV expense ratio doesn't seem bad considering it's an active fund.
While AVUV doesn't follow an index, I would say it is a passive fund in the purest sense of it. Do they have screening methods for selection that a human makes? Yes, but so does the S&P600 (IJS/SLYV). The main advantages would be a bit deeper factor exposure, and also more consistent factor exposure. Most index funds rebalance quarterly, so throughout a volatile quarter their factor exposure can drift (generally reduce) and then get replenished each quarter; because AVUV is not constrained to an index it can trade every day as-needed to maintain its target exposure through time.

Same thing applies to funds like VFVA, which is Vanguard's non-index based value fund.
We can't see the exact regressions since AVUV hasn't been around long enough. But, it appears to have higher Value and Profitability loading than SLYV. SLYV (S&P 600V) has small profitability loading via committe which requires certain profits before it can be included in index. There are also liquidity requirements to be included in the S&P index. I may be sold on AVUV, but if you are holding in taxable you are going to need a tax loss harvest partner, which for me is SLYV. I still hold more combination of S&P600/S&P 600V but I'm prefering AVUV ongoing. I doubt we are talking huge differences here though. If you are holding AVUV though you probably are already holding AVDV (the international version). AVDV was the fund that garnered the most excitement initially.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

caklim00 wrote: Tue Apr 28, 2020 2:13 pm
MotoTrojan wrote: Tue Apr 28, 2020 1:30 pm
decapod10 wrote: Tue Apr 28, 2020 1:26 pm
caklim00 wrote: Tue Apr 28, 2020 11:13 am
Day9 wrote: Mon Apr 27, 2020 6:23 pm Larry Swedroe on the new Avantis ETFs on Twitter. Read the tweet and his short responses. Cheers fellow factorheads :beer

https://twitter.com/larryswedroe/status ... 2723604482
Glad to see him plugging this. DFA and Bridgeway aren't attainable by most of us peons. Will be interesting to see the asset growth on these funds. DFA is already reducing their prices due to competition. I do wish Avantis had a more heavily tilted EM fund (AVEM seems to have mild value and profitability tilts). I'm afraid to move out of DFA EM Value because this exact divergence has a good probability of occuring.
Thanks for the info. What do you think would be the advantages of AVUV over IJS/SLYV ? AVUV expense ratio doesn't seem bad considering it's an active fund.
While AVUV doesn't follow an index, I would say it is a passive fund in the purest sense of it. Do they have screening methods for selection that a human makes? Yes, but so does the S&P600 (IJS/SLYV). The main advantages would be a bit deeper factor exposure, and also more consistent factor exposure. Most index funds rebalance quarterly, so throughout a volatile quarter their factor exposure can drift (generally reduce) and then get replenished each quarter; because AVUV is not constrained to an index it can trade every day as-needed to maintain its target exposure through time.

Same thing applies to funds like VFVA, which is Vanguard's non-index based value fund.
We can't see the exact regressions since AVUV hasn't been around long enough. But, it appears to have higher Value and Profitability loading than SLYV. SLYV (S&P 600V) has small profitability loading via committe which requires certain profits before it can be included in index. There are also liquidity requirements to be included in the S&P index. I may be sold on AVUV, but if you are holding in taxable you are going to need a tax loss harvest partner, which for me is SLYV. I still hold more combination of S&P600/S&P 600V but I'm prefering AVUV ongoing. I doubt we are talking huge differences here though. If you are holding AVUV though you probably are already holding AVDV (the international version). AVDV was the fund that garnered the most excitement initially.
Funny enough I now hold some AVUV (TLH'd from VIOV) but got rid of all my AVDV :sharebeer. I was holding AVDV & FNDC but decided against the complexity and that I prefer FNDC as my core ex-US holding.

I'll probably be TLH'ing AVUV/SLYV myself for quite some time, but not sure if I'll make the swap to AVUV in my IRAs.
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Re: Small Cap Value heads Rejoice !!!

Post by decapod10 »

caklim00 wrote: Tue Apr 28, 2020 2:13 pm
...
MotoTrojan wrote: Tue Apr 28, 2020 1:30 pm
...

Thank you both. I had been using IJS because it has free trades at Fidelity, but I realized today that Fidelity offers free trades for all stocks/ETFs if I'm reading things correctly, which opens up my options.
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

decapod10 wrote: Tue Apr 28, 2020 2:56 pm
caklim00 wrote: Tue Apr 28, 2020 2:13 pm
...
MotoTrojan wrote: Tue Apr 28, 2020 1:30 pm
...

Thank you both. I had been using IJS because it has free trades at Fidelity, but I realized today that Fidelity offers free trades for all stocks/ETFs if I'm reading things correctly, which opens up my options.
your welcome, if you continue to use S&P600V moving forward you might as well put new contributions in either VIOV or SLYV as they are .1% cheaper. Liquidity on all 3 are about the same. IJS is a relic of the past now. I think the only reason to hold is for built in taxable gains. I wouldn't hold my breath on iShares ever reducing the ER.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

decapod10 wrote: Tue Apr 28, 2020 2:56 pm
caklim00 wrote: Tue Apr 28, 2020 2:13 pm
...
MotoTrojan wrote: Tue Apr 28, 2020 1:30 pm
...

Thank you both. I had been using IJS because it has free trades at Fidelity, but I realized today that Fidelity offers free trades for all stocks/ETFs if I'm reading things correctly, which opens up my options.
Yup Fidelity along with most brokerages are now free for ETF/stock trades (opens up a lot of options especially for tax-loss harvest). You can also trade fractional ETFs (even dollar amounts) on the Fidelity app (I assume it'll be online soon).
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Re: [Small Cap Value heads Rejoice !!!]

Post by unclescrooge »

nedsaid wrote: Fri Mar 20, 2020 8:07 pm Folks will have to make their own mind about changing course. I just hate to see such a lack of conviction among so many here.
Many investors say they have a high risk tolerance.

In actuality the only tolerance they have is for making money. The minute the strategy looks shaky, they bail like rats fleeing a sinking ship.

This is how I know the strategy will work over time. :mrgreen:
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

caklim00 wrote: Tue Apr 28, 2020 2:13 pm ...
Quote a nice day for small-caps in general. caklim00 I am sure you don't mind holding AVUV over your S&P600 funds right now; it is leading the charge this week. Wouldn't be surprised if it closes up 10% today :twisted:.
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

MotoTrojan wrote: Wed Apr 29, 2020 12:34 pm
caklim00 wrote: Tue Apr 28, 2020 2:13 pm ...
Quote a nice day for small-caps in general. caklim00 I am sure you don't mind holding AVUV over your S&P600 funds right now; it is leading the charge this week. Wouldn't be surprised if it closes up 10% today :twisted:.
As the thread says
Rejoice!!!

It has been interesting to see a number of threads on SCV recently poping up recently. First the capitulation theme and now which funds to invest in. Hmmm...
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

Absolutely beautiful day. :shock: :moneybag
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imak
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Re: Small Cap Value heads Rejoice !!!

Post by imak »

Siamond has posted an interesting article on analysis of 25 years of small cap and value factors on the Bogleheads blog:
https://www.bogleheads.org/blog/2020/04 ... -25-years/

Conclusion from the article:
"Overall, the results of this analysis seem to reinforce the findings from the (much longer) US history. When using constructs consistent with modern indices, the combination of size and value factors (e.g. MCV, SCV or a combo of both) delivered significant premiums. Such premiums were fairly consistently observed across most countries and regional aggregates.

This analysis clearly lacked time diversification, being centered on the same 25 years of history (1995-2019), but provided broad geographical diversification, hence a decent ‘out of sample’ test set. Still, seeing the fairly significant synchronicity between the Telltale charts in the ‘deep dive’ section (notably during the Internet crisis), such geographical diversity might not be as significant as one might hope.

Overall, portfolio ’tilters’ will probably find good fodder to support their choices in such analysis. It has to be emphasized though that it would have taken a fairly large percentage of ’tilt’ in a realistic portfolio to make a meaningful difference in outcomes, and that such tilting strategy would have required an extremely steadfast mindset, as the premiums often proved elusive for long periods of time, including in the past decade. As to the future… Time will tell…"
Asset Allocation: 30% FNDX, 30% FNDA, 10% FNDF, 10% FNDC, 5% REET, 5% VWO, 10% TMF; Emergency fund: 40% Stocks, 60% Long-bonds; "Discipline matters more than asset allocation" ~W Bernstein
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Re: Small Cap Value heads Rejoice !!!

Post by garlandwhizzer »

imak wrote:

Conclusion from the article:
"Overall, the results of this analysis seem to reinforce the findings from the (much longer) US history. When using constructs consistent with modern indices, the combination of size and value factors (e.g. MCV, SCV or a combo of both) delivered significant premiums. Such premiums were fairly consistently observed across most countries and regional aggregates.
Where is the data for real factor funds? These results employ cost-free, long/short, trading-friction-free portfolios "using modern indices" which is terminology for factor definitions defined optimally in the rear view mirror after the period in question because the definitions used in 1995, the start of the peroid, don't works so nicely. There is also the point of cherry picking dates, ending the period in 2019 which avoids the disaster that unfolded in 2020 for SCV. So it's no wonder the premiums were there. If these returns were so "significant" how is it that DFSVX which got killed in 2020 has failed to significantly outperform the S&P 500 over the last 37 years and done with mcc. more risk and volatility as measured by Sharpe ratio? S&P 500 has strong negative loadings on size and tends to be dominated by growth stocks, not value stocks. So where are the harvestable factor premiums? Of course the factor models look convincing. They are designed to look convincing, to maximize the positives, neglect the negatives, then you cherry pick the dates and use "modern indices."
What are currently modern factor indices will likewise probably be discarded in the future just as the 1995 P/B alone has been discarded now as a definition of value because it doesn't work. Factor models haven't reliably put money in the pockets of factor investors after costs with either single factor or multi-factor approaches on aggregate IMO ever since their discovery in the early 1990s.

Factors funds may make a big comeback in the future. SCV has taken a massive beating in the last year or so and is overdue for a rebound. That is entirely possible but it is also entirely possible that SCV and muti-factor funds will continue to struggle regardless of what factor models show. I don't think the time is now for SCV heads to rejoice. It's a question of belief and faith rather than certainty IMO.

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Forester
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

Apart from the mean reversion which most of us expect, I think the fate of value lies in whatever happens to currencies & bonds in the 2020s. Still, a week where SCV is positive and megacap is negative.
MotoTrojan
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Forester wrote: Fri May 01, 2020 4:12 pm Apart from the mean reversion which most of us expect, I think the fate of value lies in whatever happens to currencies & bonds in the 2020s. Still, a week where SCV is positive and megacap is negative.
Curious to hear more.
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Re: Small Cap Value heads Rejoice !!!

Post by acegolfer »

Forester wrote: Fri May 01, 2020 4:12 pm Apart from the mean reversion which most of us expect, I think the fate of value lies in whatever happens to currencies & bonds in the 2020s. Still, a week where SCV is positive and megacap is negative.
No more mean reversion. Read https://papers.ssrn.com/sol3/papers.cfm ... id=3442539
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Uncorrelated
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Re: Small Cap Value heads Rejoice !!!

Post by Uncorrelated »

acegolfer wrote: Fri May 01, 2020 5:48 pm
Forester wrote: Fri May 01, 2020 4:12 pm Apart from the mean reversion which most of us expect, I think the fate of value lies in whatever happens to currencies & bonds in the 2020s. Still, a week where SCV is positive and megacap is negative.
No more mean reversion. Read https://papers.ssrn.com/sol3/papers.cfm ... id=3442539
Sorry but this paper is junk.
It is widely believed that the long-standing and highly popular value investing strategy—investing in low-valued stocks and selling short high-valued equities—lost its edge in the past 10-12 years.
Seriously? This is the first time I have seen an academic paper suggesting that the value premium is dead.

However, as Figure 1 makes clear, the value strategy had already lost much of its potency in the late 1980s, and yielded negative returns in the 1990s, barring a brief resurgence in 2000-2006. This then leads to our rephrased question: What caused value investing to lose its consistent edge by the late 1980s?
Image
That is the conclusion they drew from figure 1? How did the authors miss that the HML performance following the 10 years after 1930 was also negative? Did the authors miss that the 10-year rolling market premium was also negative in the decade(s) following 1928-1930, 1965-1973, 1999-2001. Surely the authors wouldn't be caught making the claim that the market premium has lost much of it's potency in the decade following 1999. :oops:

It may not be clear what this graph actually shows. The bar at 1970 is the 1-year return of an investment in HML. The bar at 1971 is the 2-year (geometric) return of HML. This goes until 1979, which is the 10-year return following investment at 1970. The next bar ar 1980 then shows the 1-year investment return after 1980. It would make much more sense to plot the arithmetic average, or use rolling returns. There are only 5 independent data points in the graph above.
Using this methodology, we adjusted the book values of all firms by adding to the reported (GAAP) values both the unamortized R&D and SG&A capitals. [...] Finally, we recalculate the returns to the adjusted value strategy.

These major changes had a significant effect on the returns from the value strategy.
They forget to correct their adjustments for other factors, and show no statistical tests for their factor. They only show 5 independent data points for their factor.
7. The value strategy and mean reversion
From a statistical point of view, the gains from value investing derive from the mean reversion of the highest (glamour) and lowest (value) ranked stocks. When ranked by the market-to-book ratio (or by alternative rankings, like price-to-earnings), some of the highly ranked stocks will drop in value over time; being ranked at the top they can only remain at the top, or drop down due to deteriorating operations (a sales decline), or from other revisions in investor valuations.
This assumption is false. A positive return of the HML factor does not require high B/M stocks to lose value. Nor does it require low B/M companies to gain value.
Thus, all our measures indicate a substantial slowdown of the mean reversion of both value and glamour stock in the past 12 years, accounting for much of the decline of the profitability of value investing.
All of their measures only investigate value/glamour mean reversion in large cap stocks. It is well known that the HmL factor is less pronounced in big stocks than it is in small stocks. (FF2014 says the value effect isn't statistically significant in big firms).
Thus, by practically any measure of operating performance the profitability of value firms deteriorated sharply since the financial crisis, and remained at a historically low level up to the present.
Rear view mirror investing at it's finest. HmL declined because the profitability of value firms deteriorated after the financial crisis.

Does the author expect value firms to keep deteriorating until eternity? He doesn't say.
This is the question at the core of the value enigma: Will value investing soon return to its days of glory? Every month, like September 2019, where value beats glamour, raises the hopes of value investors. Will it last? Note that we move here from the solid grounds of factual analysis which guided our discussion so far, to the shaky realm of speculation.
lol.
Figure 12 (our final exhibit) begs to differ: it displays the annual differences between the median market-to-book ratios of large value and glamour stocks. At least by this yardstick, it doesn’t appear that value stocks are now much cheaper than glamour (growth) stocks. In fact, the current differences between the medians of the market-to-book ratios of value and glamour stocks in Figure 12 aren’t significantly larger than those that prevailed in the late 1990s and early 2000s.
Indeed. In large stocks they aren't.

When measured over the whole universe, the spread between value and growth was at 97th percentile highs according to AQR four measure measurement. AQR made this statement at 7 nov 2019, it wouldn't surprise me if we are currently in an all-time-high for value-growth spread. I make no claims on whether the value growth spread is relevant for investors, but the conclusions from this paper are clearly not shared by AQR.
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nedsaid
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Re: [Small Cap Value heads Rejoice !!!]

Post by nedsaid »

unclescrooge wrote: Tue Apr 28, 2020 5:11 pm
nedsaid wrote: Fri Mar 20, 2020 8:07 pm Folks will have to make their own mind about changing course. I just hate to see such a lack of conviction among so many here.
Many investors say they have a high risk tolerance.

In actuality the only tolerance they have is for making money. The minute the strategy looks shaky, they bail like rats fleeing a sinking ship.

This is how I know the strategy will work over time. :mrgreen:
Bear markets are where you learn your true risk tolerance. No investment survey can accurately measure the emotional pain felt over monetary losses in a bear market. Surveys are a tool but they can't overcome human nature. Risk tolerance is always high in bull markets and low in bear markets.
A fool and his money are good for business.
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