AQR model, HmL since 5/1/86
Small Cap Value heads Rejoice !!!
Re: Small Cap Value heads Rejoice !!!
Re: Small Cap Value heads Rejoice !!!
Ok, let's go with 1.13%. Your actual premium is 1.13 * .5 (long only) * .66 (DFSVX exposure) = 0.37% - 0.22 (AVUV ER minus VTI ER) = 0.15%
If we use AQR's 0.35%, the same calculation gives a premium of -0.10%
If you think that's worth double the volatility then you might like these things called BaB (8.15% over the same period) and QmJ (4.76%).
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Re: Small Cap Value heads Rejoice !!!
Why are you multiplying by .5 and .66?countmein wrote: ↑Mon Jul 19, 2021 1:02 pmOk, let's go with 1.13%. Your actual premium is 1.13 * .5 (long only) * .66 (DFSVX exposure) = 0.37% - 0.22 (AVUV ER minus VTI ER) = 0.15%
If we use AQR's 0.35%, the same calculation gives a premium of -0.10%
If you think that's worth double the volatility then you might like these things called BaB (8.15% over the same period) and QmJ (4.76%).
Portfoliovisualizer shows us the difference and it’s not as low as you suggest even in an incredibly ideal back test
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Small Cap Value heads Rejoice !!!
You're right, we should only multiply by 0.66 (the HmL weight of DFSVX, intended to exemplify real world factor exposure).Nathan Drake wrote: ↑Mon Jul 19, 2021 2:33 pmWhy are you multiplying by .5 and .66?countmein wrote: ↑Mon Jul 19, 2021 1:02 pmOk, let's go with 1.13%. Your actual premium is 1.13 * .5 (long only) * .66 (DFSVX exposure) = 0.37% - 0.22 (AVUV ER minus VTI ER) = 0.15%
If we use AQR's 0.35%, the same calculation gives a premium of -0.10%
If you think that's worth double the volatility then you might like these things called BaB (8.15% over the same period) and QmJ (4.76%).
Portfoliovisualizer shows us the difference and it’s not as low as you suggest even in an incredibly ideal back test
So, for the past 35 years, on the high side (FF) we've got an HmL premium of (1.13 * 0.66) - 0.22 = 0.66%
On the low side (AQR), we've got an HmL premium of (0.35 * 0.66) - 0.22 = 0.01%
Seems fair to average them out: (.66 + .01)/2 = 0.34% is our value premium for the past 35 years.
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Re: Small Cap Value heads Rejoice !!!
The backtest of 1.13% premium shows us the real world returns. I am missing why we need to multiply the real world premium by the factor loading?countmein wrote: ↑Mon Jul 19, 2021 3:25 pmYou're right, we should only multiply by 0.66 (the HmL weight of DFSVX, intended to exemplify real world factor exposure).Nathan Drake wrote: ↑Mon Jul 19, 2021 2:33 pmWhy are you multiplying by .5 and .66?countmein wrote: ↑Mon Jul 19, 2021 1:02 pmOk, let's go with 1.13%. Your actual premium is 1.13 * .5 (long only) * .66 (DFSVX exposure) = 0.37% - 0.22 (AVUV ER minus VTI ER) = 0.15%
If we use AQR's 0.35%, the same calculation gives a premium of -0.10%
If you think that's worth double the volatility then you might like these things called BaB (8.15% over the same period) and QmJ (4.76%).
Portfoliovisualizer shows us the difference and it’s not as low as you suggest even in an incredibly ideal back test
So, for the past 35 years, on the high side (FF) we've got an HmL premium of (1.13 * 0.66) - 0.22 = 0.66%
On the low side (AQR), we've got an HmL premium of (0.35 * 0.66) - 0.22 = 0.01%
Seems fair to average them out: (.66 + .01)/2 = 0.34% is our value premium for the past 35 years.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Small Cap Value heads Rejoice !!!
That's quite a large premium over 35 years.countmein wrote: ↑Mon Jul 19, 2021 3:25 pmYou're right, we should only multiply by 0.66 (the HmL weight of DFSVX, intended to exemplify real world factor exposure).Nathan Drake wrote: ↑Mon Jul 19, 2021 2:33 pmWhy are you multiplying by .5 and .66?countmein wrote: ↑Mon Jul 19, 2021 1:02 pmOk, let's go with 1.13%. Your actual premium is 1.13 * .5 (long only) * .66 (DFSVX exposure) = 0.37% - 0.22 (AVUV ER minus VTI ER) = 0.15%
If we use AQR's 0.35%, the same calculation gives a premium of -0.10%
If you think that's worth double the volatility then you might like these things called BaB (8.15% over the same period) and QmJ (4.76%).
Portfoliovisualizer shows us the difference and it’s not as low as you suggest even in an incredibly ideal back test
So, for the past 35 years, on the high side (FF) we've got an HmL premium of (1.13 * 0.66) - 0.22 = 0.66%
On the low side (AQR), we've got an HmL premium of (0.35 * 0.66) - 0.22 = 0.01%
Seems fair to average them out: (.66 + .01)/2 = 0.34% is our value premium for the past 35 years.
Re: Small Cap Value heads Rejoice !!!
0.35% and 1.13% are the pure (long-short) factor returns. If your fund's loading were 1.0, you'd get these returns. Best real-world example of a deep small value fund with a long history is DFSVX. It captures about 66% of the HmL factor. I used AVUV's ER to be charitable, and assume it has a similar exposure as DFSVX. Using DFSVX's ER, the HmL return drops to 0.17%Nathan Drake wrote: ↑Mon Jul 19, 2021 4:09 pmThe backtest of 1.13% premium shows us the real world returns. I am missing why we need to multiply the real world premium by the factor loading?countmein wrote: ↑Mon Jul 19, 2021 3:25 pmYou're right, we should only multiply by 0.66 (the HmL weight of DFSVX, intended to exemplify real world factor exposure).Nathan Drake wrote: ↑Mon Jul 19, 2021 2:33 pmWhy are you multiplying by .5 and .66?countmein wrote: ↑Mon Jul 19, 2021 1:02 pmOk, let's go with 1.13%. Your actual premium is 1.13 * .5 (long only) * .66 (DFSVX exposure) = 0.37% - 0.22 (AVUV ER minus VTI ER) = 0.15%
If we use AQR's 0.35%, the same calculation gives a premium of -0.10%
If you think that's worth double the volatility then you might like these things called BaB (8.15% over the same period) and QmJ (4.76%).
Portfoliovisualizer shows us the difference and it’s not as low as you suggest even in an incredibly ideal back test
So, for the past 35 years, on the high side (FF) we've got an HmL premium of (1.13 * 0.66) - 0.22 = 0.66%
On the low side (AQR), we've got an HmL premium of (0.35 * 0.66) - 0.22 = 0.01%
Seems fair to average them out: (.66 + .01)/2 = 0.34% is our value premium for the past 35 years.
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Re: Small Cap Value heads Rejoice !!!
Portfolio visualizer:countmein wrote: ↑Mon Jul 19, 2021 6:51 pm0.35% and 1.13% are the pure (long-short) factor returns. If your fund's loading were 1.0, you'd get these returns. Best real-world example of a deep small value fund with a long history is DFSVX. It captures about 66% of the HmL factor. I used AVUV's ER to be charitable, and assume it has a similar exposure as DFSVX. Using DFSVX's ER, the HmL return drops to 0.17%Nathan Drake wrote: ↑Mon Jul 19, 2021 4:09 pmThe backtest of 1.13% premium shows us the real world returns. I am missing why we need to multiply the real world premium by the factor loading?countmein wrote: ↑Mon Jul 19, 2021 3:25 pmYou're right, we should only multiply by 0.66 (the HmL weight of DFSVX, intended to exemplify real world factor exposure).Nathan Drake wrote: ↑Mon Jul 19, 2021 2:33 pmWhy are you multiplying by .5 and .66?countmein wrote: ↑Mon Jul 19, 2021 1:02 pm
Ok, let's go with 1.13%. Your actual premium is 1.13 * .5 (long only) * .66 (DFSVX exposure) = 0.37% - 0.22 (AVUV ER minus VTI ER) = 0.15%
If we use AQR's 0.35%, the same calculation gives a premium of -0.10%
If you think that's worth double the volatility then you might like these things called BaB (8.15% over the same period) and QmJ (4.76%).
Portfoliovisualizer shows us the difference and it’s not as low as you suggest even in an incredibly ideal back test
So, for the past 35 years, on the high side (FF) we've got an HmL premium of (1.13 * 0.66) - 0.22 = 0.66%
On the low side (AQR), we've got an HmL premium of (0.35 * 0.66) - 0.22 = 0.01%
Seems fair to average them out: (.66 + .01)/2 = 0.34% is our value premium for the past 35 years.
Portfolio Returns
Portfolio 1 $10,000 $154,779 10.47%
Portfolio 2 $10,000 $194,942 11.41%
This is the longest it goes back (1994). That's a near 1% premium for DFSVX over VTSMX for 27 years, with an end date leading to the biggest spreads in growth vs value in recorded history.
Shows to me that the premium is alive and well and likely to do extremely well going forward. You can argue all you want about whether it's worth the increased volatility. Nobody is claiming this is a free lunch. But the benefits go beyond the mere returns; sequence of returns as a diversification benefit against a largely market based portfolio. 5 year periods show significantly higher average returns and less "dead decades". In many ways it looks a lot better from a sequencing standpoint over 5 & 10 year periods than a purely market based portfolio, and certainly in an environment with lower expected market + bond returns.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Small Cap Value heads Rejoice !!!
I'm going back to 1986 using the factor statistics tool in PV. It goes back to 1960-something (where the premium used to be). It's useful to look back as far as we can. When you do, it's clear that a premium used to exist. Then, for whatever combination of reasons, it stopped working.
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Re: Small Cap Value heads Rejoice !!!
But it doesn’t show that it doesn’t exist. It may show a lowering trend, using an extremely favorable end date, but it doesn’t show that it’s gone. Not sure why you continue to claim thatcountmein wrote: ↑Mon Jul 19, 2021 10:19 pm I'm going back to 1986 using the factor statistics tool in PV. It goes back to 1960-something (where the premium used to be). It's useful to look back as far as we can. When you do, it's clear that a premium used to exist. Then, for whatever combination of reasons, it stopped working.
And a more consistent 10% over 20 years is better than 0% one decade and 14% the next, for obvious sequence reasons
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Small Cap Value heads Rejoice !!!
It's longer term diversification that matters more to me. The decade from 2000-2009 VTSMX returned -0.3% while DFSVX returned +9.1%.
Many small cap value funds also have significant profitability exposure.
PS. most people who believe in tilting to factors also believe in international diversification. An internationally diversified small value portfolio outperformed an international total market portfolio by ~1.9% over the last 25 years. For those that can stomach the greater volatility I'd say it's a worthwhile trade off.
https://www.portfoliovisualizer.com/bac ... tion4_2=45
Re: Small Cap Value heads Rejoice !!!
This is a non-quantitative and also incorrect statement. There was an academic paper on this measurement and the premium is statistically consistent with the original measurement. (Yes, there is variance around the point estimates)countmein wrote: ↑Mon Jul 19, 2021 10:19 pm I'm going back to 1986 using the factor statistics tool in PV. It goes back to 1960-something (where the premium used to be). It's useful to look back as far as we can. When you do, it's clear that a premium used to exist. Then, for whatever combination of reasons, it stopped working.
Crom laughs at your Four Winds
Re: Small Cap Value heads Rejoice !!!
Quantitatively, the value "premium" was 0.17% in the 35 years to present using DFSVX as a simulant. I get that Nathan thinks that means "exists" and I think it means "doesn't exist" (and that's fine) but the 0.17 is what it is.muffins14 wrote: ↑Tue Jul 20, 2021 7:45 amThis is a non-quantitative and also incorrect statement. There was an academic paper on this measurement and the premium is statistically consistent with the original measurement. (Yes, there is variance around the point estimates)countmein wrote: ↑Mon Jul 19, 2021 10:19 pm I'm going back to 1986 using the factor statistics tool in PV. It goes back to 1960-something (where the premium used to be). It's useful to look back as far as we can. When you do, it's clear that a premium used to exist. Then, for whatever combination of reasons, it stopped working.
Re: Small Cap Value heads Rejoice !!!
Interesting point about 2000-2009. I guess the trade off there is no "lost decades" vs many years of trailing TSM with slightly less positive returns. It's not a bad trade. That is a more convincing reason to tilt than pretending 0.17% is anything other than zero + a little noise.YRT70 wrote: ↑Tue Jul 20, 2021 7:00 amIt's longer term diversification that matters more to me. The decade from 2000-2009 VTSMX returned -0.3% while DFSVX returned +9.1%.
Many small cap value funds also have significant profitability exposure.
PS. most people who believe in tilting to factors also believe in international diversification. An internationally diversified small value portfolio outperformed an international total market portfolio by ~1.9% over the last 25 years. For those that can stomach the greater volatility I'd say it's a worthwhile trade off.
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Re: Small Cap Value heads Rejoice !!!
I can find periods nearly as long where bonds beat stocks dramatically.countmein wrote: ↑Tue Jul 20, 2021 7:46 pmQuantitatively, the value "premium" was 0.17% in the 35 years to present using DFSVX as a simulant. I get that Nathan thinks that means "exists" and I think it means "doesn't exist" (and that's fine) but the 0.17 is what it is.muffins14 wrote: ↑Tue Jul 20, 2021 7:45 amThis is a non-quantitative and also incorrect statement. There was an academic paper on this measurement and the premium is statistically consistent with the original measurement. (Yes, there is variance around the point estimates)countmein wrote: ↑Mon Jul 19, 2021 10:19 pm I'm going back to 1986 using the factor statistics tool in PV. It goes back to 1960-something (where the premium used to be). It's useful to look back as far as we can. When you do, it's clear that a premium used to exist. Then, for whatever combination of reasons, it stopped working.
Guess the equity premium doesn’t exist
viewtopic.php?t=352394
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Small Cap Value heads Rejoice !!!
DFSVX Is not the same as the value premium, obviously. You don’t get to just make up your own definitions. It’s not even a value fund, it’s a small-value fund, and that matters because there is no small-value factor. There is a small factor and value factor, and the endpoints you chose have been disfavorable to both, yet even then DFSVX outperformed in your example.countmein wrote: ↑Tue Jul 20, 2021 7:46 pmQuantitatively, the value "premium" was 0.17% in the 35 years to present using DFSVX as a simulant. I get that Nathan thinks that means "exists" and I think it means "doesn't exist" (and that's fine) but the 0.17 is what it is.muffins14 wrote: ↑Tue Jul 20, 2021 7:45 amThis is a non-quantitative and also incorrect statement. There was an academic paper on this measurement and the premium is statistically consistent with the original measurement. (Yes, there is variance around the point estimates)countmein wrote: ↑Mon Jul 19, 2021 10:19 pm I'm going back to 1986 using the factor statistics tool in PV. It goes back to 1960-something (where the premium used to be). It's useful to look back as far as we can. When you do, it's clear that a premium used to exist. Then, for whatever combination of reasons, it stopped working.
Crom laughs at your Four Winds
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Re: Small Cap Value heads Rejoice !!!
One of the more interest parts of SCV is the advantages in rolling returns and more diversification benefits as well.
Re: Small Cap Value heads Rejoice !!!
The endpoints aren't arbitrary. They come from the question of HmL and SmB persistence, namely: how long has it been since we've seen a small value premium? If you look back 5 years, no premium. 10 years, still none. 15 years? nope. Et cetera until you get past 35 years. That was the exercise.muffins14 wrote: ↑Wed Jul 21, 2021 5:57 amDFSVX Is not the same as the value premium, obviously. You don’t get to just make up your own definitions. It’s not even a value fund, it’s a small-value fund, and that matters because there is no small-value factor. There is a small factor and value factor, and the endpoints you chose have been disfavorable to both, yet even then DFSVX outperformed in your example.countmein wrote: ↑Tue Jul 20, 2021 7:46 pmQuantitatively, the value "premium" was 0.17% in the 35 years to present using DFSVX as a simulant. I get that Nathan thinks that means "exists" and I think it means "doesn't exist" (and that's fine) but the 0.17 is what it is.muffins14 wrote: ↑Tue Jul 20, 2021 7:45 amThis is a non-quantitative and also incorrect statement. There was an academic paper on this measurement and the premium is statistically consistent with the original measurement. (Yes, there is variance around the point estimates)countmein wrote: ↑Mon Jul 19, 2021 10:19 pm I'm going back to 1986 using the factor statistics tool in PV. It goes back to 1960-something (where the premium used to be). It's useful to look back as far as we can. When you do, it's clear that a premium used to exist. Then, for whatever combination of reasons, it stopped working.
DFSVX is simply a way to translate historical long-short factor premia into real-world terms. i.e. if you had pure factor premia of X from 1986 to present (1% HmL, 0% SmB), how much of that can/could an investor actually capture? To answer that you have to assume some fund factor exposures. DFSVX seems like the most reasonable proxy, but you could also look at IJS or perhaps some others.
Re: Small Cap Value heads Rejoice !!!
You're confusing the risk free rate with bonds. The thread you link to says it right there: "both stocks and bonds are risk assets, capable of outperforming or underperforming over any human time horizon." I think the longest Rm-Rf has gone in the red is about 13 years or so. Still pretty scary.Nathan Drake wrote: ↑Wed Jul 21, 2021 12:33 amI can find periods nearly as long where bonds beat stocks dramatically.countmein wrote: ↑Tue Jul 20, 2021 7:46 pmQuantitatively, the value "premium" was 0.17% in the 35 years to present using DFSVX as a simulant. I get that Nathan thinks that means "exists" and I think it means "doesn't exist" (and that's fine) but the 0.17 is what it is.muffins14 wrote: ↑Tue Jul 20, 2021 7:45 amThis is a non-quantitative and also incorrect statement. There was an academic paper on this measurement and the premium is statistically consistent with the original measurement. (Yes, there is variance around the point estimates)countmein wrote: ↑Mon Jul 19, 2021 10:19 pm I'm going back to 1986 using the factor statistics tool in PV. It goes back to 1960-something (where the premium used to be). It's useful to look back as far as we can. When you do, it's clear that a premium used to exist. Then, for whatever combination of reasons, it stopped working.
Guess the equity premium doesn’t exist
viewtopic.php?t=352394
Re: Small Cap Value heads Rejoice !!!
You’ve chosen to ignore my comments and just restate your point, so OKcountmein wrote: ↑Thu Jul 22, 2021 12:06 amThe endpoints aren't arbitrary. They come from the question of HmL and SmB persistence, namely: how long has it been since we've seen a small value premium? If you look back 5 years, no premium. 10 years, still none. 15 years? nope. Et cetera until you get past 35 years. That was the exercise.muffins14 wrote: ↑Wed Jul 21, 2021 5:57 amDFSVX Is not the same as the value premium, obviously. You don’t get to just make up your own definitions. It’s not even a value fund, it’s a small-value fund, and that matters because there is no small-value factor. There is a small factor and value factor, and the endpoints you chose have been disfavorable to both, yet even then DFSVX outperformed in your example.countmein wrote: ↑Tue Jul 20, 2021 7:46 pmQuantitatively, the value "premium" was 0.17% in the 35 years to present using DFSVX as a simulant. I get that Nathan thinks that means "exists" and I think it means "doesn't exist" (and that's fine) but the 0.17 is what it is.muffins14 wrote: ↑Tue Jul 20, 2021 7:45 amThis is a non-quantitative and also incorrect statement. There was an academic paper on this measurement and the premium is statistically consistent with the original measurement. (Yes, there is variance around the point estimates)countmein wrote: ↑Mon Jul 19, 2021 10:19 pm I'm going back to 1986 using the factor statistics tool in PV. It goes back to 1960-something (where the premium used to be). It's useful to look back as far as we can. When you do, it's clear that a premium used to exist. Then, for whatever combination of reasons, it stopped working.
DFSVX is simply a way to translate historical long-short factor premia into real-world terms. i.e. if you had pure factor premia of X from 1986 to present (1% HmL, 0% SmB), how much of that can/could an investor actually capture? To answer that you have to assume some fund factor exposures. DFSVX seems like the most reasonable proxy, but you could also look at IJS or perhaps some others.
Crom laughs at your Four Winds
Re: Small Cap Value heads Rejoice !!!
Two small things: DFSVX started in 1993 so I think we're talking about 28 years or so. According to PV the outperformance vs. vtsmx has been 0.94%, although that can change any day of course.
https://www.portfoliovisualizer.com/bac ... ion2_2=100
Re: Small Cap Value heads Rejoice !!!
Sorry I haven't been clearer. I'm not looking at DFSVX's performance at all. In order to reach further back in history, I'm looking at raw long-short factor performance, found hereYRT70 wrote: ↑Thu Jul 22, 2021 8:03 amTwo small things: DFSVX started in 1993 so I think we're talking about 28 years or so. According to PV the outperformance vs. vtsmx has been 0.94%, although that can change any day of course.
https://www.portfoliovisualizer.com/bac ... ion2_2=100
The point of going further back is to try to get a sense of when these two premia started to dry up, and to ponder whether the premium is still considered "existing" if it can go 35 years yielding next to nothing (0.17%).
On that factor statistics page, you can see that the raw factor performance for HmL and SmB using the AQR model are 0.35% and -0.07%, respectively. (Alternatively, 1.13% and 0.11% using the FF model)
Translating raw factor returns into would-be real world returns requires accounting for the partial factor exposure captured by funds (e.g. DFSVX captures 66% of HmL) plus management fees and other frictions (negative alpha) which I have waived (e.g. assumed perfect trading efficiency).
Since SmB is so close to zero, I dropped it from the calculation.
If you want to look at performance of funds, note that DFLVX lags VTSMX since inception (march 1993), thus a negative real-world value premium. FF HmL was +0.56% over the period. So even if the raw HmL premium is able to hang on to +0.5% going forward, can your fund capture it? DFSVX did a better job of keeping the negative alpha at bay. How will AVUV perform in that regard? We don't know, it's a gamble (with no upside).
It's nice to hear AVUV is picking up QmJ exposure because I wouldn't want to rely on it capturing what's left of HmL and SmB with DFA-like efficiency.
Re: Small Cap Value heads Rejoice !!!
.
Unpacking the Fama-French HML factor over the 05/1986 - 05/2021 timeframe gives the following:
FF-HML = 1.13% annualized, as per the Portfolio Visualizer link
FF Small Value component of FF-HML = 12.9% annualized
FF Market = 11.0% annualized
Difference = 1.9%
Implied growth of $1 from start of 05/1986
FF Small Value = $70
FF Market = $39
And the FF-HML in "International ex US" and "Emerging markets" on the Portfolio Visualizer website, for the longest period they have data, give greater than zero numbers.
Robert
.
Unpacking the Fama-French HML factor over the 05/1986 - 05/2021 timeframe gives the following:
FF-HML = 1.13% annualized, as per the Portfolio Visualizer link
FF Small Value component of FF-HML = 12.9% annualized
FF Market = 11.0% annualized
Difference = 1.9%
Implied growth of $1 from start of 05/1986
FF Small Value = $70
FF Market = $39
And the FF-HML in "International ex US" and "Emerging markets" on the Portfolio Visualizer website, for the longest period they have data, give greater than zero numbers.
Robert
.
Re: Small Cap Value heads Rejoice !!!
Interesting. So you could say there are two HmLs-- a large (HmL-L) and a small (HmL-s). The former is dead, the latter is hanging on. And if you target your portfolio to HmL and not specifically to HmL-s, you will be missing out to some degree.Robert T wrote: ↑Thu Jul 22, 2021 5:11 pm .
Unpacking the Fama-French HML factor over the 05/1986 - 05/2021 timeframe gives the following:
FF-HML = 1.13% annualized, as per the Portfolio Visualizer link
FF Small Value component of FF-HML = 12.9% annualized
FF Market = 11.0% annualized
Difference = 1.9%
Implied growth of $1 from start of 05/1986
FF Small Value = $70
FF Market = $39
And the FF-HML in "International ex US" and "Emerging markets" on the Portfolio Visualizer website, for the longest period they have data, give greater than zero numbers.
Robert
.
Is it also true that the large and small halves of the other factors have significantly different returns?
Do factor returns change monotonically through the deciles? I could see the answer being 'yes' for value and quality but 'no' for mom and low vol (imagining a lull in midcap returns for those two).
Re: Small Cap Value heads Rejoice !!!
You’re again making inferences to suit your confirmation bias.countmein wrote: ↑Sat Jul 24, 2021 4:39 pmInteresting. So you could say there are two HmLs-- a large (HmL-L) and a small (HmL-s). The former is dead, the latter is hanging on. And if you target your portfolio to HmL and not specifically to HmL-s, you will be missing out to some degree.Robert T wrote: ↑Thu Jul 22, 2021 5:11 pm .
Unpacking the Fama-French HML factor over the 05/1986 - 05/2021 timeframe gives the following:
FF-HML = 1.13% annualized, as per the Portfolio Visualizer link
FF Small Value component of FF-HML = 12.9% annualized
FF Market = 11.0% annualized
Difference = 1.9%
Implied growth of $1 from start of 05/1986
FF Small Value = $70
FF Market = $39
And the FF-HML in "International ex US" and "Emerging markets" on the Portfolio Visualizer website, for the longest period they have data, give greater than zero numbers.
Robert
.
Is it also true that the large and small halves of the other factors have significantly different returns?
Do factor returns change monotonically through the deciles? I could see the answer being 'yes' for value and quality but 'no' for mom and low vol (imagining a lull in midcap returns for those two).
He wrote: HmL = 1.13%, small part of HmL= 1.9%.
How could the large part be zero (I.e.dead) if the average of that and the small part is 1.13%? It can’t.
If it were zero, then the overall HmL annualized value would have been 0.95%, but it was 1.13%.
Crom laughs at your Four Winds
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Re: Small Cap Value heads Rejoice !!!
The premiums the models produce are a joke unless real factor funds can capture those premiums. The case for capture after cost in real funds has not been impressive since the inception of factor funds. The market has changed (professionally dominated, algorithms, essentially all investors know about factors), the economy has changed (tech dominated information economy instead of manufacturing/ bricks and mortar). Is it reasonable to expect long term outperformance going forward of SCV when P/B is outmoded and there is no agreement of exactly how to properly measure value.
IMO there is considerably more uncertainty about future factor returns of real funds than the models may suggest. The models are designed to show positive premiums, magnifying positives and totally neglecting negatives. Real funds have to deal with real markets and real economies which are vastly different than they were 1929 - 1992 when most stock buyers were inexperienced amateurs, the economy was based on manufacturing/bricks and mortar in which P/B had clout as predictor of the future returns. There were many clearly exploitable overlooked companies in the SCV space that could be identified by simple parameters like P/B back then. Trying to pick the few big winners from among the vast legions of small struggling companies which are now heavily scrutinized by many SCV funds is quite simply not as easy or as reliable as it was 1929 - 1992.
Garland Whizzer
IMO there is considerably more uncertainty about future factor returns of real funds than the models may suggest. The models are designed to show positive premiums, magnifying positives and totally neglecting negatives. Real funds have to deal with real markets and real economies which are vastly different than they were 1929 - 1992 when most stock buyers were inexperienced amateurs, the economy was based on manufacturing/bricks and mortar in which P/B had clout as predictor of the future returns. There were many clearly exploitable overlooked companies in the SCV space that could be identified by simple parameters like P/B back then. Trying to pick the few big winners from among the vast legions of small struggling companies which are now heavily scrutinized by many SCV funds is quite simply not as easy or as reliable as it was 1929 - 1992.
Garland Whizzer
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Re: Small Cap Value heads Rejoice !!!
Technological change isn't something new. The factor premium has been alive and well throughout all of these technological shifts. Buying into many of the hot new coming industries has often led to poor long-term results as investors overpay for that growth. I would argue that even with an end-date in mind that is not favorable to SCV, the premium has been quite significant (1% annualized over 35 years is no joke). Shift the end date 10 years and you have an even larger premium.garlandwhizzer wrote: ↑Sun Jul 25, 2021 3:02 pm The premiums the models produce are a joke unless real factor funds can capture those premiums. The case for capture after cost in real funds has not been impressive since the inception of factor funds. The market has changed (professionally dominated, algorithms, essentially all investors know about factors), the economy has changed (tech dominated information economy instead of manufacturing/ bricks and mortar). Is it reasonable to expect long term outperformance going forward of SCV when P/B is outmoded and there is no agreement of exactly how to properly measure value.
IMO there is considerably more uncertainty about future factor returns of real funds than the models may suggest. The models are designed to show positive premiums, magnifying positives and totally neglecting negatives. Real funds have to deal with real markets and real economies which are vastly different than they were 1929 - 1992 when most stock buyers were inexperienced amateurs, the economy was based on manufacturing/bricks and mortar in which P/B had clout as predictor of the future returns. There were many clearly exploitable overlooked companies in the SCV space that could be identified by simple parameters like P/B back then. Trying to pick the few big winners from among the vast legions of small struggling companies which are now heavily scrutinized by many SCV funds is quite simply not as easy or as reliable as it was 1929 - 1992.
Garland Whizzer
Many SCV value funds don't use a purely P/B strategy, and it is generally agreed upon within the space that you have to account for various measures and also adjust your valuation models for certain industries.
If you don't believe in SCV, you also don't believe in market risk. So stocks should not be expected to perform better than bonds. Of course we all know that this is not true. It's a risk story - not a free lunch, so the concept of SCV makes complete sense and likely isn't going away anytime soon. If it does go away, then that means you won't see a huge discount in SCV going forward -- so you should see a huge rise in pricing models for these types of stocks.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Re: Small Cap Value heads Rejoice !!!
Implies about 0.36% for HmL-L. Accounting for fund friction, that is zero (dead).muffins14 wrote: ↑Sun Jul 25, 2021 10:35 amYou’re again making inferences to suit your confirmation bias.countmein wrote: ↑Sat Jul 24, 2021 4:39 pmInteresting. So you could say there are two HmLs-- a large (HmL-L) and a small (HmL-s). The former is dead, the latter is hanging on. And if you target your portfolio to HmL and not specifically to HmL-s, you will be missing out to some degree.Robert T wrote: ↑Thu Jul 22, 2021 5:11 pm .
Unpacking the Fama-French HML factor over the 05/1986 - 05/2021 timeframe gives the following:
FF-HML = 1.13% annualized, as per the Portfolio Visualizer link
FF Small Value component of FF-HML = 12.9% annualized
FF Market = 11.0% annualized
Difference = 1.9%
Implied growth of $1 from start of 05/1986
FF Small Value = $70
FF Market = $39
And the FF-HML in "International ex US" and "Emerging markets" on the Portfolio Visualizer website, for the longest period they have data, give greater than zero numbers.
Robert
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Is it also true that the large and small halves of the other factors have significantly different returns?
Do factor returns change monotonically through the deciles? I could see the answer being 'yes' for value and quality but 'no' for mom and low vol (imagining a lull in midcap returns for those two).
He wrote: HmL = 1.13%, small part of HmL= 1.9%.
How could the large part be zero (I.e.dead) if the average of that and the small part is 1.13%? It can’t.
If it were zero, then the overall HmL annualized value would have been 0.95%, but it was 1.13%.
Re: Small Cap Value heads Rejoice !!!
Zero is not 0.36. Would you rather pay zero in expenses or 0.36? 0.36 compounded over a lifetime is higher than 0 compounded
Crom laughs at your Four Winds
Re: Small Cap Value heads Rejoice !!!
0.36 is the implied raw factor return. In real funds you have to subtract out 1) trading cost (neg alpha), 2) management fee (neg alpha), 3) partial exposure to the factor.
For example, look at DFLVX since inception. It earned 0.64% a year in HmL-attributed returns but has a -1.03% alpha. So it lags the total market fund by 20-some bps. According to some recent posters, that's an earth-shattering difference which should make you never want to mess around with inefficient non-TSM funds. To me, it's about a tie.
Also don't forget, DFLVX investors have paid somewhere in the neighborhood of probably 1% a year in cap gains distributions. Not an issue for total market. ETFs save the day on that issue though.
Re: Small Cap Value heads Rejoice !!!
This seems like the right thread to ask...
Question 1:
My 401(k) has a DFA managed US small-mid cap value fund available. Managed meaning that I don't get quotes and holdings are rarely updated. For about the same ER, I can own AVDV. The funds are slightly different, but close enough, and AVUV is much more transparent. All else being equal: Any thoughts one way or the other?
Question 2:
I own VSS (Vanguard international small-mid cap) as a cheap way to expose myself to international SCV (using the theory that international small companies are not well correlated to US markets.) I'm not quite as attached to Vanguard funds as I used to be, so I'm looking at AVDV, and probably the emerging market version when it comes out. By owning a fund that is strictly value-oriented, I should be able to own less of the fund and have the same tilt to SCV. I'm thinking half, but would like thoughts.
Question 1:
My 401(k) has a DFA managed US small-mid cap value fund available. Managed meaning that I don't get quotes and holdings are rarely updated. For about the same ER, I can own AVDV. The funds are slightly different, but close enough, and AVUV is much more transparent. All else being equal: Any thoughts one way or the other?
Question 2:
I own VSS (Vanguard international small-mid cap) as a cheap way to expose myself to international SCV (using the theory that international small companies are not well correlated to US markets.) I'm not quite as attached to Vanguard funds as I used to be, so I'm looking at AVDV, and probably the emerging market version when it comes out. By owning a fund that is strictly value-oriented, I should be able to own less of the fund and have the same tilt to SCV. I'm thinking half, but would like thoughts.
Re: Small Cap Value heads Rejoice !!!
AVUV has little to no mid cap in it. If you believe in the small cap value factor, you’d want more small, more value. If AVDV offers that over the DFA fund you have available then I would move to AVUV.Whakamole wrote: ↑Fri Aug 13, 2021 8:32 am
Question 1:
My 401(k) has a DFA managed US small-mid cap value fund available. Managed meaning that I don't get quotes and holdings are rarely updated. For about the same ER, I can own AVDV. The funds are slightly different, but close enough, and AVUV is much more transparent. All else being equal: Any thoughts one way or the other?
Whakamole wrote: ↑Fri Aug 13, 2021 8:32 am
Question 2:
I own VSS (Vanguard international small-mid cap) as a cheap way to expose myself to international SCV (using the theory that international small companies are not well correlated to US markets.) I'm not quite as attached to Vanguard funds as I used to be, so I'm looking at AVDV, and probably the emerging market version when it comes out. By owning a fund that is strictly value-oriented, I should be able to own less of the fund and have the same tilt to SCV. I'm thinking half, but would like thoughts.
If your goal with VSS was to get international small cap value into your portfolio, then a dollar to dollar switch from VSS to AVDV would get you more international small cap value. There’s little reason to switch from VSS to AVDV to maintain the same factor loading as, presumably, performance would remain the same. So, the answer is really he same as to you first question. If you believe in international small cap value, you’d want more of it, and therefore switch dollar to dollar from VSS to AVDV as that would give you better access to the factor.
Re: Small Cap Value heads Rejoice !!!
I don't know much about that specific DFA fund but going by what you wrote I'd also prefer AVUV. I like transparent and smaller cap size.Whakamole wrote: ↑Fri Aug 13, 2021 8:32 am This seems like the right thread to ask...
Question 1:
My 401(k) has a DFA managed US small-mid cap value fund available. Managed meaning that I don't get quotes and holdings are rarely updated. For about the same ER, I can own AVDV. The funds are slightly different, but close enough, and AVUV is much more transparent. All else being equal: Any thoughts one way or the other?
As you probably know VSS is a blend small cap fund. It doesn't actually have significant exposure to value. So there's no tilting happening to SCV, only a tilt to size. You can check here; https://www.etf.com/VSS#overviewQuestion 2:
I own VSS (Vanguard international small-mid cap) as a cheap way to expose myself to international SCV (using the theory that international small companies are not well correlated to US markets.) I'm not quite as attached to Vanguard funds as I used to be, so I'm looking at AVDV, and probably the emerging market version when it comes out. By owning a fund that is strictly value-oriented, I should be able to own less of the fund and have the same tilt to SCV. I'm thinking half, but would like thoughts.
AVDV will give significant loading on size, value and profitability. As to how much AVDV you should own, it will depend on many factors, such as your preferences, beliefs, goals, horizon etc. For me personally about 50% of my portfolio is tilted to size, value and profitability. About 20% of my whole portfolio is AVDV.
Re: Small Cap Value heads Rejoice !!!
I am about to add some SCV to my Roth IRA. Looking to go 25% of my US stocks into small cap value which equates to about 15% of my total protfolio.
I am currently debating between using AVUV and VIOV. It seems that most prefer AVUV over VIOV. Is that an accurate statement?
I am currently debating between using AVUV and VIOV. It seems that most prefer AVUV over VIOV. Is that an accurate statement?
Re: Small Cap Value heads Rejoice !!!
I think you're right that more people here prefer AVUV. It has deeper exposure to value and profitability.BHawks87 wrote: ↑Fri Aug 13, 2021 10:14 am I am about to add some SCV to my Roth IRA. Looking to go 25% of my US stocks into small cap value which equates to about 15% of my total protfolio.
I am currently debating between using AVUV and VIOV. It seems that most prefer AVUV over VIOV. Is that an accurate statement?
If you expect these factors to provide positive returns over your holding period it would make sense to choose AVUV. However, if the factors don't deliver it's likely VIOV will perform better.
Also keep in mind that the ride with AVUV will likely be more volatile. Another way of looking at it is that you could own less of AVUV than of VIOV to get similar factor loadings for your portfolio.
Re: Small Cap Value heads Rejoice !!!
I couldn't decide as they have different approaches both of which I like. I'm split between slyv (it's like viov), avuv, and vbr. I like the mid cap exposure in vbr. Does it make a difference? Probably not but I'm at peace with it.BHawks87 wrote: ↑Fri Aug 13, 2021 10:14 am I am about to add some SCV to my Roth IRA. Looking to go 25% of my US stocks into small cap value which equates to about 15% of my total protfolio.
I am currently debating between using AVUV and VIOV. It seems that most prefer AVUV over VIOV. Is that an accurate statement?
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
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Re: Small Cap Value heads Rejoice !!!
I like VIOV, and I hold it personally. At 15 bps, it’s 12 bps more expensive than VTI, whereas AVUV is 22 bps more expensive than VTI. AVUV has slightly greater size and value exposure, but at nearly double the incremental cost. You can just hold, let’s say, 30% VIOV instead of 25% AVUV and get similar size/value exposures with lower expenses.
AVUV has little data, but when we run a regression in the future I’m sure we’ll see more profitability exposure. That said, VIOV has had at least some positive exposure to profitability since fund inception. Also, VIOV has kept alpha pretty close to zero, whereas many factor funds generate sizeable negative alphas.
All in all, AVUV has a few more bells and whistles (momentum screen, daily adjustments to holdings to maintain smoother exposures, etc). Maybe those bells and whistles will prove worth the higher cost, maybe not. I don’t think you can go wrong with VIOV though.
AVUV has little data, but when we run a regression in the future I’m sure we’ll see more profitability exposure. That said, VIOV has had at least some positive exposure to profitability since fund inception. Also, VIOV has kept alpha pretty close to zero, whereas many factor funds generate sizeable negative alphas.
All in all, AVUV has a few more bells and whistles (momentum screen, daily adjustments to holdings to maintain smoother exposures, etc). Maybe those bells and whistles will prove worth the higher cost, maybe not. I don’t think you can go wrong with VIOV though.
Re: Small Cap Value heads Rejoice !!!
No harm in splitting the difference and buying half of your allocation in each. I would go half VBR / AVUV if you're having trouble deciding.jason2459 wrote: ↑Fri Aug 13, 2021 11:37 amI couldn't decide as they have different approaches both of which I like. I'm split between slyv (it's like viov), avuv, and vbr. I like the mid cap exposure in vbr. Does it make a difference? Probably not but I'm at peace with it.BHawks87 wrote: ↑Fri Aug 13, 2021 10:14 am I am about to add some SCV to my Roth IRA. Looking to go 25% of my US stocks into small cap value which equates to about 15% of my total protfolio.
I am currently debating between using AVUV and VIOV. It seems that most prefer AVUV over VIOV. Is that an accurate statement?
Re: Small Cap Value heads Rejoice !!!
My original plan was to hold IJS next to AVUV. But when I found out that IJS had a big position in GME I sold all of it and went for AVUV. I don't like big positions in meme stocks. I think AVUV can do smarter trades and rebalance quicker.
Another thing I don't like about S&P 600 value ETFs is that they (I think) make front running possible. This is a potential issue for S&P 500 funds, I assume this could become a problem for 600 as well.
Another thing I don't like about S&P 600 value ETFs is that they (I think) make front running possible. This is a potential issue for S&P 500 funds, I assume this could become a problem for 600 as well.
- PicassoSparks
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Re: Small Cap Value heads Rejoice !!!
Did IJS have a big position in GME because it was a nonmeme small cap value stock that suddenly stopped being that? Or some other reason.
Isn't that how the premium is earned? Small cap value stocks gaining value until they grow their way out of the index and then you sell them for profit and buy the new index? I mean, I presume that GME is leaving the SCV index next time IJS rebalances.
Isn't that how the premium is earned? Small cap value stocks gaining value until they grow their way out of the index and then you sell them for profit and buy the new index? I mean, I presume that GME is leaving the SCV index next time IJS rebalances.
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Re: Small Cap Value heads Rejoice !!!
Yes it was once a SCV stock. It will be sold as long as price is still high when the fund is rebalanced. Ive asked this question before, and others have shared that the index is rebalanced once per year. I just looked it up - apparently rebalances in December.PicassoSparks wrote: ↑Mon Aug 16, 2021 2:13 pm Did IJS have a big position in GME because it was a nonmeme small cap value stock that suddenly stopped being that? Or some other reason.
Isn't that how the premium is earned? Small cap value stocks gaining value until they grow their way out of the index and then you sell them for profit and buy the new index? I mean, I presume that GME is leaving the SCV index next time IJS rebalances.
Re: Small Cap Value heads Rejoice !!!
No, it when up that much because of speculation. At that moment it's no longer a value stock. Avantis can sell it quickly, S&P 600 value funds afaik can't.PicassoSparks wrote: ↑Mon Aug 16, 2021 2:13 pm Isn't that how the premium is earned? Small cap value stocks gaining value until they grow their way out of the index and then you sell them for profit and buy the new index? I mean, I presume that GME is leaving the SCV index next time IJS rebalances.
The CIO of Avantis talks about it in this podcast/transcript: https://www.moderawealth.com/on-the-lim ... 48592727=1
Re: Small Cap Value heads Rejoice !!!
Define big. Last I looked it was less than 1%.YRT70 wrote: ↑Mon Aug 16, 2021 8:09 am My original plan was to hold IJS next to AVUV. But when I found out that IJS had a big position in GME I sold all of it and went for AVUV. I don't like big positions in meme stocks. I think AVUV can do smarter trades and rebalance quicker.
Another thing I don't like about S&P 600 value ETFs is that they (I think) make front running possible. This is a potential issue for S&P 500 funds, I assume this could become a problem for 600 as well.
Re: Small Cap Value heads Rejoice !!!
I don't remember what it was at the high point. And there were other meme stocks coming.KyleAAA wrote: ↑Wed Aug 18, 2021 11:34 amDefine big. Last I looked it was less than 1%.YRT70 wrote: ↑Mon Aug 16, 2021 8:09 am My original plan was to hold IJS next to AVUV. But when I found out that IJS had a big position in GME I sold all of it and went for AVUV. I don't like big positions in meme stocks. I think AVUV can do smarter trades and rebalance quicker.
Another thing I don't like about S&P 600 value ETFs is that they (I think) make front running possible. This is a potential issue for S&P 500 funds, I assume this could become a problem for 600 as well.
Re: Small Cap Value heads Rejoice !!!
VIOV up 2.4% so far today. I rebalanced recently into more of my DFA SCV fund, eager to see how it fares
Re: Small Cap Value heads Rejoice !!!
VIOV +3.23% at close, AVUV +2.95%, VTI +1.08%. It was a good day for SCV!
Tilterati
Re: Small Cap Value heads Rejoice !!!
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Last edited by Nicolas on Wed Nov 02, 2022 3:39 am, edited 1 time in total.
Re: Small Cap Value heads Rejoice !!!
Big day for small cap today. What happened?
"Know what you own, and know why you own it." — Peter Lynch
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Re: Small Cap Value heads Rejoice !!!
1: 25% is not a lot
2: if you are congratulating yourself on holding for a few months, SCV isn’t for you
Small/Value/Profitability: |
30% AVUV |
30% AVDV |
30% AVES |
Momentum: |
5% QMOM |
5% IMOM |
Volatility: |
0.1% PUTW |
Term: |
0.1% BND