Sure, I'm aware. I don't think that's what they meant though with 'closet index fund'. They go into much more detail in the thread linked above (also about your other question).
Small Cap Value heads Rejoice !!!
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Re: Small Cap Value heads Rejoice !!!
You might find this discussion helpful: https://community.rationalreminder.ca/t ... actor/1133MotoTrojan wrote: ↑Thu Apr 29, 2021 5:11 pmWhile I understand the merit of them, intuitively I feel better about holding value and momentum separately rather than using a composite multi-factor approach. I also really believe in the Alpha Architect approach to value fund construction and wouldn't want to eliminate that allocation.RovenSkyfall wrote: ↑Thu Apr 29, 2021 12:08 pmHave you looked at a multifactor fund like VFMF?MotoTrojan wrote: ↑Thu Apr 29, 2021 11:48 am So with all the talk on momentum screens, curious how many of you outright are trying to achieve positive momentum exposure to compliment your value-heavy portfolios?
The idea is getting more and more appealing to me... as long as the premium offsets the expenses it should improve efficiency and return, and if there is a net-premium, even better!
Don't have the conviction to go all-in with Alpha Architect momentum products like I nearly am on the value side, but the MSCI products seem to have harvested a good premium over the indices life, and since actual ETF inceptions (MTUM & IMTM).
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Re: Small Cap Value heads Rejoice !!!
I just recall hearing the same argument about RZV over 10 years ago about needing less of it to pair with total stock market. Can you avoid negative alpha via just 50 stocks?YRT70 wrote: ↑Fri Apr 30, 2021 8:19 amBecause it is more concentrated it can get much deeper momentum exposure. If one adds QMOM to their portfolio they'll need less of it to get the same factor loads.caklim00 wrote: ↑Fri Apr 30, 2021 7:17 amWhy QMOM over VFMO. .49 ER vs .13 seems like a high hurdle. And, 50 holdings vs 747.YRT70 wrote: ↑Fri Apr 30, 2021 3:34 amI was about to send you a message about that. That thread is very interesting.MotoTrojan wrote: ↑Thu Apr 29, 2021 6:07 pmThanks sounds fun, been meaning to check it out, will poke around.LaughingStoic wrote: ↑Thu Apr 29, 2021 5:47 pm
Have you checked out the Rational Reminder forum? There have been fascinating conversations over there recently on using momentum and AA funds as part of a value heavy portfolio. If you haven't, I highly recommend it- pure brain candy.
Here's a link to one of them: https://community.rationalreminder.ca/t ... d-why/6264
The whole discussion has got me very interested in getting some QMOM/IMOM or VFMO.
They're calling MTUM & IMTM 'closet index funds' there. I'm not sure how accurate that is but I think those funds benefitted a lot from the recent mega cap growth spurt. VFMO could make a better alternative.
The negative correlation between momentum and SCV I find quite appealing.
Re: Small Cap Value heads Rejoice !!!
That's a good question. I'll ask the guys at the RR forum.caklim00 wrote: ↑Fri Apr 30, 2021 9:10 amI just recall hearing the same argument about RZV over 10 years ago about needing less of it to pair with total stock market. Can you avoid negative alpha via just 50 stocks?YRT70 wrote: ↑Fri Apr 30, 2021 8:19 amBecause it is more concentrated it can get much deeper momentum exposure. If one adds QMOM to their portfolio they'll need less of it to get the same factor loads.caklim00 wrote: ↑Fri Apr 30, 2021 7:17 amWhy QMOM over VFMO. .49 ER vs .13 seems like a high hurdle. And, 50 holdings vs 747.YRT70 wrote: ↑Fri Apr 30, 2021 3:34 amI was about to send you a message about that. That thread is very interesting.MotoTrojan wrote: ↑Thu Apr 29, 2021 6:07 pm
Thanks sounds fun, been meaning to check it out, will poke around.
The whole discussion has got me very interested in getting some QMOM/IMOM or VFMO.
They're calling MTUM & IMTM 'closet index funds' there. I'm not sure how accurate that is but I think those funds benefitted a lot from the recent mega cap growth spurt. VFMO could make a better alternative.
The negative correlation between momentum and SCV I find quite appealing.
Re: Small Cap Value heads Rejoice !!!
Ben Felix goes into it here: https://community.rationalreminder.ca/t ... y/6264/493
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Re: Small Cap Value heads Rejoice !!!
Are they as supercharged as VFMO or QMOM/IMOM? Probably not. But looking at the regressions and the raw-returns for the full index they seem to capture a good bit of momentum without needing to deviate from large/mega-cap realm. Cliff A has shown that while value does take a hit in larger caps, momentum is quite strong across the board. It seems to me that they could still add value to diversify a small-value heavy portfolio without having the entire thing in small-caps. With a SCV heavy portfolio, replacing the TSM holdings with hardcore momentum (AA indices) increased overall volatility while replacing TSM with the MSCI mom indices actually reduces overall volatility.
Re: Small Cap Value heads Rejoice !!!
Did you read the thread on the RR board? I got the opposite impression.MotoTrojan wrote: ↑Fri Apr 30, 2021 10:44 am ...With a SCV heavy portfolio, replacing the TSM holdings with hardcore momentum (AA indices) increased overall volatility..
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Re: Small Cap Value heads Rejoice !!!
I am speaking about the raw index data going back to 1996. The RR board is correct in saying that a more pure momentum (more volatile) should increase overall portfolio efficiency, as measured by Sharpe ratio (my data does support that), but it does so by increasing overall portfolio volatility, and just increasing return even more. In the MSCI case there was still an increase to overall return but overall volatility actually came down (so Sharpe went up, just not as much as the super-charged 100% AA version).YRT70 wrote: ↑Fri Apr 30, 2021 11:13 amDid you read the thread on the RR board? I got the opposite impression.MotoTrojan wrote: ↑Fri Apr 30, 2021 10:44 am ...With a SCV heavy portfolio, replacing the TSM holdings with hardcore momentum (AA indices) increased overall volatility..
So if your goal was to maintain similar (or even reduce) overall portfolio risk, but increase expected return/efficiency, than replacing your TSM with MSCI momentum (in a heavily SCV tilted portfolio) makes the most sense. If your goal is to get the maximally efficient and highest returning portfolio, and you are willing to accept higher overall risk, than using the AlphaA momentum funds in place of TSM seems to make sense.
Here is an example comparing three portfolios from 1996 to ~ present:
Port 1 (roughly my port): 20% equally in QVAL, IVAL, DFSVX, VTI, VXUS
Port 2: 20% equally in QVAL, IVAL, DFSVX, MTUM, IMTM
Port 3: 20% equally in QVAL, IVAL, DFSVX, QMOM, IMOM
Shows exactly what I described above, MSCI momentum increased return and reduced overall portfolio risk while Alpha Architect momentum increased Sharpe ratio but resulted in more overall risk.
Re: Small Cap Value heads Rejoice !!!
Definitely interesting stuff. Did you read the whole thread on the RR board? (just want to make sure you saw everything I saw)MotoTrojan wrote: ↑Fri Apr 30, 2021 11:37 am I am speaking about the raw index data going back to 1996.
Can you link to your portfoliovisualizer input?
Re: Small Cap Value heads Rejoice !!!
Folks who are interested in adding momentum to a SCV portfolio should be sure to evaluate Invesco S&P SmallCap Value with Momentum ETF (XSVM) and Invesco S&P MidCap Value with Momentum ETF (XMVM).
The methodology of these funds means that they don't quite replicate the "go anywhere" style of VFMO or QMOM, but on the other hand they can be used to tune up the momentum exposure without sacrificing the value exposure as a QMOM/QVAL combination sometimes will.
The methodology of these funds means that they don't quite replicate the "go anywhere" style of VFMO or QMOM, but on the other hand they can be used to tune up the momentum exposure without sacrificing the value exposure as a QMOM/QVAL combination sometimes will.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Small Cap Value heads Rejoice !!!
Haven't read it all, very insightful group of people though.YRT70 wrote: ↑Fri Apr 30, 2021 11:48 amDefinitely interesting stuff. Did you read the whole thread on the RR board? (just want to make sure you saw everything I saw)MotoTrojan wrote: ↑Fri Apr 30, 2021 11:37 am I am speaking about the raw index data going back to 1996.
Can you link to your portfoliovisualizer input?
MSCI data came direct from MSCI, AlphaA data is their net (2% knockdown) index for all funds. I can't share the link since it is raw input data.
To be fair, the most applicable comparison would be to reduce AA momentum exposure until overall portfolio volatility is the same as the MSCI, and see which has a higher return (Sharpe). I actually tried this just now and interestingly found that at no point between 0 and 40% allocation do the AA funds reduce overall portfolio volatility from the TSM case (and thus don't even get close to the MSCI case). So you can ONLY increase risk by adding AA momentum it seems (albeit you do get the maximum efficiency increase), where-as the MSCI historically was able to reduce overall risk and still get enough efficiency boost to increase absolute return.
Last edited by MotoTrojan on Fri Apr 30, 2021 12:15 pm, edited 1 time in total.
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Re: Small Cap Value heads Rejoice !!!
The XSVM ETF itself has changed index MANY times (wouldn't hold it in taxable if I were you) so you can't look at the returns, but I saw a screengrab of the raw index and it was very, very impressive.vineviz wrote: ↑Fri Apr 30, 2021 12:09 pm Folks who are interested in adding momentum to a SCV portfolio should be sure to evaluate Invesco S&P SmallCap Value with Momentum ETF (XSVM) and Invesco S&P MidCap Value with Momentum ETF (XMVM).
The methodology of these funds means that they don't quite replicate the "go anywhere" style of VFMO or QMOM, but on the other hand they can be used to tune up the momentum exposure without sacrificing the value exposure as a QMOM/QVAL combination sometimes will.
Re: Small Cap Value heads Rejoice !!!
Interesting. How would this compare to iShares SMLF? Multifactor small capvineviz wrote: ↑Fri Apr 30, 2021 12:09 pm Folks who are interested in adding momentum to a SCV portfolio should be sure to evaluate Invesco S&P SmallCap Value with Momentum ETF (XSVM) and Invesco S&P MidCap Value with Momentum ETF (XMVM).
The methodology of these funds means that they don't quite replicate the "go anywhere" style of VFMO or QMOM, but on the other hand they can be used to tune up the momentum exposure without sacrificing the value exposure as a QMOM/QVAL combination sometimes will.
Re: Small Cap Value heads Rejoice !!!
Thanks. That was exactly what I was wondering.MotoTrojan wrote: ↑Fri Apr 30, 2021 12:13 pmHaven't read it all, very insightful group of people though.YRT70 wrote: ↑Fri Apr 30, 2021 11:48 amDefinitely interesting stuff. Did you read the whole thread on the RR board? (just want to make sure you saw everything I saw)MotoTrojan wrote: ↑Fri Apr 30, 2021 11:37 am I am speaking about the raw index data going back to 1996.
Can you link to your portfoliovisualizer input?
MSCI data came direct from MSCI, AlphaA data is their net (2% knockdown) index for all funds. I can't share the link since it is raw input data.
To be fair, the most applicable comparison would be to reduce AA momentum exposure until overall portfolio volatility is the same as the MSCI, and see which has a higher return (Sharpe). I actually tried this just now and interestingly found that at no point between 0 and 40% allocation do the AA funds reduce overall portfolio volatility from the TSM case (and thus don't even get close to the MSCI case). So you can ONLY increase risk by adding AA momentum it seems (albeit you do get the maximum efficiency increase), where-as the MSCI historically was able to reduce overall risk and still get enough efficiency boost to increase absolute return.
What you wrote earlier is what I'm after: I'd like to reduce risk and keep expected return similar. So MTUM/IMTM may make the most sense for me.
I think Steve Reading and Uncorrelated prefer VFMF to combine size, value, quality and momentum. Does anyone know what happened to them? I haven't seen them post for a long time.If your goal was to maintain similar (or even reduce) overall portfolio risk, but increase expected return/efficiency, than replacing your TSM with MSCI momentum (in a heavily SCV tilted portfolio) makes the most sense.
Re: Small Cap Value heads Rejoice !!!
You're not kidding about the index changes.MotoTrojan wrote: ↑Fri Apr 30, 2021 12:15 pmThe XSVM ETF itself has changed index MANY times (wouldn't hold it in taxable if I were you) so you can't look at the returns, but I saw a screengrab of the raw index and it was very, very impressive.vineviz wrote: ↑Fri Apr 30, 2021 12:09 pm Folks who are interested in adding momentum to a SCV portfolio should be sure to evaluate Invesco S&P SmallCap Value with Momentum ETF (XSVM) and Invesco S&P MidCap Value with Momentum ETF (XMVM).
The methodology of these funds means that they don't quite replicate the "go anywhere" style of VFMO or QMOM, but on the other hand they can be used to tune up the momentum exposure without sacrificing the value exposure as a QMOM/QVAL combination sometimes will.
https://www.invesco.com/us-rest/content ... dnsName=usS&P 600 High Momentum Value Index performance prior to 6/15/2011 reflects that of the original Underlying Index, Dynamic Small Cap Value Intellidex Index. From 6/16/2011 to 5/22/2015, performance reflects that of the previous Underlying Index, RAFI Fundamental Small Value Index. From 5/23/2015 to 6/21/2019, performance reflects that of the previous Underlying Index, Russell 2000 Pure Value Index. From 6/21/2019 forward, performance reflects that of the Underlying Index, S&P 600 High Momentum Value Index
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Small Cap Value heads Rejoice !!!
No idea what happened to them, but I do know that we’re not allowed to talk about it per forum rules. In other words, don’t expect any more posts from them.YRT70 wrote: ↑Fri Apr 30, 2021 12:32 pmThanks. That was exactly what I was wondering.MotoTrojan wrote: ↑Fri Apr 30, 2021 12:13 pmHaven't read it all, very insightful group of people though.YRT70 wrote: ↑Fri Apr 30, 2021 11:48 amDefinitely interesting stuff. Did you read the whole thread on the RR board? (just want to make sure you saw everything I saw)MotoTrojan wrote: ↑Fri Apr 30, 2021 11:37 am I am speaking about the raw index data going back to 1996.
Can you link to your portfoliovisualizer input?
MSCI data came direct from MSCI, AlphaA data is their net (2% knockdown) index for all funds. I can't share the link since it is raw input data.
To be fair, the most applicable comparison would be to reduce AA momentum exposure until overall portfolio volatility is the same as the MSCI, and see which has a higher return (Sharpe). I actually tried this just now and interestingly found that at no point between 0 and 40% allocation do the AA funds reduce overall portfolio volatility from the TSM case (and thus don't even get close to the MSCI case). So you can ONLY increase risk by adding AA momentum it seems (albeit you do get the maximum efficiency increase), where-as the MSCI historically was able to reduce overall risk and still get enough efficiency boost to increase absolute return.
What you wrote earlier is what I'm after: I'd like to reduce risk and keep expected return similar. So MTUM/IMTM may make the most sense for me.
I think Steve Reading and Uncorrelated prefer VFMF to combine size, value, quality and momentum. Does anyone know what happened to them? I haven't seen them post for a long time.If your goal was to maintain similar (or even reduce) overall portfolio risk, but increase expected return/efficiency, than replacing your TSM with MSCI momentum (in a heavily SCV tilted portfolio) makes the most sense.
Re: Small Cap Value heads Rejoice !!!
From an expected return perspective, isn't adding a separate momentum fund to the portfolio reducing the overall expected return of portfolio. (Since momentum funds tend to consist of growth stocks most of the time).
Hypothetically, a portfolio of 100% SCV has higher expected return (in absolute returns, not risk-adjusted) compared to 80% SCV + 20% Momentum.
From this perspective, an integrated screening based approach used by DFA, Avantis or RAFI indices is probably more preferable (i.e. rebalancing screened SCV stocks as per the individual stock momentum) as it doesn't sacrifice expected returns but simply attempts to reduce negative momentum exposure.
Hypothetically, a portfolio of 100% SCV has higher expected return (in absolute returns, not risk-adjusted) compared to 80% SCV + 20% Momentum.
From this perspective, an integrated screening based approach used by DFA, Avantis or RAFI indices is probably more preferable (i.e. rebalancing screened SCV stocks as per the individual stock momentum) as it doesn't sacrifice expected returns but simply attempts to reduce negative momentum exposure.
Re: Small Cap Value heads Rejoice !!!
Why would a momentum fund tend to be any specific style box? They should consist of what has recently had the greatest price momentum. Past several years has just happen to be growth and more specifically LCG.imak wrote: ↑Fri Apr 30, 2021 2:28 pm From an expected return perspective, isn't adding a separate momentum fund to the portfolio reducing the overall expected return of portfolio. (Since momentum funds tend to consist of growth stocks most of the time).
Hypothetically, a portfolio of 100% SCV has higher expected return (in absolute returns, not risk-adjusted) compared to 80% SCV + 20% Momentum.
From this perspective, an integrated screening based approach used by DFA, Avantis or RAFI indices is probably more preferable (i.e. rebalancing screened SCV stocks as per the individual stock momentum) as it doesn't sacrifice expected returns but simply attempts to reduce negative momentum exposure.
Last edited by jason2459 on Fri Apr 30, 2021 2:38 pm, edited 1 time in total.
"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 !!!
Historically momentum has outperformed SCV by quite a bit of margin, so this is quite off base.imak wrote: ↑Fri Apr 30, 2021 2:28 pm From an expected return perspective, isn't adding a separate momentum fund to the portfolio reducing the overall expected return of portfolio. (Since momentum funds tend to consist of growth stocks most of the time).
Hypothetically, a portfolio of 100% SCV has higher expected return (in absolute returns, not risk-adjusted) compared to 80% SCV + 20% Momentum.
From this perspective, an integrated screening based approach used by DFA, Avantis or RAFI indices is probably more preferable (i.e. rebalancing screened SCV stocks as per the individual stock momentum) as it doesn't sacrifice expected returns but simply attempts to reduce negative momentum exposure.
This 2-part podcast would be a good listen to clear this common misconception up: https://www.theinvestorspodcast.com/epi ... investing/
Re: Small Cap Value heads Rejoice !!!
I would expect momentum funds should be shifting if the momentum in value keeps going this year.
https://hsainvestments.com/fundperforma ... ketcycles/
https://hsainvestments.com/fundperforma ... ketcycles/
"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 !!!
MSCI rebalances late next month . Alpha Architect's was in February if memory serves so didn't quite get the value rise (Tesla still in both... will take a bit for that to fall off).jason2459 wrote: ↑Fri Apr 30, 2021 2:38 pm I would expect momentum funds should be shifting if the momentum in value keeps going this year.
https://hsainvestments.com/fundperforma ... ketcycles/
Vanguard's VFMO is probably an interesting one to look at more often since it is unconstrained and can trade daily. Unless you specifically want some large/mega-cap exposure with US momentum I think VFMO really deserves some consideration. Way more diverse than QMOM, 13bp vs 49bp, and impressive exposure still.
Re: Small Cap Value heads Rejoice !!!
Many of us (myself included) held PXSV when it was the RAFI Fundamental Small Value index. It was a RAFI based SCV fund so basically the best of both worlds. Most of us bailed when they moved to the R2K index. I think it changed tickers from PXSV to XSVM when they moved to the Momentum based fund. I definitely don't trust these guys on not changing the index again. Altruistfa has this as their top SCV fund.vineviz wrote: ↑Fri Apr 30, 2021 12:33 pmYou're not kidding about the index changes.MotoTrojan wrote: ↑Fri Apr 30, 2021 12:15 pmThe XSVM ETF itself has changed index MANY times (wouldn't hold it in taxable if I were you) so you can't look at the returns, but I saw a screengrab of the raw index and it was very, very impressive.vineviz wrote: ↑Fri Apr 30, 2021 12:09 pm Folks who are interested in adding momentum to a SCV portfolio should be sure to evaluate Invesco S&P SmallCap Value with Momentum ETF (XSVM) and Invesco S&P MidCap Value with Momentum ETF (XMVM).
The methodology of these funds means that they don't quite replicate the "go anywhere" style of VFMO or QMOM, but on the other hand they can be used to tune up the momentum exposure without sacrificing the value exposure as a QMOM/QVAL combination sometimes will.
https://www.invesco.com/us-rest/content ... dnsName=usS&P 600 High Momentum Value Index performance prior to 6/15/2011 reflects that of the original Underlying Index, Dynamic Small Cap Value Intellidex Index. From 6/16/2011 to 5/22/2015, performance reflects that of the previous Underlying Index, RAFI Fundamental Small Value Index. From 5/23/2015 to 6/21/2019, performance reflects that of the previous Underlying Index, Russell 2000 Pure Value Index. From 6/21/2019 forward, performance reflects that of the Underlying Index, S&P 600 High Momentum Value Index
Re: Small Cap Value heads Rejoice !!!
MotoTrojan wrote: ↑Fri Apr 30, 2021 2:46 pmMSCI rebalances late next month . Alpha Architect's was in February if memory serves so didn't quite get the value rise (Tesla still in both... will take a bit for that to fall off).jason2459 wrote: ↑Fri Apr 30, 2021 2:38 pm I would expect momentum funds should be shifting if the momentum in value keeps going this year.
https://hsainvestments.com/fundperforma ... ketcycles/
Vanguard's VFMO is probably an interesting one to look at more often since it is unconstrained and can trade daily. Unless you specifically want some large/mega-cap exposure with US momentum I think VFMO really deserves some consideration. Way more diverse than QMOM, 13bp vs 49bp, and impressive exposure still.
I'm looking forward to November's reconstitution for MTUM honestly. Assuming value continues as it has been the past 6 months. That will give value the 12/6 month look MTUM is looking for.
If value stays ahead the next 6 months again and MTUM comes out all LCG after November then it's broken IMO and I'll no longer like it.
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
Re: Small Cap Value heads Rejoice !!!
I understand the case for momentum risk premium based on historical statistics, but trying to understand how such a portfolio makes sense "under the hood" (fundamentally, from a Fama-French 3/5 factor perspective).MotoTrojan wrote: ↑Fri Apr 30, 2021 2:36 pmHistorically momentum has outperformed SCV by quite a bit of margin, so this is quite off base.imak wrote: ↑Fri Apr 30, 2021 2:28 pm From an expected return perspective, isn't adding a separate momentum fund to the portfolio reducing the overall expected return of portfolio. (Since momentum funds tend to consist of growth stocks most of the time).
Hypothetically, a portfolio of 100% SCV has higher expected return (in absolute returns, not risk-adjusted) compared to 80% SCV + 20% Momentum.
From this perspective, an integrated screening based approach used by DFA, Avantis or RAFI indices is probably more preferable (i.e. rebalancing screened SCV stocks as per the individual stock momentum) as it doesn't sacrifice expected returns but simply attempts to reduce negative momentum exposure.
This 2-part podcast would be a good listen to clear this common misconception up: https://www.theinvestorspodcast.com/epi ... investing/
The holdings of the portfolio should have favorable fundamental metrics (P/E, P/B, P/S, etc) to get a higher expected return.
For example, 80% IJS + 20% MTUM portfolio is currently holding Tesla at higher weights (say 1% TSLA, due to MTUM), compared to 100% IJS (0% TSLA).
Aren't we "diluting" the expected returns of IJS by holding TSLA ?
Or, another way to look at it may be: MTUM has high portfolio turnover hence we don't need to care or inspect underlying holdings of MTUM (i.e. TSLA will be dropped soon if it underperforms so it doesn't matter over the long term)?
I guess my observation boils down to "growth-bias" of momentum funds: momentum on its own, as a sole metric, tends to exhibit growth bias (like MTUM) which reduces expected returns, whereas when momentum is integrated with value as a screening metric, it helps improve expected returns (such as the XSVM ETF discussed above)
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Re: Small Cap Value heads Rejoice !!!
Over the long run the positive premium of the MOM factor offsets any negative HmL exposure. Yes you can incorporate screens to a value fund as well to offset negative momentum but that will also eat at your HmL exposure, and won't give you meaningful positive exposure.imak wrote: ↑Fri Apr 30, 2021 3:09 pmI understand the case for momentum risk premium based on historical statistics, but trying to understand how such a portfolio makes sense "under the hood" (fundamentally, from a Fama-French 3/5 factor perspective).MotoTrojan wrote: ↑Fri Apr 30, 2021 2:36 pmHistorically momentum has outperformed SCV by quite a bit of margin, so this is quite off base.imak wrote: ↑Fri Apr 30, 2021 2:28 pm From an expected return perspective, isn't adding a separate momentum fund to the portfolio reducing the overall expected return of portfolio. (Since momentum funds tend to consist of growth stocks most of the time).
Hypothetically, a portfolio of 100% SCV has higher expected return (in absolute returns, not risk-adjusted) compared to 80% SCV + 20% Momentum.
From this perspective, an integrated screening based approach used by DFA, Avantis or RAFI indices is probably more preferable (i.e. rebalancing screened SCV stocks as per the individual stock momentum) as it doesn't sacrifice expected returns but simply attempts to reduce negative momentum exposure.
This 2-part podcast would be a good listen to clear this common misconception up: https://www.theinvestorspodcast.com/epi ... investing/
The holdings of the portfolio should have favorable fundamental metrics (P/E, P/B, P/S, etc) to get a higher expected return.
For example, 80% IJS + 20% MTUM portfolio is currently holding Tesla at higher weights (say 1% TSLA, due to MTUM), compared to 100% IJS (0% TSLA).
Aren't we "diluting" the expected returns of IJS by holding TSLA ?
Or, another way to look at it may be: MTUM has high portfolio turnover hence we don't need to care or inspect underlying holdings of MTUM (i.e. TSLA will be dropped soon if it underperforms so it doesn't matter over the long term)?
I guess my observation boils down to "growth-bias" of momentum funds: momentum on its own, as a sole metric, tends to exhibit growth bias (like MTUM) which reduces expected returns, whereas when momentum is integrated with value as a screening metric, it helps improve expected returns (such as the XSVM ETF discussed above)
Regressing MTUM's full index on a FF 6 factor (5-factor + MOM) gets an HmL of -0.08 with a weak T-stat of -1.1. This isn't great, but even VIVAX, a relatively weak large-value fund, has a loading of 0.26. So a bit of momentum isn't going to kill your HmL exposure overall.
I also don't think it is all a risk-premium as you allude to, most think it is more behavioral. There are several theories such as underreaction to good news, overreaction to good news, or my favorite the disposition effect (people sell winners and hold losers, making it take longer for a stock to move to it's fundamental value after good news comes).
Re: Small Cap Value heads Rejoice !!!
Thanks for the explanation, it makes sense to consider these HmL vs MOM exposures as trade-offs. I didn't take into account the behavioral risk premium aspects which seem to be dominant in shorter timeframes (1-12 month lookbacks).MotoTrojan wrote: ↑Fri Apr 30, 2021 3:17 pm
Over the long run the positive premium of the MOM factor offsets any negative HmL exposure. Yes you can incorporate screens to a value fund as well to offset negative momentum but that will also eat at your HmL exposure, and won't give you meaningful positive exposure.
Regressing MTUM's full index on a FF 6 factor (5-factor + MOM) gets an HmL of -0.08 with a weak T-stat of -1.1. This isn't great, but even VIVAX, a relatively weak large-value fund, has a loading of 0.26. So a bit of momentum isn't going to kill your HmL exposure overall.
I also don't think it is all a risk-premium as you allude to, most think it is more behavioral. There are several theories such as underreaction to good news, overreaction to good news, or my favorite the disposition effect (people sell winners and hold losers, making it take longer for a stock to move to it's fundamental value after good news comes).
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Re: Small Cap Value heads Rejoice !!!
I personally view it as there being behavioral reasons for the premium to exist in the 1st place, and then risk-based reasons for it to not be arbitraged away (momentum can be painful to hold, just like value). Value on the other hand has the same thing, but also has some more clear purely risk-based explanations (companies have higher cost of capital, shakier futures, blah blah).imak wrote: ↑Fri Apr 30, 2021 3:47 pmThanks for the explanation, it makes sense to consider these HmL vs MOM exposures as trade-offs. I didn't take into account the behavioral risk premium aspects which seem to be dominant in shorter timeframes (1-12 month lookbacks).MotoTrojan wrote: ↑Fri Apr 30, 2021 3:17 pm
Over the long run the positive premium of the MOM factor offsets any negative HmL exposure. Yes you can incorporate screens to a value fund as well to offset negative momentum but that will also eat at your HmL exposure, and won't give you meaningful positive exposure.
Regressing MTUM's full index on a FF 6 factor (5-factor + MOM) gets an HmL of -0.08 with a weak T-stat of -1.1. This isn't great, but even VIVAX, a relatively weak large-value fund, has a loading of 0.26. So a bit of momentum isn't going to kill your HmL exposure overall.
I also don't think it is all a risk-premium as you allude to, most think it is more behavioral. There are several theories such as underreaction to good news, overreaction to good news, or my favorite the disposition effect (people sell winners and hold losers, making it take longer for a stock to move to it's fundamental value after good news comes).
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Re: Small Cap Value heads Rejoice !!!
This is most unfortunate news. I gained a lot of insight from their posts. I hope they do return.absolute zero wrote: ↑Fri Apr 30, 2021 1:34 pmNo idea what happened to them, but I do know that we’re not allowed to talk about it per forum rules. In other words, don’t expect any more posts from them.YRT70 wrote: ↑Fri Apr 30, 2021 12:32 pmThanks. That was exactly what I was wondering.MotoTrojan wrote: ↑Fri Apr 30, 2021 12:13 pmHaven't read it all, very insightful group of people though.YRT70 wrote: ↑Fri Apr 30, 2021 11:48 amDefinitely interesting stuff. Did you read the whole thread on the RR board? (just want to make sure you saw everything I saw)MotoTrojan wrote: ↑Fri Apr 30, 2021 11:37 am I am speaking about the raw index data going back to 1996.
Can you link to your portfoliovisualizer input?
MSCI data came direct from MSCI, AlphaA data is their net (2% knockdown) index for all funds. I can't share the link since it is raw input data.
To be fair, the most applicable comparison would be to reduce AA momentum exposure until overall portfolio volatility is the same as the MSCI, and see which has a higher return (Sharpe). I actually tried this just now and interestingly found that at no point between 0 and 40% allocation do the AA funds reduce overall portfolio volatility from the TSM case (and thus don't even get close to the MSCI case). So you can ONLY increase risk by adding AA momentum it seems (albeit you do get the maximum efficiency increase), where-as the MSCI historically was able to reduce overall risk and still get enough efficiency boost to increase absolute return.
What you wrote earlier is what I'm after: I'd like to reduce risk and keep expected return similar. So MTUM/IMTM may make the most sense for me.
I think Steve Reading and Uncorrelated prefer VFMF to combine size, value, quality and momentum. Does anyone know what happened to them? I haven't seen them post for a long time.If your goal was to maintain similar (or even reduce) overall portfolio risk, but increase expected return/efficiency, than replacing your TSM with MSCI momentum (in a heavily SCV tilted portfolio) makes the most sense.
Re: Small Cap Value heads Rejoice !!!
If it's not too much to ask, could you make a similar comparison for a portfolio with VFMO & IMTM as momentum funds?MotoTrojan wrote: ↑Fri Apr 30, 2021 11:37 am Here is an example comparing three portfolios from 1996 to ~ present:
Port 1 (roughly my port): 20% equally in QVAL, IVAL, DFSVX, VTI, VXUS
Port 2: 20% equally in QVAL, IVAL, DFSVX, MTUM, IMTM
Port 3: 20% equally in QVAL, IVAL, DFSVX, QMOM, IMOM
Shows exactly what I described above, MSCI momentum increased return and reduced overall portfolio risk while Alpha Architect momentum increased Sharpe ratio but resulted in more overall risk.
If I did this factor regression correctly there seems to be very little difference in the momentum loading between VFMO and MTUM. VFMO seems to have significant negative profitability loading though.
https://www.portfoliovisualizer.com/fac ... sion=false
Re: Small Cap Value heads Rejoice !!!
Whenever I check this thread I hope to come across something similar to "US STOCKS CONTINUE TO SOAR" where people make silly/fun comments about US equities rippin'.
Instead I find intense debate
Instead I find intense debate
Re: Small Cap Value heads Rejoice !!!
Small caps are srs business
"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 !!!
This is what I call the Groucho Marx solution, we see a lot index switching by providers, even "stay the course" Vanguard. At Bogleheads, we have evolved or perhaps devolved towards index picking.MotoTrojan wrote: ↑Fri Apr 30, 2021 12:15 pmThe XSVM ETF itself has changed index MANY times (wouldn't hold it in taxable if I were you) so you can't look at the returns, but I saw a screengrab of the raw index and it was very, very impressive.vineviz wrote: ↑Fri Apr 30, 2021 12:09 pm Folks who are interested in adding momentum to a SCV portfolio should be sure to evaluate Invesco S&P SmallCap Value with Momentum ETF (XSVM) and Invesco S&P MidCap Value with Momentum ETF (XMVM).
The methodology of these funds means that they don't quite replicate the "go anywhere" style of VFMO or QMOM, but on the other hand they can be used to tune up the momentum exposure without sacrificing the value exposure as a QMOM/QVAL combination sometimes will.
A fool and his money are good for business.
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Re: Small Cap Value heads Rejoice !!!
No index data for VFMO sadly but I think that would also be a viable combo. I think 2-3 years is too short for a meaningful regression, also results change a lot with daily regression setting. I don't think there is any doubt VFMO loads more on MOM.YRT70 wrote: ↑Sat May 01, 2021 4:14 amIf it's not too much to ask, could you make a similar comparison for a portfolio with VFMO & IMTM as momentum funds?MotoTrojan wrote: ↑Fri Apr 30, 2021 11:37 am Here is an example comparing three portfolios from 1996 to ~ present:
Port 1 (roughly my port): 20% equally in QVAL, IVAL, DFSVX, VTI, VXUS
Port 2: 20% equally in QVAL, IVAL, DFSVX, MTUM, IMTM
Port 3: 20% equally in QVAL, IVAL, DFSVX, QMOM, IMOM
Shows exactly what I described above, MSCI momentum increased return and reduced overall portfolio risk while Alpha Architect momentum increased Sharpe ratio but resulted in more overall risk.
If I did this factor regression correctly there seems to be very little difference in the momentum loading between VFMO and MTUM. VFMO seems to have significant negative profitability loading though.
https://www.portfoliovisualizer.com/fac ... sion=false
This picture may change some after MTUM rebalances next month, but still meaningful. Couldn't fit fund names in screengrab (on Chromebook) but this is top-to-bottom VFMO, QMOM, and MTUM.
Percentiles:
Raw values:
My takeaways:
VFMO is impressively close to QMOM in raw/percentile for 2-12 and 1-6 MOM.
VFMO has similar pricey valuations to MTUM while QMOM is as expensive as you can be.
MTUM has decent 2-12 MOM but (at moment at-least) abysmal 6 month MOM.
So ya, VFMO/IMTM is worth consideration. Also think VFMO/IMOM is a fair replacement for 100% AlphaA mom-funds.
Re: Small Cap Value heads Rejoice !!!
Thank you very much. That's very interesting. So what would you choose and why, MTUM of VFMO for US momentum?MotoTrojan wrote: ↑Sat May 01, 2021 11:01 pm No index data for VFMO sadly but I think that would also be a viable combo. I think 2-3 years is too short for a meaningful regression, also results change a lot with daily regression setting. I don't think there is any doubt VFMO loads more on MOM.
This picture may change some after MTUM rebalances next month, but still meaningful. Couldn't fit fund names in screengrab (on Chromebook) but this is top-to-bottom VFMO, QMOM, and MTUM.
Percentiles:
Raw values:
My takeaways:
VFMO is impressively close to QMOM in raw/percentile for 2-12 and 1-6 MOM.
VFMO has similar pricey valuations to MTUM while QMOM is as expensive as you can be.
MTUM has decent 2-12 MOM but (at moment at-least) abysmal 6 month MOM.
So ya, VFMO/IMTM is worth consideration. Also think VFMO/IMOM is a fair replacement for 100% AlphaA mom-funds.
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Re: Small Cap Value heads Rejoice !!!
I think it depends on the situation but it does seem hard to justify MTUM when you can get VFMO and still save 2bp. In my particular case I have less robust conviction in MOM and am really just looking for an alternative for global total market funds at 40% to counter-act an aggressive 60% small/deep-value tilt without a significant risk-increase. MTUM/IMTM seem to have done just that with the available post-1996 data, but I don't think the outcome would be vastly different if MTUM was replaced with VFMO. In terms of behavioral impact, it may be valuable to have a large-cap momentum fund on the US side to allow participation in markets favorable to large-growth, when the value side may not be doing so hot (last few years), so that is a consideration even though academically VFMO is likely the superior diversifier.
I think the real conundrum is what to do if you are a die-hard momentum factor believer and were considering going QMOM/IMOM; in that case, I think it would be harder to justify QMOM at 49bp when VFMO is pretty dang close at basically a quarter of the expense. I also really like VFMO's unconstrained rebalancing approach, which should be the best way to handle the handoff from one set of stocks to the latest&greatest momentum.
Re: Small Cap Value heads Rejoice !!!
No one?
You can't find a much better complement to ScV than commodities, IMO.
http://raddr-pages.com/research/CommodityFutures.htm
Re: Small Cap Value heads Rejoice !!!
Thank you. That makes sense. I'm now leaning towards VFMO + IMTM.MotoTrojan wrote: ↑Sun May 02, 2021 9:33 amI think it depends on the situation but it does seem hard to justify MTUM when you can get VFMO and still save 2bp. In my particular case I have less robust conviction in MOM and am really just looking for an alternative for global total market funds at 40% to counter-act an aggressive 60% small/deep-value tilt without a significant risk-increase. MTUM/IMTM seem to have done just that with the available post-1996 data, but I don't think the outcome would be vastly different if MTUM was replaced with VFMO. In terms of behavioral impact, it may be valuable to have a large-cap momentum fund on the US side to allow participation in markets favorable to large-growth, when the value side may not be doing so hot (last few years), so that is a consideration even though academically VFMO is likely the superior diversifier.
I think the real conundrum is what to do if you are a die-hard momentum factor believer and were considering going QMOM/IMOM; in that case, I think it would be harder to justify QMOM at 49bp when VFMO is pretty dang close at basically a quarter of the expense. I also really like VFMO's unconstrained rebalancing approach, which should be the best way to handle the handoff from one set of stocks to the latest&greatest momentum.
I'm going to wait for the RR podcast with Robert Novy Marx though. I think he may give arguments in favour of using multifactor funds. I think the episode airs this week.
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Re: Small Cap Value heads Rejoice !!!
I am also looking forward to that listen. I also think I may be leaning in a similar position of favoring VFMO/IMTM; VFMO tilts smaller but still has large-cap exposure so not totally doing away with that asset class. Looking at the sector makeup between them today you can see how much better of a job VFMO did of rotating to today's-momentum. You can also see this in the YTD returns .YRT70 wrote: ↑Mon May 03, 2021 7:41 amThank you. That makes sense. I'm now leaning towards VFMO + IMTM.MotoTrojan wrote: ↑Sun May 02, 2021 9:33 amI think it depends on the situation but it does seem hard to justify MTUM when you can get VFMO and still save 2bp. In my particular case I have less robust conviction in MOM and am really just looking for an alternative for global total market funds at 40% to counter-act an aggressive 60% small/deep-value tilt without a significant risk-increase. MTUM/IMTM seem to have done just that with the available post-1996 data, but I don't think the outcome would be vastly different if MTUM was replaced with VFMO. In terms of behavioral impact, it may be valuable to have a large-cap momentum fund on the US side to allow participation in markets favorable to large-growth, when the value side may not be doing so hot (last few years), so that is a consideration even though academically VFMO is likely the superior diversifier.
I think the real conundrum is what to do if you are a die-hard momentum factor believer and were considering going QMOM/IMOM; in that case, I think it would be harder to justify QMOM at 49bp when VFMO is pretty dang close at basically a quarter of the expense. I also really like VFMO's unconstrained rebalancing approach, which should be the best way to handle the handoff from one set of stocks to the latest&greatest momentum.
I'm going to wait for the RR podcast with Robert Novy Marx though. I think he may give arguments in favour of using multifactor funds. I think the episode airs this week.
Re: Small Cap Value heads Rejoice !!!
We expect value to outperform growth over the next ten years by five to seven percentage points, annualized, and perhaps by an even wider margin over the next five years.
https://investornews.vanguard/why-u-s-v ... rm-growth/
https://investornews.vanguard/why-u-s-v ... rm-growth/
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Re: Small Cap Value heads Rejoice !!!
Is anybody rejoicing?
I saved my money, but it can't save me | The Chariot
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Re: Small Cap Value heads Rejoice !!!
So I have spent some time on the Rational Reminder forum, really awesome place with lots of great factor discussion. The most wild take-away though is that it seems like a vast majority of the people are not only in deep-factor tilts (50-100% small-value or momentum) but are also leveraging that 1.5-2x, and even 2.5-3x in some cases via non-callable loans, margin etc...
Bold group! Makes most of us seem pretty wimpy.
Bold group! Makes most of us seem pretty wimpy.
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Re: Small Cap Value heads Rejoice !!!
So I have spent some time on the Rational Reminder forum, really awesome place with lots of great factor discussion. The most wild take-away though is that it seems like a vast majority of the people are not only in deep-factor tilts (50-100% small-value or momentum) but are also leveraging that 1.5-2x, and even 2.5-3x in some cases via non-callable loans, margin etc...
Bold group! Makes most of us seem pretty wimpy.
Bold group! Makes most of us seem pretty wimpy.
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Re: Small Cap Value heads Rejoice !!!
Would be interesting to see what the distribution of outcomes is for a 2x or 3x leverage of SCV. It looks terrible for long term hold of leveraged SP500 which has less volatility, so I would guess it is much worse for SCV (although the arithmetic mean is better).MotoTrojan wrote: ↑Mon May 03, 2021 3:12 pm So I have spent some time on the Rational Reminder forum, really awesome place with lots of great factor discussion. The most wild take-away though is that it seems like a vast majority of the people are not only in deep-factor tilts (50-100% small-value or momentum) but are also leveraging that 1.5-2x, and even 2.5-3x in some cases via non-callable loans, margin etc...
Bold group! Makes most of us seem pretty wimpy.
Here is the distribution of outcomes for investing in the S&P500 with a 0.1% expense ratio:
And here with a 2x leveraged ETF:
And here with a 3x leveraged ETF:
I saved my money, but it can't save me | The Chariot
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Re: Small Cap Value heads Rejoice !!!
Adding momentum helps, but overall volatility and drawdown for most of their portfolios is still higher than S&P500.RovenSkyfall wrote: ↑Tue May 04, 2021 8:27 amWould be interesting to see what the distribution of outcomes is for a 2x or 3x leverage of SCV. It looks terrible for long term hold of leveraged SP500 which has less volatility, so I would guess it is much worse for SCV (although the arithmetic mean is better).MotoTrojan wrote: ↑Mon May 03, 2021 3:12 pm So I have spent some time on the Rational Reminder forum, really awesome place with lots of great factor discussion. The most wild take-away though is that it seems like a vast majority of the people are not only in deep-factor tilts (50-100% small-value or momentum) but are also leveraging that 1.5-2x, and even 2.5-3x in some cases via non-callable loans, margin etc...
Bold group! Makes most of us seem pretty wimpy.
Here is the distribution of outcomes for investing in the S&P500 with a 0.1% expense ratio:
And here with a 2x leveraged ETF:
And here with a 3x leveraged ETF:
Wes Gray uses his 4 ETFs at 150% leverage but with a -50% short on global beta (so net 100%), plus adds trend-following; that is a pretty interesting approach I think. Not sure I would want the trend, but the 150/-50 alone would be interesting.
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Re: Small Cap Value heads Rejoice !!!
SCV is already risky enough...not sure id want to leverage on top of it
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Re: Small Cap Value heads Rejoice !!!
Those charts are from this article: https://www.gordoni.com/effective-altru ... -etfs.htmlNathan Drake wrote: ↑Tue May 04, 2021 10:48 am SCV is already risky enough...not sure id want to leverage on top of it
Ultimately the conclusion was:
It would seem that SCV is just fine with likely better probability density functions.Based on the previous two sections mathematically speaking a 3X leveraged ETF, such as UPRO, currently has a small advantage over 1X or 2X for effective altruism purposes, but it may be wise to use a 2X leveraged ETF, such as SSO, owing to the significantly reduced downside of doing so. Investing in the 2X ETF would probably make it slightly easier to sleep at night. That said, both options are only just superior, or significantly inferior to investing in small cap value, depending on whether there are persistent small and value performance anomalies.
I saved my money, but it can't save me | The Chariot
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Re: Small Cap Value heads Rejoice !!!
Whats the point of the -50% short?MotoTrojan wrote: ↑Tue May 04, 2021 10:22 am Adding momentum helps, but overall volatility and drawdown for most of their portfolios is still higher than S&P500.
Wes Gray uses his 4 ETFs at 150% leverage but with a -50% short on global beta (so net 100%), plus adds trend-following; that is a pretty interesting approach I think. Not sure I would want the trend, but the 150/-50 alone would be interesting.
Can you link the post where people are doing a 2x or 3x version? Want to make sure they have seen those probability curves. 2x or 3x SCV is even riskier than HFEA which fits somewhere around 1.6 based on beta and those probability curves.
I saved my money, but it can't save me | The Chariot
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Re: Small Cap Value heads Rejoice !!!
Value is actually holding up fairly well today.
Re: Small Cap Value heads Rejoice !!!
I think for any factor tilt to make a difference you need a minimum 50% tilt as most factor funds are long only so they are loading on Beta in addition to factors they say they are targeting. If you are doing less than this it is pointless. I recommend for SCV believers to have 50% VT 25% AVDV 25% AVUV portfolio. A simple three fund portfolio with factor exposure. It is un-necessary to over-complicate things beyond this.
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