Small Cap Value heads Rejoice !!!

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UberGrub
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Re: Small Cap Value heads Rejoice !!!

Post by UberGrub »

YRT70 wrote: Fri Mar 26, 2021 8:15 am
UberGrub wrote: Thu Mar 25, 2021 2:50 pm So if one wanted to tilt to value in USA and foreign, what are the recommended choices? SCV has done very well, I am interested in the asset class.
Thank you.
This topic has been discussed a lot lately. You might want to read back the last 10 pages. In short, AVUV is a popular choice because it offers good exposure to value, size and profitability with a momentum screening process. If you want a cheaper TER the new iShares ISCV should be good.

PS. The fact that SCV has had a good year should not be a reason to buy it. You should be willing to stick to it very long term and you will probably need to tolerate long periods of underperformance, otherwise you may regret your decision.
I appreciate it, very useful. I bought some AVUV at the beginning of Friday based on earlier recommendation, so far so good!
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Does anyone know how I might be able to use PV to determine historical correlation between REITs and SCV? Perhaps something like VNQ vs VBR when otherwise compared to TSM?
drk
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Re: Small Cap Value heads Rejoice !!!

Post by drk »

manlymatt83 wrote: Sun Mar 28, 2021 12:08 pm Does anyone know how I might be able to use PV to determine historical correlation between REITs and SCV? Perhaps something like VNQ vs VBR when otherwise compared to TSM?
Portfolio Visualizer's Asset Correlations tool?
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

YRT70 wrote: Sat Mar 27, 2021 11:34 am iShares Launches International Small Cap Value ETF, ‘ISVL’, 30bps.

https://www.etftrends.com/equity-etf-ch ... -etf-isvl/
It doesn't look too compelling right now, but it may be worth looking at in the future. It doesn't look more valuey or high quality than AVDV.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

drk wrote: Sun Mar 28, 2021 12:18 pm
manlymatt83 wrote: Sun Mar 28, 2021 12:08 pm Does anyone know how I might be able to use PV to determine historical correlation between REITs and SCV? Perhaps something like VNQ vs VBR when otherwise compared to TSM?
Portfolio Visualizer's Asset Correlations tool?
I totally missed that. Thanks!
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Am working on my IPS and decided to lock-in 50/50 AVUV/AVDV. Love the simplicity down to two ETFs.

Am I really missing much by not tilting to AVEM, considering that ETF's exposure to emerging market SCV is so low? If the small cap value premium continues to exist world-wide, I don't think an emerging market SCV ETF would make or break.
gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

manlymatt83 wrote: Wed Mar 31, 2021 6:35 pm Am working on my IPS and decided to lock-in 50/50 AVUV/AVDV. Love the simplicity down to two ETFs.

Am I really missing much by not tilting to AVEM, considering that ETF's exposure to emerging market SCV is so low? If the small cap value premium continues to exist world-wide, I don't think an emerging market SCV ETF would make or break.
I am tilted towards EMSC using FEMS. It probably has a higher expense ratio than most people on this forum would be willing to spend, but it loads pretty heavily on value and has had better returns than DGS or EEMS since inception, but it's also been more volatile, so so that's something to consider as well. I personally don't mind the extra volatility.
caklim00
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

gtwhitegold wrote: Sun Mar 28, 2021 12:46 pm
YRT70 wrote: Sat Mar 27, 2021 11:34 am iShares Launches International Small Cap Value ETF, ‘ISVL’, 30bps.

https://www.etftrends.com/equity-etf-ch ... -etf-isvl/
It doesn't look too compelling right now, but it may be worth looking at in the future. It doesn't look more valuey or high quality than AVDV.
I missed this one as well
Why ISVL?
1. Gain exposure to the historically rewarded value and size factors in international developed small-cap companies with prominent value characteristics.



2. Objective, rules-based approach that uses liquidity, risk, leverage, and sentiment screens.



3. Access concentrated exposure to small-cap value stocks through a transparent and cost-efficient ETF.
I wonder what they mean by leverage and sentiment screens.

ISVL or ISCF for tax loss harvest partner for AVDV?
absolute zero
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Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

manlymatt83 wrote: Wed Mar 31, 2021 6:35 pm Am working on my IPS and decided to lock-in 50/50 AVUV/AVDV. Love the simplicity down to two ETFs.

Am I really missing much by not tilting to AVEM, considering that ETF's exposure to emerging market SCV is so low? If the small cap value premium continues to exist world-wide, I don't think an emerging market SCV ETF would make or break.
I think you need to pay a little more R-E-S-P-E-C-T to your current IPS. Just kidding. But kinda serious. I remember seeing you post in this thread last year and concluding that you were going with a VT / AVUV / AVDV / AVEM portfolio. And then later in the year I saw you posting about your ARKK investment. And now you’re considering going full-blown SCV.

Do you have any rules in your IPS about how often you can change your portfolio? If not then you might consider adding some.

As to your actual question - I can’t tell if you mean just the small cap value portion in AVDV/AVUS or the entire portfolio in those two funds. If the entire portfolio, then I think I’ll-advised. If just the SCV portion then I think entirely reasonable. As you pointed out, there’s a pretty mild tilt to small & value in AVEM. I don’t think it’s a mistake to invest in AVEM, but at 39 bps ER and only mild factor exposure it’s kind of hard for me to get excited about that fund.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

absolute zero wrote: Wed Mar 31, 2021 7:51 pm
manlymatt83 wrote: Wed Mar 31, 2021 6:35 pm Am working on my IPS and decided to lock-in 50/50 AVUV/AVDV. Love the simplicity down to two ETFs.

Am I really missing much by not tilting to AVEM, considering that ETF's exposure to emerging market SCV is so low? If the small cap value premium continues to exist world-wide, I don't think an emerging market SCV ETF would make or break.
I think you need to pay a little more R-E-S-P-E-C-T to your current IPS. Just kidding. But kinda serious. I remember seeing you post in this thread last year and concluding that you were going with a VT / AVUV / AVDV / AVEM portfolio. And then later in the year I saw you posting about your ARKK investment. And now you’re considering going full-blown SCV.

Do you have any rules in your IPS about how often you can change your portfolio? If not then you might consider adding some.

As to your actual question - I can’t tell if you mean just the small cap value portion in AVDV/AVUS or the entire portfolio in those two funds. If the entire portfolio, then I think I’ll-advised. If just the SCV portion then I think entirely reasonable. As you pointed out, there’s a pretty mild tilt to small & value in AVEM. I don’t think it’s a mistake to invest in AVEM, but at 39 bps ER and only mild factor exposure it’s kind of hard for me to get excited about that fund.
Ha! Guilty as charged. In my defense, prior to today, I didn't have a written IPS. Now I'm writing one, printing it, etc.

I am not changing the amount of my tilt. Essentially just dumping AVEM. So instead of 40/40/20 AVUV, AVDV, and AVEM, I'll just have AVUV and AVDV for my SCV tilt.

VT is still the majority of my portfolio. You may see me posting another thread about my SQ holdings, etc. (I did eventually dump ARKK) but at the end of the day, I haven't touched the VT side. I have 9 holdings total at this point, and trying to get down to 8.
absolute zero
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Re: Small Cap Value heads Rejoice !!!

Post by absolute zero »

manlymatt83 wrote: Wed Mar 31, 2021 7:56 pm
absolute zero wrote: Wed Mar 31, 2021 7:51 pm
manlymatt83 wrote: Wed Mar 31, 2021 6:35 pm Am working on my IPS and decided to lock-in 50/50 AVUV/AVDV. Love the simplicity down to two ETFs.

Am I really missing much by not tilting to AVEM, considering that ETF's exposure to emerging market SCV is so low? If the small cap value premium continues to exist world-wide, I don't think an emerging market SCV ETF would make or break.
I think you need to pay a little more R-E-S-P-E-C-T to your current IPS. Just kidding. But kinda serious. I remember seeing you post in this thread last year and concluding that you were going with a VT / AVUV / AVDV / AVEM portfolio. And then later in the year I saw you posting about your ARKK investment. And now you’re considering going full-blown SCV.

Do you have any rules in your IPS about how often you can change your portfolio? If not then you might consider adding some.

As to your actual question - I can’t tell if you mean just the small cap value portion in AVDV/AVUS or the entire portfolio in those two funds. If the entire portfolio, then I think I’ll-advised. If just the SCV portion then I think entirely reasonable. As you pointed out, there’s a pretty mild tilt to small & value in AVEM. I don’t think it’s a mistake to invest in AVEM, but at 39 bps ER and only mild factor exposure it’s kind of hard for me to get excited about that fund.
Ha! Guilty as charged. In my defense, prior to today, I didn't have a written IPS. Now I'm writing one, printing it, etc.

I am not changing the amount of my tilt. Essentially just dumping AVEM. So instead of 40/40/20 AVUV, AVDV, and AVEM, I'll just have AVUV and AVDV for my SCV tilt.

VT is still the majority of my portfolio. You may see me posting another thread about my SQ holdings, etc. (I did eventually dump ARKK) but at the end of the day, I haven't touched the VT side. I have 9 holdings total at this point, and trying to get down to 8.
Haha okay. Always good to write an IPS. I’m in favor of doing anything and everything to make it seem official. Laminate that thing!

8 holdings still seems like a lot, but I get that simplicity is more important to some people than others. You are likely losing a tiny bit of diversification by dropping AVEM, but if you still have VT then you at least have some EM exposure.

Personally I’m a big fan of nice, clean, round numbers. If I were choosing a portfolio with just VT/AVUV/AVDV then I’d want to do 60/20/20. Or maybe 70/15/15. Just something easy to remember. I think clean, round numbers make it less tempting to tinker. But that’s just me.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

absolute zero wrote: Wed Mar 31, 2021 8:24 pm
manlymatt83 wrote: Wed Mar 31, 2021 7:56 pm
absolute zero wrote: Wed Mar 31, 2021 7:51 pm
manlymatt83 wrote: Wed Mar 31, 2021 6:35 pm Am working on my IPS and decided to lock-in 50/50 AVUV/AVDV. Love the simplicity down to two ETFs.

Am I really missing much by not tilting to AVEM, considering that ETF's exposure to emerging market SCV is so low? If the small cap value premium continues to exist world-wide, I don't think an emerging market SCV ETF would make or break.
I think you need to pay a little more R-E-S-P-E-C-T to your current IPS. Just kidding. But kinda serious. I remember seeing you post in this thread last year and concluding that you were going with a VT / AVUV / AVDV / AVEM portfolio. And then later in the year I saw you posting about your ARKK investment. And now you’re considering going full-blown SCV.

Do you have any rules in your IPS about how often you can change your portfolio? If not then you might consider adding some.

As to your actual question - I can’t tell if you mean just the small cap value portion in AVDV/AVUS or the entire portfolio in those two funds. If the entire portfolio, then I think I’ll-advised. If just the SCV portion then I think entirely reasonable. As you pointed out, there’s a pretty mild tilt to small & value in AVEM. I don’t think it’s a mistake to invest in AVEM, but at 39 bps ER and only mild factor exposure it’s kind of hard for me to get excited about that fund.
Ha! Guilty as charged. In my defense, prior to today, I didn't have a written IPS. Now I'm writing one, printing it, etc.

I am not changing the amount of my tilt. Essentially just dumping AVEM. So instead of 40/40/20 AVUV, AVDV, and AVEM, I'll just have AVUV and AVDV for my SCV tilt.

VT is still the majority of my portfolio. You may see me posting another thread about my SQ holdings, etc. (I did eventually dump ARKK) but at the end of the day, I haven't touched the VT side. I have 9 holdings total at this point, and trying to get down to 8.
Haha okay. Always good to write an IPS. I’m in favor of doing anything and everything to make it seem official. Laminate that thing!

8 holdings still seems like a lot, but I get that simplicity is more important to some people than others. You are likely losing a tiny bit of diversification by dropping AVEM, but if you still have VT then you at least have some EM exposure.

Personally I’m a big fan of nice, clean, round numbers. If I were choosing a portfolio with just VT/AVUV/AVDV then I’d want to do 60/20/20. Or maybe 70/15/15. Just something easy to remember. I think clean, round numbers make it less tempting to tinker. But that’s just me.
Interesting way to look at it. In that case, if I kept the AVEM, I'd have to do something like 75/10/10/5 to make it clean and round. But I like your thinking TBH. Maybe I'll just keep the AVEM after all... just wish it was a bigger tilt. Will decide, then definitely laminate.
wolf359
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Re: Small Cap Value heads Rejoice !!!

Post by wolf359 »

manlymatt83 wrote: Wed Mar 31, 2021 7:56 pm
absolute zero wrote: Wed Mar 31, 2021 7:51 pm
manlymatt83 wrote: Wed Mar 31, 2021 6:35 pm Am working on my IPS and decided to lock-in 50/50 AVUV/AVDV. Love the simplicity down to two ETFs.

Am I really missing much by not tilting to AVEM, considering that ETF's exposure to emerging market SCV is so low? If the small cap value premium continues to exist world-wide, I don't think an emerging market SCV ETF would make or break.
I think you need to pay a little more R-E-S-P-E-C-T to your current IPS. Just kidding. But kinda serious. I remember seeing you post in this thread last year and concluding that you were going with a VT / AVUV / AVDV / AVEM portfolio. And then later in the year I saw you posting about your ARKK investment. And now you’re considering going full-blown SCV.

Do you have any rules in your IPS about how often you can change your portfolio? If not then you might consider adding some.

As to your actual question - I can’t tell if you mean just the small cap value portion in AVDV/AVUS or the entire portfolio in those two funds. If the entire portfolio, then I think I’ll-advised. If just the SCV portion then I think entirely reasonable. As you pointed out, there’s a pretty mild tilt to small & value in AVEM. I don’t think it’s a mistake to invest in AVEM, but at 39 bps ER and only mild factor exposure it’s kind of hard for me to get excited about that fund.
Ha! Guilty as charged. In my defense, prior to today, I didn't have a written IPS. Now I'm writing one, printing it, etc.

I am not changing the amount of my tilt. Essentially just dumping AVEM. So instead of 40/40/20 AVUV, AVDV, and AVEM, I'll just have AVUV and AVDV for my SCV tilt.

VT is still the majority of my portfolio. You may see me posting another thread about my SQ holdings, etc. (I did eventually dump ARKK) but at the end of the day, I haven't touched the VT side. I have 9 holdings total at this point, and trying to get down to 8.
If you have a tendency to tinker, you may not want a SCV tilt. That tilt will underperform for years at a time. Potentially a decade or more. It recently did this. If it is underperforming year after year, and respected Bogleheads are talking about how SCV is dead, will you change your asset allocation again and move to something else?

SCV requires a long-term commitment. It may take 30 years to pay off, if it does at all.

Make sure you will meet your investment goals with the rest of your portfolio, and treat SCV as a very long-term play. And if you still buy it, then really, really commit to it. Otherwise all this tweaking of the portfolio is killing your returns.

You might as well just hang it up and get a target date fund, a balanced fund, or just go straight VTSAX or 3-fund portfolio. All of these will outperform someone who keeps changing their investment strategy, buying high, and selling low. The thing that is creating your biggest losses isn't that you picked the wrong investment. It's investor behavior.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

wolf359 wrote: Wed Mar 31, 2021 8:56 pm
manlymatt83 wrote: Wed Mar 31, 2021 7:56 pm
absolute zero wrote: Wed Mar 31, 2021 7:51 pm
manlymatt83 wrote: Wed Mar 31, 2021 6:35 pm Am working on my IPS and decided to lock-in 50/50 AVUV/AVDV. Love the simplicity down to two ETFs.

Am I really missing much by not tilting to AVEM, considering that ETF's exposure to emerging market SCV is so low? If the small cap value premium continues to exist world-wide, I don't think an emerging market SCV ETF would make or break.
I think you need to pay a little more R-E-S-P-E-C-T to your current IPS. Just kidding. But kinda serious. I remember seeing you post in this thread last year and concluding that you were going with a VT / AVUV / AVDV / AVEM portfolio. And then later in the year I saw you posting about your ARKK investment. And now you’re considering going full-blown SCV.

Do you have any rules in your IPS about how often you can change your portfolio? If not then you might consider adding some.

As to your actual question - I can’t tell if you mean just the small cap value portion in AVDV/AVUS or the entire portfolio in those two funds. If the entire portfolio, then I think I’ll-advised. If just the SCV portion then I think entirely reasonable. As you pointed out, there’s a pretty mild tilt to small & value in AVEM. I don’t think it’s a mistake to invest in AVEM, but at 39 bps ER and only mild factor exposure it’s kind of hard for me to get excited about that fund.
Ha! Guilty as charged. In my defense, prior to today, I didn't have a written IPS. Now I'm writing one, printing it, etc.

I am not changing the amount of my tilt. Essentially just dumping AVEM. So instead of 40/40/20 AVUV, AVDV, and AVEM, I'll just have AVUV and AVDV for my SCV tilt.

VT is still the majority of my portfolio. You may see me posting another thread about my SQ holdings, etc. (I did eventually dump ARKK) but at the end of the day, I haven't touched the VT side. I have 9 holdings total at this point, and trying to get down to 8.
If you have a tendency to tinker, you may not want a SCV tilt. That tilt will underperform for years at a time. Potentially a decade or more. It recently did this. If it is underperforming year after year, and respected Bogleheads are talking about how SCV is dead, will you change your asset allocation again and move to something else?

SCV requires a long-term commitment. It may take 30 years to pay off, if it does at all.

Make sure you will meet your investment goals with the rest of your portfolio, and treat SCV as a very long-term play. And if you still buy it, then really, really commit to it. Otherwise all this tweaking of the portfolio is killing your returns.

You might as well just hang it up and get a target date fund, a balanced fund, or just go straight VTSAX or 3-fund portfolio. All of these will outperform someone who keeps changing their investment strategy, buying high, and selling low. The thing that is creating your biggest losses isn't that you picked the wrong investment. It's investor behavior.
Thanks! I appreciate the insight and reply. Fortunately, I bought SLYV, DGS, and DLS 3 years ago and then swapped them out for AVUV, AVDV, and AVEM last year - and haven’t touched them. This is more me just looking at the holdings I have and realizing that a 50/50 between AVUV and AVDV would be a lot simpler and prettier, and thinking I really only picked up AVEM because at the time I thought it was a replacement for DGS.

I’m still trying to figure out what to do with a few individual stocks I have - first I made them part of a play account, then I made them part of my portfolio, then reverted back ... if anything that’s where I’m worried about tinkering too much, but that’s less than 5% of my portfolio. Haven’t touched the core.
stocknoob4111
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Re: Small Cap Value heads Rejoice !!!

Post by stocknoob4111 »

looks like the S&P600 has hit a stumbling block... will it take another 3 years to go back to it's high like it did the last time? :confused
rascott
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Re: Small Cap Value heads Rejoice !!!

Post by rascott »

stocknoob4111 wrote: Mon Apr 05, 2021 9:17 am looks like the S&P600 has hit a stumbling block... will it take another 3 years to go back to it's high like it did the last time? :confused
Up almost 60% in the last 6 months (IJS)....a pullback would be a healthy sign.
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vineviz
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

manlymatt83 wrote: Wed Mar 31, 2021 8:36 pm Interesting way to look at it. In that case, if I kept the AVEM, I'd have to do something like 75/10/10/5 to make it clean and round. But I like your thinking TBH. Maybe I'll just keep the AVEM after all... just wish it was a bigger tilt. Will decide, then definitely laminate.
If you like clean and round, why not?

50% VT
20% AVUV
20% AVDV
10% AVEM
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

vineviz wrote: Mon Apr 05, 2021 10:17 am
manlymatt83 wrote: Wed Mar 31, 2021 8:36 pm Interesting way to look at it. In that case, if I kept the AVEM, I'd have to do something like 75/10/10/5 to make it clean and round. But I like your thinking TBH. Maybe I'll just keep the AVEM after all... just wish it was a bigger tilt. Will decide, then definitely laminate.
If you like clean and round, why not?

50% VT
20% AVUV
20% AVDV
10% AVEM
I like that clean and round, but I don't think I could hold 50% SCV past 50 (I'm 37 now) if it was significantly underperforming. That's 13 years away, but still.

I wish it was "OK" to reduce SCV allocation over time. Like, I'd be happy to stick with 50/50 now (which is actually where my holdings currently are), provided I could do something like say "Once I hit 50, all new contributions go to VT until I'm down to 80/20" or something. That way, I'm not "selling" low, just not buying more. ¯\_(ツ)_/¯
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vineviz
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

manlymatt83 wrote: Mon Apr 05, 2021 10:20 am I wish it was "OK" to reduce SCV allocation over time.
It’s certainly okay to do that.

It’s also the opposite of what rational investors SHOULD probably do.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
thenextguy
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Re: Small Cap Value heads Rejoice !!!

Post by thenextguy »

manlymatt83 wrote: Mon Apr 05, 2021 10:20 am
vineviz wrote: Mon Apr 05, 2021 10:17 am
manlymatt83 wrote: Wed Mar 31, 2021 8:36 pm Interesting way to look at it. In that case, if I kept the AVEM, I'd have to do something like 75/10/10/5 to make it clean and round. But I like your thinking TBH. Maybe I'll just keep the AVEM after all... just wish it was a bigger tilt. Will decide, then definitely laminate.
If you like clean and round, why not?

50% VT
20% AVUV
20% AVDV
10% AVEM
I like that clean and round, but I don't think I could hold 50% SCV past 50 (I'm 37 now) if it was significantly underperforming. That's 13 years away, but still.

I wish it was "OK" to reduce SCV allocation over time. Like, I'd be happy to stick with 50/50 now (which is actually where my holdings currently are), provided I could do something like say "Once I hit 50, all new contributions go to VT until I'm down to 80/20" or something. That way, I'm not "selling" low, just not buying more. ¯\_(ツ)_/¯
Why is it not okay? Paul Merriman actually recommends that. His 2 fund portfolio is your age * 1.5 into a target date fund. The rest in SCV. Then adjust every year.
thenextguy
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Re: Small Cap Value heads Rejoice !!!

Post by thenextguy »

vineviz wrote: Mon Apr 05, 2021 10:32 am
manlymatt83 wrote: Mon Apr 05, 2021 10:20 am I wish it was "OK" to reduce SCV allocation over time.
It’s certainly okay to do that.

It’s also the opposite of what rational investors SHOULD probably do.
Why is that? As you approach retirement you're de-risking your portfolio.
rascott
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Re: Small Cap Value heads Rejoice !!!

Post by rascott »

thenextguy wrote: Mon Apr 05, 2021 10:37 am
vineviz wrote: Mon Apr 05, 2021 10:32 am
manlymatt83 wrote: Mon Apr 05, 2021 10:20 am I wish it was "OK" to reduce SCV allocation over time.
It’s certainly okay to do that.

It’s also the opposite of what rational investors SHOULD probably do.
Why is that? As you approach retirement you're de-risking your portfolio.

You derisk your portfolio by lowering the total equity allocation. Not by consolidating your equity into only one class.
thenextguy
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Re: Small Cap Value heads Rejoice !!!

Post by thenextguy »

rascott wrote: Mon Apr 05, 2021 10:41 am
thenextguy wrote: Mon Apr 05, 2021 10:37 am
vineviz wrote: Mon Apr 05, 2021 10:32 am
manlymatt83 wrote: Mon Apr 05, 2021 10:20 am I wish it was "OK" to reduce SCV allocation over time.
It’s certainly okay to do that.

It’s also the opposite of what rational investors SHOULD probably do.
Why is that? As you approach retirement you're de-risking your portfolio.

You derisk your portfolio by lowering the total equity allocation. Not by consolidating your equity into only one class.
You can derisk your equity allocation just as you would derisk your entire portfolio. They're not mutually exclusive; you can do both.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

rascott wrote: Mon Apr 05, 2021 10:41 am
thenextguy wrote: Mon Apr 05, 2021 10:37 am
vineviz wrote: Mon Apr 05, 2021 10:32 am
manlymatt83 wrote: Mon Apr 05, 2021 10:20 am I wish it was "OK" to reduce SCV allocation over time.
It’s certainly okay to do that.

It’s also the opposite of what rational investors SHOULD probably do.
Why is that? As you approach retirement you're de-risking your portfolio.

You derisk your portfolio by lowering the total equity allocation. Not by consolidating your equity into only one class.
I think in this case I would be removing my overweight to SCV, moving back towards market weight as I approached retirement. I realize why that's a bad idea in theory (you can sell low), but if I only "fixed it" with new contributions post age 50, it wouldn't be selling low. Maybe buying high, but not selling low.
stocknoob4111
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Re: Small Cap Value heads Rejoice !!!

Post by stocknoob4111 »

rascott wrote: Mon Apr 05, 2021 9:28 am Up almost 60% in the last 6 months (IJS)....a pullback would be a healthy sign.
still trailing large since 2018.. I wanted to sell a Russell 2000 position that I acquired in Feb 1 2018, I am waiting for it to catch up to VTSAX but has yet to do that... close but not quite. But now VTSAX seems to be taking off leaving FSSNX in the dust.
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Re: Small Cap Value heads Rejoice !!!

Post by KyleAAA »

thenextguy wrote: Mon Apr 05, 2021 10:37 am
vineviz wrote: Mon Apr 05, 2021 10:32 am
manlymatt83 wrote: Mon Apr 05, 2021 10:20 am I wish it was "OK" to reduce SCV allocation over time.
It’s certainly okay to do that.

It’s also the opposite of what rational investors SHOULD probably do.
Why is that? As you approach retirement you're de-risking your portfolio.
Factor tilts tend to increase portfolio efficiency across market cycles. In theory, maintaining the tilt and increasing your bond allocation is likely to be more efficient. If you care more about minimizing absolute risk vs maximizing risk-adjusted returns, that's when you would also reduce your tilt.

In theory. In practice, theory may not pan out.
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Re: Small Cap Value heads Rejoice !!!

Post by thenextguy »

manlymatt83 wrote: Mon Apr 05, 2021 10:52 am
rascott wrote: Mon Apr 05, 2021 10:41 am
thenextguy wrote: Mon Apr 05, 2021 10:37 am
vineviz wrote: Mon Apr 05, 2021 10:32 am
manlymatt83 wrote: Mon Apr 05, 2021 10:20 am I wish it was "OK" to reduce SCV allocation over time.
It’s certainly okay to do that.

It’s also the opposite of what rational investors SHOULD probably do.
Why is that? As you approach retirement you're de-risking your portfolio.

You derisk your portfolio by lowering the total equity allocation. Not by consolidating your equity into only one class.
I think in this case I would be removing my overweight to SCV, moving back towards market weight as I approached retirement. I realize why that's a bad idea in theory (you can sell low), but if I only "fixed it" with new contributions post age 50, it wouldn't be selling low. Maybe buying high, but not selling low.
I don't consider it bad in theory because you could just as likely be selling high. You would have no idea.
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Re: Small Cap Value heads Rejoice !!!

Post by jason2459 »

I decided to have a SCV tilt for diversification and not for total return. My need for that in retirement will be even stronger. I don't plan to change my equities AA. I plan to hold more bonds.
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

thenextguy wrote: Mon Apr 05, 2021 10:37 am Why is that? As you approach retirement you're de-risking your portfolio.
Ideally you should look for a way to de-risk the portfolio without reducing its diversification, and this isn't hard to do with the use of intermediate-term or long-term US Treasury bonds.
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Re: Small Cap Value heads Rejoice !!!

Post by RovenSkyfall »

thenextguy wrote: Mon Apr 05, 2021 10:42 am
rascott wrote: Mon Apr 05, 2021 10:41 am
thenextguy wrote: Mon Apr 05, 2021 10:37 am
vineviz wrote: Mon Apr 05, 2021 10:32 am
manlymatt83 wrote: Mon Apr 05, 2021 10:20 am I wish it was "OK" to reduce SCV allocation over time.
It’s certainly okay to do that.

It’s also the opposite of what rational investors SHOULD probably do.
Why is that? As you approach retirement you're de-risking your portfolio.

You derisk your portfolio by lowering the total equity allocation. Not by consolidating your equity into only one class.
You can derisk your equity allocation just as you would derisk your entire portfolio. They're not mutually exclusive; you can do both.
I guess it depends on if one thinks that SCV has a premium solely due to increased risk. Is everyone in agreement about this?
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Re: Small Cap Value heads Rejoice !!!

Post by thenextguy »

vineviz wrote: Mon Apr 05, 2021 11:56 am
thenextguy wrote: Mon Apr 05, 2021 10:37 am Why is that? As you approach retirement you're de-risking your portfolio.
Ideally you should look for a way to de-risk the portfolio without reducing its diversification, and this isn't hard to do with the use of intermediate-term or long-term US Treasury bonds.
That's certainly fine to do, but I don't think it's accurate to say that you're not a rational investor if you reduce a tilt over time. If some chose NOT to tilt toward SCV and simply bought the total market would that mean they're not a rational investor? I wouldn't think so. Just the same, there is nothing wrong with deciding you wish to be closer to Total Market as you age.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

manlymatt83 wrote: Mon Apr 05, 2021 10:20 am
vineviz wrote: Mon Apr 05, 2021 10:17 am
manlymatt83 wrote: Wed Mar 31, 2021 8:36 pm Interesting way to look at it. In that case, if I kept the AVEM, I'd have to do something like 75/10/10/5 to make it clean and round. But I like your thinking TBH. Maybe I'll just keep the AVEM after all... just wish it was a bigger tilt. Will decide, then definitely laminate.
If you like clean and round, why not?

50% VT
20% AVUV
20% AVDV
10% AVEM
I like that clean and round, but I don't think I could hold 50% SCV past 50 (I'm 37 now) if it was significantly underperforming. That's 13 years away, but still.

I wish it was "OK" to reduce SCV allocation over time. Like, I'd be happy to stick with 50/50 now (which is actually where my holdings currently are), provided I could do something like say "Once I hit 50, all new contributions go to VT until I'm down to 80/20" or something. That way, I'm not "selling" low, just not buying more. ¯\_(ツ)_/¯
Keep in mind the market can also significantly underperform SCV. See the lost decade for example TSM: -0.3% SCV: +9.1% CAGR https://www.portfoliovisualizer.com/bac ... ion2_2=100

I'm retired myself. I like the way a SCV tilt helped during those periods when market returns were poor.
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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker »

manlymatt83 wrote: Mon Apr 05, 2021 10:20 am
vineviz wrote: Mon Apr 05, 2021 10:17 am
manlymatt83 wrote: Wed Mar 31, 2021 8:36 pm Interesting way to look at it. In that case, if I kept the AVEM, I'd have to do something like 75/10/10/5 to make it clean and round. But I like your thinking TBH. Maybe I'll just keep the AVEM after all... just wish it was a bigger tilt. Will decide, then definitely laminate.
If you like clean and round, why not?

50% VT
20% AVUV
20% AVDV
10% AVEM
I like that clean and round, but I don't think I could hold 50% SCV past 50 (I'm 37 now) if it was significantly underperforming. That's 13 years away, but still.

I wish it was "OK" to reduce SCV allocation over time. Like, I'd be happy to stick with 50/50 now (which is actually where my holdings currently are), provided I could do something like say "Once I hit 50, all new contributions go to VT until I'm down to 80/20" or something. That way, I'm not "selling" low, just not buying more. ¯\_(ツ)_/¯
Any factor, including market beta, can perform poorly for long periods of time. Thus diversification across factors makes sense over any time period. In fact, likely more important the shorter the time period. As stated above, if you want to to tilt to SV, it’s likely most rational to choose a given fixed tilt within equities, and then simply decrease the overall equity allocation over time, keeping the ratios within equities fixed. S&P500 underperformed TBills for 3 periods of 13 years or longer: 1929-43, 1966-1982, 2000-2012.

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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

thenextguy wrote: Mon Apr 05, 2021 12:23 pm That's certainly fine to do, but I don't think it's accurate to say that you're not a rational investor if you reduce a tilt over time.
An investor has a choice between two options:

A) De-risk the portfolio by reducing a pre-existing factor tilt;
B) De-risk the portfolio by the same amount as option A but with greater diversification and higher expected returns (i.e. a higher withdrawal rate in retirement).

Under what conditions do you imagine it be rational to prefer A over B?

I can't think of any.
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Re: Small Cap Value heads Rejoice !!!

Post by thenextguy »

vineviz wrote: Mon Apr 05, 2021 4:43 pm
thenextguy wrote: Mon Apr 05, 2021 12:23 pm That's certainly fine to do, but I don't think it's accurate to say that you're not a rational investor if you reduce a tilt over time.
An investor has a choice between two options:

A) De-risk the portfolio by reducing a pre-existing factor tilt;
B) De-risk the portfolio by the same amount as option A but with greater diversification and higher expected returns (i.e. a higher withdrawal rate in retirement).

Under what conditions do you imagine it be rational to prefer A over B?

I can't think of any.
If one were to follow the logical conclusion of this argument, you're saying equities should be 100% invested in SCV. After all, that's going to give the highest expected risk-adjusted return on equities, right? If you're not saying that, why is it so hard to believe that someone would want to move to a tilted position to a less-tilted position over time. As you approach retirement, maybe you're not interested in hoping the SCV premium asserts itself over the shorter time horizon.
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

thenextguy wrote: Mon Apr 05, 2021 6:49 pm
vineviz wrote: Mon Apr 05, 2021 4:43 pm
thenextguy wrote: Mon Apr 05, 2021 12:23 pm That's certainly fine to do, but I don't think it's accurate to say that you're not a rational investor if you reduce a tilt over time.
An investor has a choice between two options:

A) De-risk the portfolio by reducing a pre-existing factor tilt;
B) De-risk the portfolio by the same amount as option A but with greater diversification and higher expected returns (i.e. a higher withdrawal rate in retirement).

Under what conditions do you imagine it be rational to prefer A over B?

I can't think of any.
If one were to follow the logical conclusion of this argument, you're saying equities should be 100% invested in SCV. After all, that's going to give the highest expected risk-adjusted return on equities, right? If you're not saying that, why is it so hard to believe that someone would want to move to a tilted position to a less-tilted position over time.
1) That’s not a logical extension of the point I made.

2) I’m not saying that it is “hard to believe” someone might want to reduce portfolio diversification without any compensation for doing so. I’m saying that such a desire would be irrational.
"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 !!!

Post by stocknoob4111 »

Russell Futures are down, SPX is up. Hope there are more gains for Small as they just haven't kept up even with the rally they are still trailing the S&P 500 in the last 3 years.
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Re: Small Cap Value heads Rejoice !!!

Post by HippoSir »

stocknoob4111 wrote: Mon Apr 05, 2021 7:08 pm Russell Futures are down, SPX is up. Hope there are more gains for Small as they just haven't kept up even with the rally they are still trailing the S&P 500 in the last 3 years.
Didn't you just post this same thing just this morning?
stocknoob4111 wrote: Mon Apr 05, 2021 9:17 am looks like the S&P600 has hit a stumbling block... will it take another 3 years to go back to it's high like it did the last time? :confused
If you're looking at day to day market moves, you're in for a very bad time. Stop worrying about random price movements so much. :beer
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Re: Small Cap Value heads Rejoice !!!

Post by thenextguy »

vineviz wrote: Mon Apr 05, 2021 6:55 pm
thenextguy wrote: Mon Apr 05, 2021 6:49 pm
vineviz wrote: Mon Apr 05, 2021 4:43 pm
thenextguy wrote: Mon Apr 05, 2021 12:23 pm That's certainly fine to do, but I don't think it's accurate to say that you're not a rational investor if you reduce a tilt over time.
An investor has a choice between two options:

A) De-risk the portfolio by reducing a pre-existing factor tilt;
B) De-risk the portfolio by the same amount as option A but with greater diversification and higher expected returns (i.e. a higher withdrawal rate in retirement).

Under what conditions do you imagine it be rational to prefer A over B?

I can't think of any.
If one were to follow the logical conclusion of this argument, you're saying equities should be 100% invested in SCV. After all, that's going to give the highest expected risk-adjusted return on equities, right? If you're not saying that, why is it so hard to believe that someone would want to move to a tilted position to a less-tilted position over time.
1) That’s not a logical extension of the point I made.

2) I’m not saying that it is “hard to believe” someone might want to reduce portfolio diversification without any compensation for doing so. I’m saying that such a desire would be irrational.
There are many people that don't tilt toward factors because they're concerned about factor premiums not presenting itself over their investment horizon. Reducing their equities in favor of bonds does nothing to eliminate the risk of SCV underperforming. Their equity portion of their portfolio would still underperform the market if it's a bad timeline for the factor. It's completely rational for someone that is tilted toward a factor when they are younger to lower that exposure over time as their investment horizon shortens. The amount of bonds to hold is a completely different issue and unrelated to the risk of possible underperformance of a factor tilt.
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

thenextguy wrote: Mon Apr 05, 2021 7:33 pm
There are many people that don't tilt toward factors because they're concerned about factor premiums not presenting itself over their investment horizon.
I know these people exist.

I also know they are irrational, and I can explain why to anyone who is curious about it.
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Re: Small Cap Value heads Rejoice !!!

Post by Morse Code »

thenextguy wrote: Mon Apr 05, 2021 7:33 pm
vineviz wrote: Mon Apr 05, 2021 6:55 pm
thenextguy wrote: Mon Apr 05, 2021 6:49 pm
vineviz wrote: Mon Apr 05, 2021 4:43 pm
thenextguy wrote: Mon Apr 05, 2021 12:23 pm That's certainly fine to do, but I don't think it's accurate to say that you're not a rational investor if you reduce a tilt over time.
An investor has a choice between two options:

A) De-risk the portfolio by reducing a pre-existing factor tilt;
B) De-risk the portfolio by the same amount as option A but with greater diversification and higher expected returns (i.e. a higher withdrawal rate in retirement).

Under what conditions do you imagine it be rational to prefer A over B?

I can't think of any.
If one were to follow the logical conclusion of this argument, you're saying equities should be 100% invested in SCV. After all, that's going to give the highest expected risk-adjusted return on equities, right? If you're not saying that, why is it so hard to believe that someone would want to move to a tilted position to a less-tilted position over time.
1) That’s not a logical extension of the point I made.

2) I’m not saying that it is “hard to believe” someone might want to reduce portfolio diversification without any compensation for doing so. I’m saying that such a desire would be irrational.
There are many people that don't tilt toward factors because they're concerned about factor premiums not presenting itself over their investment horizon. Reducing their equities in favor of bonds does nothing to eliminate the risk of SCV underperforming. Their equity portion of their portfolio would still underperform the market if it's a bad timeline for the factor. It's completely rational for someone that is tilted toward a factor when they are younger to lower that exposure over time as their investment horizon shortens. The amount of bonds to hold is a completely different issue and unrelated to the risk of possible underperformance of a factor tilt.
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

vineviz wrote: Mon Apr 05, 2021 8:10 pm
thenextguy wrote: Mon Apr 05, 2021 7:33 pm
There are many people that don't tilt toward factors because they're concerned about factor premiums not presenting itself over their investment horizon.
I know these people exist.

I also know they are irrational, and I can explain why to anyone who is curious about it.
I recently watched Ben Felix’ videos and one thing he mentioned was that bonds outperformed stocks in similar fashion to SCV outperforming LCG. Wouldn’t reducing stock allocation for more bonds as one nears retirement be kind of similar to wanting to reduce SCV allocation as one nears retirement in favor of TSM?

Not arguing. Mostly just curious what the difference is.
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Re: Small Cap Value heads Rejoice !!!

Post by RussellWilson »

vineviz wrote: Mon Apr 05, 2021 8:10 pm
thenextguy wrote: Mon Apr 05, 2021 7:33 pm
There are many people that don't tilt toward factors because they're concerned about factor premiums not presenting itself over their investment horizon.
I know these people exist.

I also know they are irrational, and I can explain why to anyone who is curious about it.
Is it because over their time horizon SCV might resemble historical TSM more than TSM does, i.e. not tilting towards factors is like tilting away from factor diversification?
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz »

manlymatt83 wrote: Mon Apr 05, 2021 8:35 pm Not arguing. Mostly just curious what the difference is.
For the most part, adding bonds (especially Treasury bonds) to an equity portfolio has two effects: 1) it reduces the overall level of volatility (aka "de-risking"); and 2) it improves the diversification of the portfolio because the term factor exposure is not highly correlated (maybe even negatively correlated) with the equity risk factors like market, size, value, momentum, quality, etc.

On the other hand, removing an equity factor tilt generally does have a de-risking effect but it also typically degrades the diversification of the portfolio. And because the equity risk factors like size, value, quality, have such low correlations with the market factor (kind of like the term factor in bonds does) the impact of diversification loss is almost always substantially more impactful than the de-risking impact.

In short, moving to concentrate the equity risk exposure on a single factor (market) instead of spreading it across multiple uncorrelated factors (market, size, value, quality) creates worse expectations on metrics a rational investor would care about. Better to keep the equity diversification high and de-risk (and further diversify) by adding Treasury bonds.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Just popping in to say that since inception, DFSVX has beaten the Total US Stock Market by 1.24% CAGR... (with rolling 10/15 year returns ~3% higher).

Even beat CRSP Large Growth Index by 50bp...

Not long ago people were using this backtest to say value died post-publication; 1.24% CAGR is a nice long-run premium, and the growth-value spread is still at historic levels.

Happy rejoicing all :sharebeer.
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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker »

manlymatt83 wrote: Mon Apr 05, 2021 8:35 pm Wouldn’t reducing stock allocation for more bonds as one nears retirement be kind of similar to wanting to reduce SCV allocation as one nears retirement in favor of TSM?

Not arguing. Mostly just curious what the difference is.
No. If one decreases the equity weighting of a TSM/BND portfolio, he is decreasing overall portfolio risk, decreasing expected return, moving towards risk parity. The portfolio is less dominated by the equity market factor. If one were to say keep the bond allocation constant but move the equity portion from SCV to TSM, he would be decreasing portfolio risk, decreasing expected return, but likely moving away from risk parity towards a less efficient portfolio. He is moving towards a portfolio more dominated by the single equity market factor and less evenly distributed across market, size, value.
SCV funds typically have market exposure same as or a smidge higher than TSM fund. This is why it is so valuable to potentially maintain the equity tilt but increase safe bond exposure. One can keep portfolio expected return relatively higher and be way more diversified across factors: market, size, value, term.
Just a very rough example. A 60/40 TSM portfolio has about 85% of its risk wrapped up in the single market factor. A heavily tilted 40/60 SCV portfolio might have about same expected return as the 60/40 TSM but have its risks more evenly spread across market, size, value, term. The dominance of the single market factor is markedly lessened. Any factor, including market beta, can underperform for a long time and at the wrong time for the individual investor. In an environment where that is the case, diversification across unique and independent factors makes lots of sense. Historically market and size lowly correlated, market and value uncorrelated or negatively correlated, size and value effectively uncorrelated.

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Re: Small Cap Value heads Rejoice !!!

Post by thenextguy »

MotoTrojan wrote: Mon Apr 05, 2021 9:28 pm Just popping in to say that since inception, DFSVX has beaten the Total US Stock Market by 1.24% CAGR...
It has, but lower Sharpe Ratio. Although the fees hurt the returns a bit.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

HippoSir wrote: Mon Apr 05, 2021 7:13 pm
stocknoob4111 wrote: Mon Apr 05, 2021 7:08 pm Russell Futures are down, SPX is up. Hope there are more gains for Small as they just haven't kept up even with the rally they are still trailing the S&P 500 in the last 3 years.
Didn't you just post this same thing just this morning?
stocknoob4111 wrote: Mon Apr 05, 2021 9:17 am looks like the S&P600 has hit a stumbling block... will it take another 3 years to go back to it's high like it did the last time? :confused
If you're looking at day to day market moves, you're in for a very bad time. Stop worrying about random price movements so much. :beer
+1.
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Re: Small Cap Value heads Rejoice !!!

Post by james22 »

vineviz wrote: Mon Apr 05, 2021 6:55 pm
thenextguy wrote: Mon Apr 05, 2021 6:49 pm If one were to follow the logical conclusion of this argument, you're saying equities should be 100% invested in SCV. After all, that's going to give the highest expected risk-adjusted return on equities, right? If you're not saying that, why is it so hard to believe that someone would want to move to a tilted position to a less-tilted position over time.
1) That’s not a logical extension of the point I made.
Why not?

That's the point of the Larry Portfolio.
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Re: Small Cap Value heads Rejoice !!!

Post by james22 »

Locked