Small Cap Value heads Rejoice !!!

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langlands
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Re: did I already miss the run up?

Post by langlands »

MotoTrojan wrote: Sat Mar 13, 2021 9:58 am
Steve Reading wrote: Sat Mar 13, 2021 9:12 am
Admiral Fun wrote: Sat Mar 13, 2021 7:53 am Has small cap value already moved from "cheap" to "fairly priced" or even frothy???
Compared to the market, it is still dirt-cheap. The value spread (at least from what I can calculate using Ken French data) looks basically the same as it was back in 2020, and higher than 2019 (which is when AQR committed more to value).

As an asset class itself, its book/price is about 50th percentile, so similarly priced vs its historical mean. That's just another way of saying that the value spreads are really large not because value is is particularly cheap vs its history, but because growth is far richer in price vs its history.

Just my opinion, I am not a financial advisor.
Good point that much of the movement in the spread has been driven by growth while value has been fairly well constant.

People like to get excited about the returns of SCV from 2000-2010 when compared to the S&P500, and then have the opposite view for 2010-2020. This is pretty silly when you realize VISVX returned 9.14% (0.32% S&P500) CAGR from 2000-2010, and a whopping 11.21% (13.83% S&P500) for 2010-2020.

So small-value has been pretty consistent through the last 2 decades, and even performed BETTER in the recent decade where everyone likes to talk badly about it.

Would you rather have a decade of basically 0% and then another of 14%, or a steady 9-11% for the full 20 years? I know which I would prefer.
Something about this framing doesn't make sense. Is the implication that SCV has both a premium (higher expected returns) and lower risk than TSM?
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Steve Reading
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Re: did I already miss the run up?

Post by Steve Reading »

willthrill81 wrote: Sat Mar 13, 2021 9:56 am
Steve Reading wrote: Sat Mar 13, 2021 9:12 am
Admiral Fun wrote: Sat Mar 13, 2021 7:53 am Has small cap value already moved from "cheap" to "fairly priced" or even frothy???
Compared to the market, it is still dirt-cheap. The value spread (at least from what I can calculate using Ken French data) looks basically the same as it was back in 2020, and higher than 2019 (which is when AQR committed more to value).

As an asset class itself, its book/price is about 50th percentile, so similarly priced vs its historical mean. That's just another way of saying that the value spreads are really large not because value is is particularly cheap vs its history, but because growth is far richer in price vs its history.

Just my opinion, I am not a financial advisor.
Further, as noted above, the very high concentration in the S&P 500 is historically indicative that SCV may have cumulative returns ranging from roughly 50% to 100% greater than those of the S&P 500 over the next five years. So there is still a lot of upside potential left in SCV.
There's so many problems with that graph lol. If I were into omens, I might've let it feed my confirmation bias though :beer
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Re: did I already miss the run up?

Post by willthrill81 »

Steve Reading wrote: Sat Mar 13, 2021 10:24 am
willthrill81 wrote: Sat Mar 13, 2021 9:56 am
Steve Reading wrote: Sat Mar 13, 2021 9:12 am
Admiral Fun wrote: Sat Mar 13, 2021 7:53 am Has small cap value already moved from "cheap" to "fairly priced" or even frothy???
Compared to the market, it is still dirt-cheap. The value spread (at least from what I can calculate using Ken French data) looks basically the same as it was back in 2020, and higher than 2019 (which is when AQR committed more to value).

As an asset class itself, its book/price is about 50th percentile, so similarly priced vs its historical mean. That's just another way of saying that the value spreads are really large not because value is is particularly cheap vs its history, but because growth is far richer in price vs its history.

Just my opinion, I am not a financial advisor.
Further, as noted above, the very high concentration in the S&P 500 is historically indicative that SCV may have cumulative returns ranging from roughly 50% to 100% greater than those of the S&P 500 over the next five years. So there is still a lot of upside potential left in SCV.
There's so many problems with that graph lol. If I were into omens, I might've let it feed my confirmation bias though :beer
Such as?
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Random Walker
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Re: did I already miss the run up?

Post by Random Walker »

MotoTrojan wrote: Sat Mar 13, 2021 9:58 am Would you rather have a decade of basically 0% and then another of 14%, or a steady 9-11% for the full 20 years? I know which I would prefer.
And volatility sucks away from portfolio returns. If two portfolios have the same simple average return over time, the less volatile one with a lower standard deviation will accumulate more money. It’s compounded return will be closer to its simple average return and thus be greater than the more volatile portfolio. SV is more volatile than TSM, but if one decreases overall equity exposure while tilting towards SV, he is potentially creating a more efficient portfolio. Taking more of a barbell approach to the portfolio with equities in the most risky asset classes and a substantially bigger allocation to the safest bonds can potentially accomplish that.

Dave
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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

willthrill81 wrote: Sat Mar 13, 2021 10:45 am
Steve Reading wrote: Sat Mar 13, 2021 10:24 am
willthrill81 wrote: Sat Mar 13, 2021 9:56 am
Steve Reading wrote: Sat Mar 13, 2021 9:12 am
Admiral Fun wrote: Sat Mar 13, 2021 7:53 am Has small cap value already moved from "cheap" to "fairly priced" or even frothy???
Compared to the market, it is still dirt-cheap. The value spread (at least from what I can calculate using Ken French data) looks basically the same as it was back in 2020, and higher than 2019 (which is when AQR committed more to value).

As an asset class itself, its book/price is about 50th percentile, so similarly priced vs its historical mean. That's just another way of saying that the value spreads are really large not because value is is particularly cheap vs its history, but because growth is far richer in price vs its history.

Just my opinion, I am not a financial advisor.
Further, as noted above, the very high concentration in the S&P 500 is historically indicative that SCV may have cumulative returns ranging from roughly 50% to 100% greater than those of the S&P 500 over the next five years. So there is still a lot of upside potential left in SCV.
There's so many problems with that graph lol. If I were into omens, I might've let it feed my confirmation bias though :beer
Such as?
I learned a long time ago not to criticize or otherwise argue with stuff vineviz says. Best to avoid the hassle. I think I'll pass on your question.
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markfaix
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Re: did I already miss the run up?

Post by markfaix »

Random Walker wrote: Sat Mar 13, 2021 10:45 am
MotoTrojan wrote: Sat Mar 13, 2021 9:58 am Would you rather have a decade of basically 0% and then another of 14%, or a steady 9-11% for the full 20 years? I know which I would prefer.
And volatility sucks away from portfolio returns. If two portfolios have the same simple average return over time, the less volatile one with a lower standard deviation will accumulate more money. It’s compounded return will be closer to its simple average return and thus be greater than the more volatile portfolio. SV is more volatile than TSM, but if one decreases overall equity exposure while tilting towards SV, he is potentially creating a more efficient portfolio. Taking more of a barbell approach to the portfolio with equities in the most risky asset classes and a substantially bigger allocation to the safest bonds can potentially accomplish that.

Dave

Dave

Are you sure about higher expected return for lower standard deviation? I would think that for 2 portfolios with the same average return, the MORE volatile one would accumulate more money over the long term (short term, of course, wider dispersion of returns, good and bad). In downturns, you accumulate more shares, which later appreciate more. In fact, Wm Bernstein made this exact point in one of his books arguing for a SV tilt: in his calculations the S/V premia could be slightly NEGATIVE and still produce the same expected return as TSM because of the rebalancing bonus.
Random Walker
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Re: did I already miss the run up?

Post by Random Walker »

langlands wrote: Sat Mar 13, 2021 10:23 am Something about this framing doesn't make sense. Is the implication that SCV has both a premium (higher expected returns) and lower risk than TSM?
This is something that has confounded me for a while as well:

1. In a rational world with efficient markets we should expect all investments to have about the same Sharpe ratios (makes sense to me)

2. A portfolio that combines TSM with SV should have a higher Sharpe ratio than TSM alone because it is more diversified across unique and independent
factors (also makes sense to me)

3. So should I expect a single SV fund (with exposure to market,size, and value factors) to have a higher Sharpe or about same Sharpe as a TSM (market factor only) fund? (Both yes and no could make sense to me :-)

Dave
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

Steve Reading wrote: Sat Mar 13, 2021 10:53 am I learned a long time ago not to criticize or otherwise argue with stuff vineviz says. Best to avoid the hassle. I think I'll pass on your question.
Yes but you could inform others what is wrong with his graph and not reply to his arguments. I think it is data mining but I am not so well versed in statistics as you so I am not sure. :sharebeer
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Random Walker
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Re: did I already miss the run up?

Post by Random Walker »

markfaix wrote: Sat Mar 13, 2021 10:56 am
Random Walker wrote: Sat Mar 13, 2021 10:45 am
MotoTrojan wrote: Sat Mar 13, 2021 9:58 am Would you rather have a decade of basically 0% and then another of 14%, or a steady 9-11% for the full 20 years? I know which I would prefer.
And volatility sucks away from portfolio returns. If two portfolios have the same simple average return over time, the less volatile one with a lower standard deviation will accumulate more money. It’s compounded return will be closer to its simple average return and thus be greater than the more volatile portfolio. SV is more volatile than TSM, but if one decreases overall equity exposure while tilting towards SV, he is potentially creating a more efficient portfolio. Taking more of a barbell approach to the portfolio with equities in the most risky asset classes and a substantially bigger allocation to the safest bonds can potentially accomplish that.

Dave

Dave

Are you sure about higher expected return for lower standard deviation? I would think that for 2 portfolios with the same average return, the MORE volatile one would accumulate more money over the long term (short term, of course, wider dispersion of returns, good and bad). In downturns, you accumulate more shares, which later appreciate more. In fact, Wm Bernstein made this exact point in one of his books arguing for a SV tilt: in his calculations the S/V premia could be slightly NEGATIVE and still produce the same expected return as TSM because of the rebalancing bonus.
Yes I am sure. (and I’m not sure very often!). As best I understand, this is an issue separate from the potential rebalancing bonus. I believe it assumes a rebalanced portfolio. It’s the fact that after portfolio losses, there is more money remaining to experience gains in the future. There is more money invested at a market bottom to experience gains when the market begins to go up again.

Here’s the extreme example: two portfolios with simple average 25% return per year for 2 years.
Portfolio 1 earns 25% each year and turns $100 into $156.25
Portfolio 2 earns 100% year 1, loses 50% year 2. Its simple average return is also 25%. But your $100 is now worth exactly $100. Compounded return is 0%.

The above is the most extreme example, but the effect is always there. The compounded (geometric mean return that we eat) is always less than the simple mean return. The equation that very closely approximates the effect is Geo Mean = Simple Mean - 1/2SD^2.

So for example if one can somehow keep portfolio return constant but decrease its SD from 14% to 12% he can increase his portfolio return by about 0.2-0.3% annualized. Doesn’t sound like a lot, but in a Boglehead world where we talk about expense ratio differences of 0.1%, I think it’s significant. Play around with the equation and the numbers a bit and you’ll see that the effect of variance drain goes up a lot as the volatility of the portfolio increases. Decreasing portfolio SD from 20% to 18% has a bigger effect on variance drain than decreasing portfolio SD from 14% to 12%. I think people who are 100% equities all in TSM would be surprised at the difference between their expected simple average return and the expected compounded return.

Dave
MotoTrojan
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Re: did I already miss the run up?

Post by MotoTrojan »

Random Walker wrote: Sat Mar 13, 2021 11:24 am
markfaix wrote: Sat Mar 13, 2021 10:56 am
Random Walker wrote: Sat Mar 13, 2021 10:45 am
MotoTrojan wrote: Sat Mar 13, 2021 9:58 am Would you rather have a decade of basically 0% and then another of 14%, or a steady 9-11% for the full 20 years? I know which I would prefer.
And volatility sucks away from portfolio returns. If two portfolios have the same simple average return over time, the less volatile one with a lower standard deviation will accumulate more money. It’s compounded return will be closer to its simple average return and thus be greater than the more volatile portfolio. SV is more volatile than TSM, but if one decreases overall equity exposure while tilting towards SV, he is potentially creating a more efficient portfolio. Taking more of a barbell approach to the portfolio with equities in the most risky asset classes and a substantially bigger allocation to the safest bonds can potentially accomplish that.

Dave

Dave

Are you sure about higher expected return for lower standard deviation? I would think that for 2 portfolios with the same average return, the MORE volatile one would accumulate more money over the long term (short term, of course, wider dispersion of returns, good and bad). In downturns, you accumulate more shares, which later appreciate more. In fact, Wm Bernstein made this exact point in one of his books arguing for a SV tilt: in his calculations the S/V premia could be slightly NEGATIVE and still produce the same expected return as TSM because of the rebalancing bonus.
Yes I am sure. (and I’m not sure very often!). As best I understand, this is an issue separate from the potential rebalancing bonus. I believe it assumes a rebalanced portfolio. It’s the fact that after portfolio losses, there is more money remaining to experience gains in the future. There is more money invested at a market bottom to experience gains when the market begins to go up again.

Here’s the extreme example: two portfolios with simple average 25% return per year for 2 years.
Portfolio 1 earns 25% each year and turns $100 into $156.25
Portfolio 2 earns 100% year 1, loses 50% year 2. Its simple average return is also 25%. But your $100 is now worth exactly $100. Compounded return is 0%.

The above is the most extreme example, but the effect is always there. The compounded (geometric mean return that we eat) is always less than the simple mean return. The equation that very closely approximates the effect is Geo Mean = Simple Mean - 1/2SD^2.

So for example if one can somehow keep portfolio return constant but decrease its SD from 14% to 12% he can increase his portfolio return by about 0.2-0.3% annualized. Doesn’t sound like a lot, but in a Boglehead world where we talk about expense ratio differences of 0.1%, I think it’s significant. Play around with the equation and the numbers a bit and you’ll see that the effect of variance drain goes up a lot as the volatility of the portfolio increases. Decreasing portfolio SD from 20% to 18% has a bigger effect on variance drain than decreasing portfolio SD from 14% to 12%. I think people who are 100% equities all in TSM would be surprised at the difference between their expected simple average return and the expected compounded return.

Dave
I think you are both right, but are comparing different things.

If you have two portfolios with the same naïve-average return, then the one with lower volatility will have a higher CAGR.

If you have two groups of two assets with the same CAGR each, the ones with the higher volatility will generate more rebalancing bonus. The key distinction here is whether you are setting the naïve-average or the CAGR as equal, since the more volatile asset with the equal CAGR (which causes a higher rebalance bonus) will be default also have a higher naïve-average return than the less volatile one.
markfaix wrote: Sat Mar 13, 2021 10:56 am
Are you sure about higher expected return for lower standard deviation? I would think that for 2 portfolios with the same average return, the MORE volatile one would accumulate more money over the long term
So the above is wrong, but if you change the bold to "with the same compound annual growth rate" then it would be true.
MotoTrojan
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Re: did I already miss the run up?

Post by MotoTrojan »

Steve Reading wrote: Sat Mar 13, 2021 9:12 am
Admiral Fun wrote: Sat Mar 13, 2021 7:53 am Has small cap value already moved from "cheap" to "fairly priced" or even frothy???
Compared to the market, it is still dirt-cheap. The value spread (at least from what I can calculate using Ken French data) looks basically the same as it was back in 2020, and higher than 2019 (which is when AQR committed more to value).

As an asset class itself, its book/price is about 50th percentile, so similarly priced vs its historical mean. That's just another way of saying that the value spreads are really large not because value is is particularly cheap vs its history, but because growth is far richer in price vs its history.

Just my opinion, I am not a financial advisor.
To play devil's advocate, while I agree value itself really hasn't run, the size premium has been enormous in the last 12 months. How has the spread of small vs. large changed? Perhaps value will wake-up, which will still be a tailwind for SCV funds, but small-caps could underperform, partially cancelling out the benefit.

While we have all been rejoicing, small-growth investors have been too.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Assuming:

- AVUV/AVDV
- Shares of growth stocks (Square, Twitter, etc.)
- Shares of various REITs (O, WPC)

Only have room for two of the three in tax advantaged (traditional IRA) space. Which one works best in taxable?
gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

manlymatt83 wrote: Sat Mar 13, 2021 12:56 pm Assuming:

- AVUV/AVDV
- Shares of growth stocks (Square, Twitter, etc.)
- Shares of various REITs (O, WPC)

Only have room for two of the three in tax advantaged (traditional IRA) space. Which one works best in taxable?
Assuming that you don't sell, then growth stocks would be the best asset of those mentioned to hold in taxable. Then AVUV, then AVDV, and then REITs. REITs are notoriously not tax friendly.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

gtwhitegold wrote: Sat Mar 13, 2021 1:05 pm
manlymatt83 wrote: Sat Mar 13, 2021 12:56 pm Assuming:

- AVUV/AVDV
- Shares of growth stocks (Square, Twitter, etc.)
- Shares of various REITs (O, WPC)

Only have room for two of the three in tax advantaged (traditional IRA) space. Which one works best in taxable?
Assuming that you don't sell, then growth stocks would be the best asset of those mentioned to hold in taxable. Then AVUV, then AVDV, and then REITs. REITs are notoriously not tax friendly.
Interesting. Makes me think I should hold my growth stocks in taxable, and my REITs and SCV in the traditional IRA then.
drk
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Re: Small Cap Value heads Rejoice !!!

Post by drk »

gtwhitegold wrote: Sat Mar 13, 2021 1:05 pm Assuming that you don't sell, then growth stocks would be the best asset of those mentioned to hold in taxable. Then AVUV, then AVDV, and then REITs. REITs are notoriously not tax friendly.
Even assuming one does plan to sell, the long-term expected return on the growth stocks is lower than the SCV funds. :wink:
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
manlymatt83
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

drk wrote: Sat Mar 13, 2021 1:15 pm
gtwhitegold wrote: Sat Mar 13, 2021 1:05 pm Assuming that you don't sell, then growth stocks would be the best asset of those mentioned to hold in taxable. Then AVUV, then AVDV, and then REITs. REITs are notoriously not tax friendly.
Even assuming one does plan to sell, the long-term expected return on the growth stocks is lower than the SCV funds. :wink:
REITs and SCV in traditional IRA it is!
Random Walker
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Re: did I already miss the run up?

Post by Random Walker »

MotoTrojan wrote: Sat Mar 13, 2021 12:49 pm
Random Walker wrote: Sat Mar 13, 2021 11:24 am
markfaix wrote: Sat Mar 13, 2021 10:56 am
Random Walker wrote: Sat Mar 13, 2021 10:45 am
MotoTrojan wrote: Sat Mar 13, 2021 9:58 am Would you rather have a decade of basically 0% and then another of 14%, or a steady 9-11% for the full 20 years? I know which I would prefer.
And volatility sucks away from portfolio returns. If two portfolios have the same simple average return over time, the less volatile one with a lower standard deviation will accumulate more money. It’s compounded return will be closer to its simple average return and thus be greater than the more volatile portfolio. SV is more volatile than TSM, but if one decreases overall equity exposure while tilting towards SV, he is potentially creating a more efficient portfolio. Taking more of a barbell approach to the portfolio with equities in the most risky asset classes and a substantially bigger allocation to the safest bonds can potentially accomplish that.

Dave

Dave

Are you sure about higher expected return for lower standard deviation? I would think that for 2 portfolios with the same average return, the MORE volatile one would accumulate more money over the long term (short term, of course, wider dispersion of returns, good and bad). In downturns, you accumulate more shares, which later appreciate more. In fact, Wm Bernstein made this exact point in one of his books arguing for a SV tilt: in his calculations the S/V premia could be slightly NEGATIVE and still produce the same expected return as TSM because of the rebalancing bonus.
Yes I am sure. (and I’m not sure very often!). As best I understand, this is an issue separate from the potential rebalancing bonus. I believe it assumes a rebalanced portfolio. It’s the fact that after portfolio losses, there is more money remaining to experience gains in the future. There is more money invested at a market bottom to experience gains when the market begins to go up again.

Here’s the extreme example: two portfolios with simple average 25% return per year for 2 years.
Portfolio 1 earns 25% each year and turns $100 into $156.25
Portfolio 2 earns 100% year 1, loses 50% year 2. Its simple average return is also 25%. But your $100 is now worth exactly $100. Compounded return is 0%.

The above is the most extreme example, but the effect is always there. The compounded (geometric mean return that we eat) is always less than the simple mean return. The equation that very closely approximates the effect is Geo Mean = Simple Mean - 1/2SD^2.

So for example if one can somehow keep portfolio return constant but decrease its SD from 14% to 12% he can increase his portfolio return by about 0.2-0.3% annualized. Doesn’t sound like a lot, but in a Boglehead world where we talk about expense ratio differences of 0.1%, I think it’s significant. Play around with the equation and the numbers a bit and you’ll see that the effect of variance drain goes up a lot as the volatility of the portfolio increases. Decreasing portfolio SD from 20% to 18% has a bigger effect on variance drain than decreasing portfolio SD from 14% to 12%. I think people who are 100% equities all in TSM would be surprised at the difference between their expected simple average return and the expected compounded return.

Dave
I think you are both right, but are comparing different things.

If you have two portfolios with the same naïve-average return, then the one with lower volatility will have a higher CAGR.

If you have two groups of two assets with the same CAGR each, the ones with the higher volatility will generate more rebalancing bonus. The key distinction here is whether you are setting the naïve-average or the CAGR as equal, since the more volatile asset with the equal CAGR (which causes a higher rebalance bonus) will be default also have a higher naïve-average return than the less volatile one.
markfaix wrote: Sat Mar 13, 2021 10:56 am
Are you sure about higher expected return for lower standard deviation? I would think that for 2 portfolios with the same average return, the MORE volatile one would accumulate more money over the long term
So the above is wrong, but if you change the bold to "with the same compound annual growth rate" then it would be true.
Thanks for clarifying that. I didn’t have that perspective on the potential rebalancing bonus. The only point I’d make is that looking forward, when making decisions about potential additions to our portfolios, we are usually working with expected simple average returns. We don’t know what the future will hold, but we make portfolio decisions based on past returns, volatilities, and correlations. If those three characteristics mix well with the rest of the portfolio for a given potential addition, there’s a good chance the investor is improving portfolio efficiency, Geo mean closer to simple mean.

The rebalancing bonus is controversial. I believe in it when the rebalance is within high expected return equities. But in the long run, rebalancing from stocks to bonds should decrease portfolio return I believe.

Dave
Bama12
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Re: Small Cap Value heads Rejoice !!!

Post by Bama12 »

What's the best Small Value fund for taxable? I know I should know this....

This question is for my 17 year old son. He is 100% VTI, he has around 20 or so shares of VTI.

or should he just wait until he can open a Roth.


I'm 25% Vanguard S&P Small Cap 600 Value-VIOV in my Roth.

I'm 15% Vanguard Small Value-VSIAX in my 401K.
MotoTrojan
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Re: did I already miss the run up?

Post by MotoTrojan »

Random Walker wrote: Sat Mar 13, 2021 1:21 pm
The only point I’d make is that looking forward, when making decisions about potential additions to our portfolios, we are usually working with expected simple average returns. We don’t know what the future will hold, but we make portfolio decisions based on past returns, volatilities, and correlations.
I am going to push back on this again (bold in particular). I have NO idea what the past simple average return has been for US large-cap, small-cap, etc... Could I calculate it? Sure. But most of us are looking at CAGR and making assumptions on that, not simple average returns.

So again, for portfolio optimization you want to hold assets with the highest CAGR, lowest correlation, and highest volatility possible. There are periods where short & long-term treasuries had the same CAGR and similarly low (negative) correlation to US equities, but you'd have higher overall portfolio returns and efficiency if you had the more volatile long-term treasury. Now when using simple average returns, you do NOT always want the highest volatility, as that could mean it is eating into your CAGR.
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Steve Reading
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Re: did I already miss the run up?

Post by Steve Reading »

MotoTrojan wrote: Sat Mar 13, 2021 12:54 pm
Steve Reading wrote: Sat Mar 13, 2021 9:12 am
Admiral Fun wrote: Sat Mar 13, 2021 7:53 am Has small cap value already moved from "cheap" to "fairly priced" or even frothy???
Compared to the market, it is still dirt-cheap. The value spread (at least from what I can calculate using Ken French data) looks basically the same as it was back in 2020, and higher than 2019 (which is when AQR committed more to value).

As an asset class itself, its book/price is about 50th percentile, so similarly priced vs its historical mean. That's just another way of saying that the value spreads are really large not because value is is particularly cheap vs its history, but because growth is far richer in price vs its history.

Just my opinion, I am not a financial advisor.
To play devil's advocate, while I agree value itself really hasn't run, the size premium has been enormous in the last 12 months. How has the spread of small vs. large changed? Perhaps value will wake-up, which will still be a tailwind for SCV funds, but small-caps could underperform, partially cancelling out the benefit.

While we have all been rejoicing, small-growth investors have been too.
Oh shoot I'm glad you pointed that out. I think I'm making a pretty fundamental mistake looking at the French data. The valuations they offer are based on the lagged book and lagged price of the stocks so we won't see an actual change in value spreads due to recent performance until they reconstitute in June.

I realized this because the small vs large valuation spread has barely changed for the past several months. But since I know the book price is lagged, valuation spreads must change based on the relative performance between small and large. After 5 minutes of having no idea how the numbers looked how they looked, the above dawned on me.

Always be skeptical of online strangers making financial statements based on their own empirical research (including me!). Trust but verify.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Re: Small Cap Value heads Rejoice !!!

Post by willthrill81 »

Anon9001 wrote: Sat Mar 13, 2021 11:07 am
Steve Reading wrote: Sat Mar 13, 2021 10:53 am I learned a long time ago not to criticize or otherwise argue with stuff vineviz says. Best to avoid the hassle. I think I'll pass on your question.
Yes but you could inform others what is wrong with his graph and not reply to his arguments. I think it is data mining but I am not so well versed in statistics as you so I am not sure. :sharebeer
Vineviz was very cautious in his recommendations of what investors should do in response to his findings. Basically, he said that investors who have already decided to hold SCV seem likely to be rewarded handsomely in the mid-term future. He definitely did not say that people should run out and go buy SCV because of his findings.
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Re: did I already miss the run up?

Post by klaus14 »

Steve Reading wrote: Sat Mar 13, 2021 1:51 pm
MotoTrojan wrote: Sat Mar 13, 2021 12:54 pm
Steve Reading wrote: Sat Mar 13, 2021 9:12 am
Admiral Fun wrote: Sat Mar 13, 2021 7:53 am Has small cap value already moved from "cheap" to "fairly priced" or even frothy???
Compared to the market, it is still dirt-cheap. The value spread (at least from what I can calculate using Ken French data) looks basically the same as it was back in 2020, and higher than 2019 (which is when AQR committed more to value).

As an asset class itself, its book/price is about 50th percentile, so similarly priced vs its historical mean. That's just another way of saying that the value spreads are really large not because value is is particularly cheap vs its history, but because growth is far richer in price vs its history.

Just my opinion, I am not a financial advisor.
To play devil's advocate, while I agree value itself really hasn't run, the size premium has been enormous in the last 12 months. How has the spread of small vs. large changed? Perhaps value will wake-up, which will still be a tailwind for SCV funds, but small-caps could underperform, partially cancelling out the benefit.

While we have all been rejoicing, small-growth investors have been too.
Oh shoot I'm glad you pointed that out. I think I'm making a pretty fundamental mistake looking at the French data. The valuations they offer are based on the lagged book and lagged price of the stocks so we won't see an actual change in value spreads due to recent performance until they reconstitute in June.

I realized this because the small vs large valuation spread has barely changed for the past several months. But since I know the book price is lagged, valuation spreads must change based on the relative performance between small and large. After 5 minutes of having no idea how the numbers looked how they looked, the above dawned on me.

Always be skeptical of online strangers making financial statements based on their own empirical research (including me!). Trust but verify.
i think a better way is to use forward pe. check Figure 7 and 17 here. The spread between growth and value is still very large.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: did I already miss the run up?

Post by MotoTrojan »

klaus14 wrote: Sat Mar 13, 2021 2:14 pm

i think a better way is to use forward pe. check Figure 7 and 17 here. The spread between growth and value is still very large.
Sure, my point though is to keep tabs on how much of the returns we are all rejoicing over have come from small-caps outperforming. Frankly value really hasn't done much at all until 2021, we are really rejoicing over small-caps. It is possible (maybe not likely) that value picks up the pace, but that the size premium is negative.
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Re: did I already miss the run up?

Post by Steve Reading »

klaus14 wrote: Sat Mar 13, 2021 2:14 pm
Steve Reading wrote: Sat Mar 13, 2021 1:51 pm
MotoTrojan wrote: Sat Mar 13, 2021 12:54 pm
Steve Reading wrote: Sat Mar 13, 2021 9:12 am
Admiral Fun wrote: Sat Mar 13, 2021 7:53 am Has small cap value already moved from "cheap" to "fairly priced" or even frothy???
Compared to the market, it is still dirt-cheap. The value spread (at least from what I can calculate using Ken French data) looks basically the same as it was back in 2020, and higher than 2019 (which is when AQR committed more to value).

As an asset class itself, its book/price is about 50th percentile, so similarly priced vs its historical mean. That's just another way of saying that the value spreads are really large not because value is is particularly cheap vs its history, but because growth is far richer in price vs its history.

Just my opinion, I am not a financial advisor.
To play devil's advocate, while I agree value itself really hasn't run, the size premium has been enormous in the last 12 months. How has the spread of small vs. large changed? Perhaps value will wake-up, which will still be a tailwind for SCV funds, but small-caps could underperform, partially cancelling out the benefit.

While we have all been rejoicing, small-growth investors have been too.
Oh shoot I'm glad you pointed that out. I think I'm making a pretty fundamental mistake looking at the French data. The valuations they offer are based on the lagged book and lagged price of the stocks so we won't see an actual change in value spreads due to recent performance until they reconstitute in June.

I realized this because the small vs large valuation spread has barely changed for the past several months. But since I know the book price is lagged, valuation spreads must change based on the relative performance between small and large. After 5 minutes of having no idea how the numbers looked how they looked, the above dawned on me.

Always be skeptical of online strangers making financial statements based on their own empirical research (including me!). Trust but verify.
i think a better way is to use forward pe. check Figure 7 and 17 here. The spread between growth and value is still very large.
That's useful, yes, but it'd be better if we had the actual data (especially one that included 1930s brutal value bear market). That way we could actually divide one curve by the other to compute the "value of value" and then look back to see what percentile that is historically. Looking at figure 17, it appears the spread has tightened somewhat though.

We could also divide the large cap and small cap blend curves to see how much those spreads have tightened in this small cap rally (Moto's point).
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Re: Small Cap Value heads Rejoice !!!

Post by kolder »

Bama12 wrote: Sat Mar 13, 2021 1:34 pm What's the best Small Value fund for taxable? I know I should know this....

This question is for my 17 year old son. He is 100% VTI, he has around 20 or so shares of VTI.

or should he just wait until he can open a Roth.


I'm 25% Vanguard S&P Small Cap 600 Value-VIOV in my Roth.

I'm 15% Vanguard Small Value-VSIAX in my 401K.
I expect AVUV will be a bit more tax efficient than other options because it excludes REITS
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Re: did I already miss the run up?

Post by YRT70 »

MotoTrojan wrote: Sat Mar 13, 2021 12:54 pm
Steve Reading wrote: Sat Mar 13, 2021 9:12 am
Admiral Fun wrote: Sat Mar 13, 2021 7:53 am Has small cap value already moved from "cheap" to "fairly priced" or even frothy???
Compared to the market, it is still dirt-cheap. The value spread (at least from what I can calculate using Ken French data) looks basically the same as it was back in 2020, and higher than 2019 (which is when AQR committed more to value).

As an asset class itself, its book/price is about 50th percentile, so similarly priced vs its historical mean. That's just another way of saying that the value spreads are really large not because value is is particularly cheap vs its history, but because growth is far richer in price vs its history.

Just my opinion, I am not a financial advisor.
To play devil's advocate, while I agree value itself really hasn't run, the size premium has been enormous in the last 12 months. How has the spread of small vs. large changed? Perhaps value will wake-up, which will still be a tailwind for SCV funds, but small-caps could underperform, partially cancelling out the benefit.

While we have all been rejoicing, small-growth investors have been too.
There's been quite some divergence lately.

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DFSVX 32.6%
DSCGX 15.6%
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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid »

HippoSir wrote: Mon Mar 08, 2021 3:02 pm
e5116 wrote: Mon Mar 08, 2021 2:40 pm Largest (postitive) spread between my SLYV (S&P 600 small value) and MGK (mega-cap growth) holdings I can remember....SLYV up 3.3% and MGK down 1.4%. I hold somewhat of the 'barbell' approach, but skew towards small value much more than mega-cap growth. Hold mega-cap growth in taxable also due to small dividend payout. But still have a much larger helping of Total Stock....VIOV overtook MGK in 1-year performance recently too....
Indeed, today also wasn't just "small" outperformance, value in general rocked it. I wonder if this is finally the start of a sustained rotation...
That is what I thought back in 2016 but the sustained rotation rotated back and wasn't sustained anymore, the market went right back again to being led by Growth. It isn't that Value has done badly, it has actually done well. It is just that Growth has been doing even better since 2009.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

Thoughts on iShares SMLF? "iShares SMLF targets value, quality, momentum, and low size. "

What would be the best way to run a PV factor regression on it: AQR/AA, 3/4 factors and other settings?

Here's my own go: AQR, 4 factor, Quality included: https://www.portfoliovisualizer.com/fac ... sion=false

Significant exposure to 4 factors, which looks good, but annualised alpha of -1.50% doesn't look good (to my untrained eye).
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

All of LCG's 2020 lead has disappeared with SCV looking to roll back 2019's gains.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

YRT70 wrote: Sun Mar 14, 2021 4:01 am Thoughts on iShares SMLF? "iShares SMLF targets value, quality, momentum, and low size. "

What would be the best way to run a PV factor regression on it: AQR/AA, 3/4 factors and other settings?

Here's my own go: AQR, 4 factor, Quality included: https://www.portfoliovisualizer.com/fac ... sion=false

Significant exposure to 4 factors, which looks good, but annualised alpha of -1.50% doesn't look good (to my untrained eye).
I always start with a 6-factor (custom) using Fama French MKT, SMB5, HML, MOM, RMW, CMA myself, as shown here:

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

Looks interesting. I believe Steve Reading is a big fan of the methodology, but only uses it for ex-US small-cap (ISCF). In the US it has to compete with Vanguard's VFMF which has a great methodology and lower costs, but not sure how factor loads would be expected to compare (not enough data).
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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 »

DFA still hasn't released their new ETFs. Talk about missing the boat.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

MotoTrojan wrote: Sun Mar 14, 2021 8:05 am
YRT70 wrote: Sun Mar 14, 2021 4:01 am Thoughts on iShares SMLF? "iShares SMLF targets value, quality, momentum, and low size. "

What would be the best way to run a PV factor regression on it: AQR/AA, 3/4 factors and other settings?

Here's my own go: AQR, 4 factor, Quality included: https://www.portfoliovisualizer.com/fac ... sion=false

Significant exposure to 4 factors, which looks good, but annualised alpha of -1.50% doesn't look good (to my untrained eye).
I always start with a 6-factor (custom) using Fama French MKT, SMB5, HML, MOM, RMW, CMA myself, as shown here:

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

Looks interesting. I believe Steve Reading is a big fan of the methodology, but only uses it for ex-US small-cap (ISCF). In the US it has to compete with Vanguard's VFMF which has a great methodology and lower costs, but not sure how factor loads would be expected to compare (not enough data).
Thank you. Interesting indeed. I like VFMF too. Avg. market cap is a lot larger though: 11.48 Bil vs. 3.11 Bil.

Although it's only a short time period it's interesting to see how little difference there has been between SMLF and VFMF in performance: https://www.portfoliovisualizer.com/bac ... ion3_3=100
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

YRT70 wrote: Sun Mar 14, 2021 4:01 am Thoughts on iShares SMLF? "iShares SMLF targets value, quality, momentum, and low size. "

What would be the best way to run a PV factor regression on it: AQR/AA, 3/4 factors and other settings?

Here's my own go: AQR, 4 factor, Quality included: https://www.portfoliovisualizer.com/fac ... sion=false

Significant exposure to 4 factors, which looks good, but annualised alpha of -1.50% doesn't look good (to my untrained eye).
Regressing its index with data from 1999:
MKT-RF: 0.99
SmB: 0.79
HmL: 0.21
RmW: 0.12
CmA: -0.07 (not stat sig.)
WmL: 0.12
Alpha: 0.08 (monthly, not stat sig.)

I think it's good. If you want to have active, positive exposure to momentum, I'd use it over AVUV. YMMV.
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

YRT70 wrote: Sun Mar 14, 2021 4:01 am
SCV is already multi-factor it contains MKT,SMB and HML three factors. I don't think this fund has any advantage over AVUV/AVDV (which screens for CMW/RMA also) other than small Momentum exposure which Steve Reading has noted. The Fama French factor exposures for DISVX ie AVDV from 1995 is 1.09 for MKT, 0.74 for SMB, 0.33 for HML, -0.11 for MOM and 0.26 for CMW. For DFSVX ie AVUV from 1993 it has 1.02 for MKT, 0.87 for SMB, HML is 0.39, MOM is -0.07, RMW is 0.14.
Last edited by Anon9001 on Sun Mar 14, 2021 10:34 am, edited 2 times in total.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

Steve Reading wrote: Sun Mar 14, 2021 10:17 am
YRT70 wrote: Sun Mar 14, 2021 4:01 am Thoughts on iShares SMLF? "iShares SMLF targets value, quality, momentum, and low size. "

What would be the best way to run a PV factor regression on it: AQR/AA, 3/4 factors and other settings?

Here's my own go: AQR, 4 factor, Quality included: https://www.portfoliovisualizer.com/fac ... sion=false

Significant exposure to 4 factors, which looks good, but annualised alpha of -1.50% doesn't look good (to my untrained eye).
Regressing its index with data from 1999:
MKT-RF: 0.99
SmB: 0.79
HmL: 0.21
RmW: 0.12
CmA: -0.07 (not stat sig.)
WmL: 0.12
Alpha: 0.08 (monthly, not stat sig.)

I think it's good. If you want to have active, positive exposure to momentum, I'd use it over AVUV. YMMV.
Thanks. And how would you feel about owning both AVUV and SMLF?
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

Anon9001 wrote: Sun Mar 14, 2021 10:21 am
YRT70 wrote: Sun Mar 14, 2021 4:01 am
SCV is already multi-factor it contains MKT,SMB and HML three factors. I don't think this fund has any advantage over AVUV/AVDV (which screens for CMW/RMA also) other than small Momentum exposure which Steve Reading has noted.
Thanks. Yes, the added momentum factor is what makes it appealing to me.
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

YRT70 wrote: Sun Mar 14, 2021 10:27 am Thanks. Yes, the added momentum factor is what makes it appealing to me.
It is tiny exposure to Momentum so it would not make a difference unless you are owning only this fund for Equity portion of AA.
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

YRT70 wrote: Sun Mar 14, 2021 10:26 am
Steve Reading wrote: Sun Mar 14, 2021 10:17 am
YRT70 wrote: Sun Mar 14, 2021 4:01 am Thoughts on iShares SMLF? "iShares SMLF targets value, quality, momentum, and low size. "

What would be the best way to run a PV factor regression on it: AQR/AA, 3/4 factors and other settings?

Here's my own go: AQR, 4 factor, Quality included: https://www.portfoliovisualizer.com/fac ... sion=false

Significant exposure to 4 factors, which looks good, but annualised alpha of -1.50% doesn't look good (to my untrained eye).
Regressing its index with data from 1999:
MKT-RF: 0.99
SmB: 0.79
HmL: 0.21
RmW: 0.12
CmA: -0.07 (not stat sig.)
WmL: 0.12
Alpha: 0.08 (monthly, not stat sig.)

I think it's good. If you want to have active, positive exposure to momentum, I'd use it over AVUV. YMMV.
Thanks. And how would you feel about owning both AVUV and SMLF?
I probably will never hold multiple SCV funds (unless I TLHed or something). I don't hold more funds than I need to if I can hit my factor targets with low fees and fewer funds already.

Why are you looking to hold multiple SCV funds? Just because you can't decide which one to opt for?
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

Steve Reading wrote: Sun Mar 14, 2021 10:37 am
YRT70 wrote: Sun Mar 14, 2021 10:26 am
Steve Reading wrote: Sun Mar 14, 2021 10:17 am
YRT70 wrote: Sun Mar 14, 2021 4:01 am Thoughts on iShares SMLF? "iShares SMLF targets value, quality, momentum, and low size. "

What would be the best way to run a PV factor regression on it: AQR/AA, 3/4 factors and other settings?

Here's my own go: AQR, 4 factor, Quality included: https://www.portfoliovisualizer.com/fac ... sion=false

Significant exposure to 4 factors, which looks good, but annualised alpha of -1.50% doesn't look good (to my untrained eye).
Regressing its index with data from 1999:
MKT-RF: 0.99
SmB: 0.79
HmL: 0.21
RmW: 0.12
CmA: -0.07 (not stat sig.)
WmL: 0.12
Alpha: 0.08 (monthly, not stat sig.)

I think it's good. If you want to have active, positive exposure to momentum, I'd use it over AVUV. YMMV.
Thanks. And how would you feel about owning both AVUV and SMLF?
I probably will never hold multiple SCV funds (unless I TLHed or something). I don't hold more funds than I need to if I can hit my factor targets with low fees and fewer funds already.

Why are you looking to hold multiple SCV funds? Just because you can't decide which one to opt for?
Well I already own a big portion of AVUV and AVDV and I'm quite happy with it. Although I do wonder sometimes if I would benefit from having some momentum exposure. Which is why I'm looking at VFMF and SMLF.

I noticed that according to PV and Morningstar SMLF has more momentum loading than VFMF.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

YRT70 wrote: Sun Mar 14, 2021 11:15 am
Well I already own a big portion of AVUV and AVDV and I'm quite happy with it. Although I do wonder sometimes if I would benefit from having some momentum exposure. Which is why I'm looking at VFMF and SMLF.

I noticed that according to PV and Morningstar SMLF has more momentum loading than VFMF.
There are strong arguments for both options but I am personally in the camp of separate value & momentum funds rather than combined screens. The only place where I like momentum involved in value funds is a negative screen (Alpha Architect now screens out lowest 10% of momentum, Avantis uses it to inform trade timing) but outside of that I don't want it to drive my weighting in holdings (and dilute the depth of the value tilt).

https://alphaarchitect.com/2015/03/26/t ... trategies/

The above comparison is a good reference on the different options.

If I get a large windfall down the road I may add some MTUM (or maybe even a little QMOM and/or IMOM) in taxable and take away from my 25% US beta holding (S&P500, all in a 401k) just to offset some of the negative momentum, but for now I am not losing sleep over my negative loading.
Last edited by MotoTrojan on Sun Mar 14, 2021 11:37 am, edited 1 time in total.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Anon9001 wrote: Sun Mar 14, 2021 10:35 am
YRT70 wrote: Sun Mar 14, 2021 10:27 am Thanks. Yes, the added momentum factor is what makes it appealing to me.
It is tiny exposure to Momentum so it would not make a difference unless you are owning only this fund for Equity portion of AA.
To be fair while it is small the real comparison would be the total difference between this and the alternative value fund's negative exposure, which makes it a bit more significant of a delta.
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

YRT70 wrote: Sun Mar 14, 2021 11:15 am
Steve Reading wrote: Sun Mar 14, 2021 10:37 am
YRT70 wrote: Sun Mar 14, 2021 10:26 am
Steve Reading wrote: Sun Mar 14, 2021 10:17 am
YRT70 wrote: Sun Mar 14, 2021 4:01 am Thoughts on iShares SMLF? "iShares SMLF targets value, quality, momentum, and low size. "

What would be the best way to run a PV factor regression on it: AQR/AA, 3/4 factors and other settings?

Here's my own go: AQR, 4 factor, Quality included: https://www.portfoliovisualizer.com/fac ... sion=false

Significant exposure to 4 factors, which looks good, but annualised alpha of -1.50% doesn't look good (to my untrained eye).
Regressing its index with data from 1999:
MKT-RF: 0.99
SmB: 0.79
HmL: 0.21
RmW: 0.12
CmA: -0.07 (not stat sig.)
WmL: 0.12
Alpha: 0.08 (monthly, not stat sig.)

I think it's good. If you want to have active, positive exposure to momentum, I'd use it over AVUV. YMMV.
Thanks. And how would you feel about owning both AVUV and SMLF?
I probably will never hold multiple SCV funds (unless I TLHed or something). I don't hold more funds than I need to if I can hit my factor targets with low fees and fewer funds already.

Why are you looking to hold multiple SCV funds? Just because you can't decide which one to opt for?
Well I already own a big portion of AVUV and AVDV and I'm quite happy with it. Although I do wonder sometimes if I would benefit from having some momentum exposure. Which is why I'm looking at VFMF and SMLF.

I noticed that according to PV and Morningstar SMLF has more momentum loading than VFMF.
I think the correct set of actions is to read up on momentum and see how you feel about it (the empirical evidence, the theories behind it, etc). You might read some of AQR's perspectives (like their "Momentum Everywhere!" and "Facts and Fictions of Momentum") to get a very bullish perspective on it (and especially since just how effective it is along with value). You'll have to weigh that against your Fama/Boglehead/William Sharpe views since it's really hard to reconcile momentum with a rational world (even from a risk perspective).

Only once you have decided what your thoughts on momentum are, can you then revisit the AVUV vs SMLF question. The choice should be easy then.
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

MotoTrojan wrote: Sun Mar 14, 2021 11:36 am To be fair while it is small the real comparison would be the total difference between this and the alternative value fund's negative exposure, which makes it a bit more significant of a delta.
Steve Reading wrote: Sun Mar 14, 2021 10:17 am Regressing its index with data from 1999:
MKT-RF: 0.99
SmB: 0.79
HmL: 0.21
RmW: 0.12
CmA: -0.07 (not stat sig.)
WmL: 0.12
Alpha: 0.08 (monthly, not stat sig.)
Comparing AVUV ie DFSVX with the Index loadings that Steve Reading got from 1999 and the fund is having MKT:1.04,SMB:0.87,HML:0.38 RMW:0.16 ,CMA:0.09 MOM:-0.07 Alpha: -0.0923. Bold values are statistically significant. The fund has slightly higher exposure to Momentum than DFSVX at the expense of some SMB and HML exposure. Realistically would not make a difference unless you own only it as the only fund for your equity portion of AA.
Last edited by Anon9001 on Sun Mar 14, 2021 12:38 pm, edited 6 times in total.
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

MotoTrojan wrote: Sun Mar 14, 2021 11:35 am
YRT70 wrote: Sun Mar 14, 2021 11:15 am
Well I already own a big portion of AVUV and AVDV and I'm quite happy with it. Although I do wonder sometimes if I would benefit from having some momentum exposure. Which is why I'm looking at VFMF and SMLF.

I noticed that according to PV and Morningstar SMLF has more momentum loading than VFMF.
There are strong arguments for both options but I am personally in the camp of separate value & momentum funds rather than combined screens. The only place where I like momentum involved in value funds is a negative screen (Alpha Architect now screens out lowest 10% of momentum, Avantis uses it to inform trade timing) but outside of that I don't want it to drive my weighting in holdings (and dilute the depth of the value tilt).

https://alphaarchitect.com/2015/03/26/t ... trategies/

The above comparison is a good reference on the different options.

If I get a large windfall down the road I may add some MTUM (or maybe even a little QMOM and/or IMOM) in taxable and take away from my 25% US beta holding (S&P500, all in a 401k) just to offset some of the negative momentum, but for now I am not losing sleep over my negative loading.
Thank you. I'll go read that article now.
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Re: Small Cap Value heads Rejoice !!!

Post by manlymatt83 »

Oy! I keep second guessing with all these funds being discussed. AVUV/AVDV is enough and all the others can be ignored, right? VFMF, etc.
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Re: Small Cap Value heads Rejoice !!!

Post by bmstrong »

kolder wrote: Sat Mar 13, 2021 2:34 pm
Bama12 wrote: Sat Mar 13, 2021 1:34 pm What's the best Small Value fund for taxable? I know I should know this....

This question is for my 17 year old son. He is 100% VTI, he has around 20 or so shares of VTI.

or should he just wait until he can open a Roth.


I'm 25% Vanguard S&P Small Cap 600 Value-VIOV in my Roth.

I'm 15% Vanguard Small Value-VSIAX in my 401K.
I expect AVUV will be a bit more tax efficient than other options because it excludes REITS
You aren't the only one looking around at this. I'm thinking of breaking up my taxable VTI into a more concentrated Mid/Small fund(s). I've got enough of the S&P 500 everywhere else in my portfolio.
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Anon9001
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Re: Small Cap Value heads Rejoice !!!

Post by Anon9001 »

manlymatt83 wrote: Sun Mar 14, 2021 12:47 pm Oy! I keep second guessing with all these funds being discussed. AVUV/AVDV is enough and all the others can be ignored, right? VFMF, etc.
AVDV is Ex-US fund and should not be compared against VFMF which is US only. As per Portfolio Visualizer VFMF has these loadings. MKT:0.96 SMB:0.37 HML:0.25 MOM:0.10. Monthly Alpha is -0.3388% and statistically significant. AVUV ie DFSVX has these loadings: MKT:1.02 SMB:0.77 HML:0.49. Monthly alpha is -0.1364% but not statistically significant. I am not sure who should invest in VFMF with these poor loadings that it has combined with the statistically significant negative alpha in comparison to AVUV.
Last edited by Anon9001 on Sun Mar 14, 2021 1:06 pm, edited 1 time in total.
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YRT70
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

Steve Reading wrote: Sun Mar 14, 2021 11:58 am
YRT70 wrote: Sun Mar 14, 2021 11:15 am
Steve Reading wrote: Sun Mar 14, 2021 10:37 am
YRT70 wrote: Sun Mar 14, 2021 10:26 am
Steve Reading wrote: Sun Mar 14, 2021 10:17 am

Regressing its index with data from 1999:
MKT-RF: 0.99
SmB: 0.79
HmL: 0.21
RmW: 0.12
CmA: -0.07 (not stat sig.)
WmL: 0.12
Alpha: 0.08 (monthly, not stat sig.)

I think it's good. If you want to have active, positive exposure to momentum, I'd use it over AVUV. YMMV.
Thanks. And how would you feel about owning both AVUV and SMLF?
I probably will never hold multiple SCV funds (unless I TLHed or something). I don't hold more funds than I need to if I can hit my factor targets with low fees and fewer funds already.

Why are you looking to hold multiple SCV funds? Just because you can't decide which one to opt for?
Well I already own a big portion of AVUV and AVDV and I'm quite happy with it. Although I do wonder sometimes if I would benefit from having some momentum exposure. Which is why I'm looking at VFMF and SMLF.

I noticed that according to PV and Morningstar SMLF has more momentum loading than VFMF.
I think the correct set of actions is to read up on momentum and see how you feel about it (the empirical evidence, the theories behind it, etc). You might read some of AQR's perspectives (like their "Momentum Everywhere!" and "Facts and Fictions of Momentum") to get a very bullish perspective on it (and especially since just how effective it is along with value). You'll have to weigh that against your Fama/Boglehead/William Sharpe views since it's really hard to reconcile momentum with a rational world (even from a risk perspective).

Only once you have decided what your thoughts on momentum are, can you then revisit the AVUV vs SMLF question. The choice should be easy then.
Thanks for the tips. I will try to read some of those papers. Is it fair to say that SMLF should be a bit less risky than AVUV since SMLF is less 'valuey'?

I noticed in the March 2020 drawdown that SMLF din't plummet as hard a AVUV. (30% vs 42%)
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Re: Small Cap Value heads Rejoice !!!

Post by YRT70 »

manlymatt83 wrote: Sun Mar 14, 2021 12:47 pm Oy! I keep second guessing with all these funds being discussed. AVUV/AVDV is enough and all the others can be ignored, right? VFMF, etc.
It's enough for small value exposure and it offers profitability exposure at the same time. But if you want momentum exposure there are better options. But the question whether and how we should pursue momentum is a difficult one, in my opinion. Lot's of conflicting ideas around it.
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading »

Just keep in mind the biggest advantage of blending is the lower, unnecessary trading frictions (ex: if a pure value holding rises in price a lot, the pure value fund will sell it and your pure momentum fund will buy it. A blended approach will recognize it's worse in value but better in momentum and simply hold).

The reason they got the results above is likely for two reasons:
1) They don't model transactional costs (a big win for blending).
2) The pure value/pure momentum approach simply loaded more on factors or alpha. In other words, they should have regressed the returns of both approaches on factors and looked. If the pure value/pure momentum approach simply loaded more on factors, it doesn't get a cookie for that. They should then re-run the blended approach, buying closer to more concentrated (higher than the top decile) until their factor exposures were similar. THEN compare them.

It could've outperformed due to alpha as well. That's a little more interesting because it means using separate signals is somehow bringing more structural alpha than blending. At that point, you just have to ask yourself if you expect that going forward (in other words, if you expect deep value and deep momentum firms to continue producing alpha past their factor exposures).

Unfortunately, they did no factor regressions. They just buy the top decile for both and see one outperform and call it a day. It's not very convincing.
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