How much Small Cap is the Total Stock Market fund?

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Webfoot
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How much Small Cap is the Total Stock Market fund?

Post by Webfoot »

How do I find out a percentage or the weighting of how much Small Cap is in the Vanguard Total Stock Market fund?
livesoft
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Re: How much Small Cap is the Total Stock Market fund?

Post by livesoft »

Definition of "small-cap" depends on who is doing the defining, but a Morningstar 9-box style grid showing percentages can be found at morningstar.com under the portfolio tab and also click on "weight" and not "map"
https://www.morningstar.com/funds/xnas/vtsax/portfolio
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Webfoot
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Re: How much Small Cap is the Total Stock Market fund?

Post by Webfoot »

livesoft wrote: Sat Jun 19, 2021 1:42 pm Definition of "small-cap" depends on who is doing the defining, but a Morningstar 9-box style grid showing percentages can be found at morningstar.com under the portfolio tab and also click on "weight" and not "map"
https://www.morningstar.com/funds/xnas/vtsax/portfolio
Thank you!!
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JoMoney
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Re: How much Small Cap is the Total Stock Market fund?

Post by JoMoney »

... what liveosft said...

If you get into Fama-French factor models', by definition 'Total Stock Market' has 0 loading on the 'small' risk factor, only the 'market' factor.
Their factor regression method uses the 'Total Stock Market' as the starting point, 0.0 by which to measure whether a portfolio has a positive (or negative) loading on the factor.
Last edited by JoMoney on Sat Jun 19, 2021 2:17 pm, edited 1 time in total.
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Re: How much Small Cap is the Total Stock Market fund?

Post by JonnyDVM »

I thought it was roughly 20%
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JoMoney
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Re: How much Small Cap is the Total Stock Market fund?

Post by JoMoney »

JonnyDVM wrote: Sat Jun 19, 2021 2:16 pm I thought it was roughly 20%
They say you need roughly 20% of small/mid to add to the S&P 500 for the portfolio to roughly equal 'Total Stock Market'
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Re: How much Small Cap is the Total Stock Market fund?

Post by stan1 »

If one wants to tilt it is easier to tilt away from Total Stock Market than to continually try to recalculate or even identify a preferred methodology for small caps. Every index, academic study, and publication uses a different definition.

So for example once can have an allocation that is 75% Total Stock Market and 25% US SCV if desired.
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Re: How much Small Cap is the Total Stock Market fund?

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Webfoot wrote: Sat Jun 19, 2021 1:39 pm How do I find out a percentage or the weighting of how much Small Cap is in the Vanguard Total Stock Market fund?
Here's a variety of ways of looking at market caps:

Image

Looking at the third column (S&P) in particular, I'll note that the S&P 500 "completion index", aka "Vanguard Extended Market Index" VEXAX/VXF, should include all three of the S&P color ranges at the bottom, i.e. the purple, green and red ones. Vanguard's "Total Stock Market" index is essentially the full 100% you see in the X-axis.

[Edit] - According to the Morningstar graphic at this link (scroll down to graphic), small cap stock comprises 9% of Vanguard's TSM: http://portfolios.morningstar.com/fund/ ... ture=en-us Although their data off to the left of the graphic say it's 6.17% It's all in the eye of the beholder. Eyeballing the CRSP graphic above, 10-15% appears to be a popular way of looking at it too.
Last edited by Angst on Sat Jun 19, 2021 2:47 pm, edited 2 times in total.
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Re: How much Small Cap is the Total Stock Market fund?

Post by nisiprius »

Roughly, there are two divergent schools of thought. I'll call them "total market" versus "small-cap value tilt."

John C. Bogle believed in total market indexing; that is to say, matching the composition of the market. I happen to belong in that camp myself.

The S&P 500 was created in 1957 and it was intended to come as close to representing the total market as was feasible given the computing power at the time. It was a human choice of "leading stocks in leading industries" rather than "the 500 largest stocks," because it was not until about 1981 that the "small firm" effect was discovered, and in 1957 capitalization size was not seen as an obvious criterion to select on.

For all the fuss that's made about it, there really has been surprisingly little difference in the performance of the S&P 500 and the Vanguard Total Stock Market Index Fund. That's because, by dollar value, 80% of the Total Stock Market Index Fund is the S&P 500; and the other 20% has been about 87% correlated with it. If the idea is to own the market and not pick and choose, the Total Stock Market Fund is logically preferable because it comes closer to that goal, but it isn't a big difference.

The Total Stock Market Fund only puts about 6% of its money into small caps, and only about 1% into small-cap value. Livesoft has already pointed you to where to find that breakdown in Morningstar "portfolio" tab. It "has" small caps, but not a lot.

The other school of thought involves categorizing and sorting stocks according to statistical "risk factors," one being "size" (capitalization) and another being "value." This emerged from academic work in 1992 and 1993 by Fama and French.

People who subscribe to this school of thought believe that you can get superior risk-adjusted returns by overweighting small-cap value, by putting a much higher percentage of your portfolio into this category of stock than the market as a whole puts. The portfolios suggested by people who advocate this are talking about putting as much as 10-30% of your stock portfolio into small-caps, value stocks, and small-cap value stocks.

What I am leading up to is that people who say you "need" small caps, or small-cap value, think you need much more of it than is in Total Stock. When told "you need small caps" or "you need small-cap value" it is natural for holders of Total Stock Market to say "I'm a Total Stock investor, I already have it." But it's not really a good reply. When people say you "need" small caps or small-cap value, what they really mean is that you need a small-cap tilt or a small-cap value tilt. That is to say, an overweight: considerably more money invested in this stock category than the natural weighting within the stock market itself.
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livesoft
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Re: How much Small Cap is the Total Stock Market fund?

Post by livesoft »

livesoft wrote: Sat Jun 19, 2021 1:42 pm Definition of "small-cap" depends on who is doing the defining, but a Morningstar 9-box style grid showing percentages can be found at morningstar.com under the portfolio tab and also click on "weight" and not "map"
https://www.morningstar.com/funds/xnas/vtsax/portfolio
Isn't it neat that the whole numbers in the 9-box style grid add up to only 96%? The other 4% is spread out fractionally somewhere in there and lost. :twisted:
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Re: How much Small Cap is the Total Stock Market fund?

Post by Angst »

livesoft wrote: Sat Jun 19, 2021 2:47 pm
livesoft wrote: Sat Jun 19, 2021 1:42 pm Definition of "small-cap" depends on who is doing the defining, but a Morningstar 9-box style grid showing percentages can be found at morningstar.com under the portfolio tab and also click on "weight" and not "map"
https://www.morningstar.com/funds/xnas/vtsax/portfolio
Isn't it neat that the whole numbers in the 9-box style grid add up to only 96%? The other 4% is spread out fractionally somewhere in there and lost. :twisted:
And slightly less than neat is the fact that the graphics' whole numbers for small cap at yours and my Morningstar links sum up to 6% and 9% respectively! Go figure. :shock: Both pages state data "As of 05/31/2021". I think M* forgot to add in Micro cap to your small cap totals.
https://www.morningstar.com/funds/xnas/vtsax/portfolio
http://portfolios.morningstar.com/fund/summary?t=VTSAX&region=USA&culture=en-us
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Re: How much Small Cap is the Total Stock Market fund?

Post by AlwaysLearningMore »

Webfoot wrote: Sat Jun 19, 2021 1:39 pm How do I find out a percentage or the weighting of how much Small Cap is in the Vanguard Total Stock Market fund?
Are you looking for the small-cap portion of TSM to shore up TSM when large caps are having a rough time? It's not a rarity for "TSM" to close down on a day when mid-caps and small-caps are generally up:

Image

Paul Merriman interviewed by Rick Ferri February 2020, Bogleheads on Investing podcast - Episode 018 transcript

“And what do we get when we get the S&P 500 and the total market index? We get a cap weighted portfolio that means that almost all of your exposure to risk is in large cap growth.

I shouldn’t say almost all, but certainly over 50 percent is in large cap growth. And that’s not necessarily bad but when we look at the past that the academics have recreated going back to the ‘20s, what we know is– first thing we know that I want to clear up– is the return of the S&P 500 is virtually the same over the last 90 years. That the total market index is not turning out a better rate of return, or it does not create an expected higher return than the S&P 500. Oh they’ll say they’ve got small cap and they’ve got value, but it’s so little that those big companies that are in there, because it’s cap weighted, they just walk all over the small cap companies in terms of impact on the return.

So what I advocate for is in the US market is a simple approach where you would spread the money away, not based on cap weighted but based on asset class weighted. And this is not anything I ever came up with Rick. I don’t think I’ve had an original thought in my life, but I went through the DFA process, as you did, and I think they teach you a lot of really good stuff about how investing works. And one way to improve earnings, at least looking backwards, is to rebuild the portfolio, to have some small and some value and some large cap in the US.” https://tinyurl.com/sbcab98
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Re: How much Small Cap is the Total Stock Market fund?

Post by grabiner »

The best answer is, "as much small-cap as your definition of small-cap". Different index providers and different investors will split the market differently. If you define small-cap to be the bottom 10% of the market (which is about what S&P and Russell do), and you hold 15% of your portfolio in small-caps by that definition, you are overweighting small-caps. If you define it to be the bottom 15% (which is what CRSP does, and thus what Vanguard Small-Cap Index does), then a 15% holding in small-caps is the market weight.

I use 20% in my own asset allocation, because I don't treat mid-caps as a separate asset class. I hold large-cap, all-cap, and small-cap funds, but no mid-cap fund and thus no need to track mid-caps separately. So I treat all my small-cap funds as 100% small-cap even if they might include some mid-caps by other investors' definition, and my Total Stock Market as 80% large and 20% small.
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Re: How much Small Cap is the Total Stock Market fund?

Post by Webfoot »

What got me going on this is I wanted to sell some stock with an eye on simplifying. I have the main Vanguard pillars of Total Stock and Total Bond funds but also have a IJS Small Cap fund for at least 10 years which has gone up to 8% of my portfolio.

So...

1) Is tilting with Small Cap still in favor'?.. maybe it never was...
2) How much tilt? 5% or just get out of it?

I think I remember a Vanguard Advisor who did the freebie portfolio review many years ago saying there is enough Small Cap in the Total Stock market and don't really need a separate fund (I would need to check my notes on that).
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Re: How much Small Cap is the Total Stock Market fund?

Post by Tyler9000 »

Webfoot wrote: Sat Jun 19, 2021 1:39 pm How do I find out a percentage or the weighting of how much Small Cap is in the Vanguard Total Stock Market fund?
It depends on the index. For example, the green bands represent "small cap" in this chart:

Image

For reference, VTI tracks the CRSP index. So by their definition, VTI is 13% small cap (the bottom 15% of the market sorted by capitalization excluding the very smallest 2% that they classify as micro caps). But if you plug the same fund into a different analysis tool like a Morningstar style box, you may get different percentages simply because they define "small" differently.

Here's more info if you're interested: How Size And Value Actually Work
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Re: How much Small Cap is the Total Stock Market fund?

Post by livesoft »

Webfoot wrote: Sat Jun 19, 2021 4:40 pm What got me going on this is I wanted to sell some stock with an eye on simplifying. I have the main Vanguard pillars of Total Stock and Total Bond funds but also have a IJS Small Cap fund for at least 10 years which has gone up to 8% of my portfolio.

So...

1) Is tilting with Small Cap still in favor'?.. maybe it never was...
2) How much tilt? 5% or just get out of it?

I think I remember a Vanguard Advisor who did the freebie portfolio review many years ago saying there is enough Small Cap in the Total Stock market and don't really need a separate fund (I would need to check my notes on that).
IJS is small-cap value. It has done remarkably well in the past year and especially in 2021 compared to Total US Stock Market Index. However, in the past week small-cap value indexes have dropped more than 5.5%.

1. So I think small-cap is still in as much favor as it ever was.

2. This is a personal decision. My personal decision is to have the large-cap row of the M* 9-box style grid of my entire portfolio sum to be 45% to 50% instead of the 70% to 75% that is found in Total US Stock Market Index. Then rebalance as needed to keep that asset allocation.
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Re: How much Small Cap is the Total Stock Market fund?

Post by grabiner »

Tyler9000 wrote: Sat Jun 19, 2021 4:51 pm
Webfoot wrote: Sat Jun 19, 2021 1:39 pm How do I find out a percentage or the weighting of how much Small Cap is in the Vanguard Total Stock Market fund?
It depends on the index. For example, the green bands represent "small cap" in this chart:

Image
The S&P column in this chart is misleading. The stocks not in any of the S&P indexes may be in any cap range, not necessarily micro-cap. The S&P 600 holds stocks which are representative of the small-cap market, with about the same cap range as the Russell 2000; thus the S&P is missing a lot of small-caps. You can also see that some mid-caps are missing because the total market cap of the S&P 500 and 400, containing 900 stocks, is less than that of the MSCI 750, containing the 750 largest.
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Re: How much Small Cap is the Total Stock Market fund?

Post by Scooter57 »

Why not go to the source. Vanguard:s advisors web site says 7.3%.

https://advisors.vanguard.com/investmen ... #portfolio

This is less than the 8.66% concentrated on just two stocks, Apple and Microsoft. This tells me that it is delusional to think small cap stocks might have any impact on your investing results when owning this fund.
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Re: How much Small Cap is the Total Stock Market fund?

Post by NiceUnparticularMan »

nisiprius wrote: Sat Jun 19, 2021 2:35 pm The other school of thought involves categorizing and sorting stocks according to statistical "risk factors," one being "size" (capitalization) and another being "value." This emerged from academic work in 1992 and 1993 by Fama and French.

People who subscribe to this school of thought believe that you can get superior risk-adjusted returns by overweighting small-cap value, by putting a much higher percentage of your portfolio into this category of stock than the market as a whole puts. The portfolios suggested by people who advocate this are talking about putting as much as 10-30% of your stock portfolio into small-caps, value stocks, and small-cap value stocks.
Just as an aside . . .

I tilt to SV, but I don't believe that means I can get superior risk-adjusted returns. Rather, I believe that approach might have higher long-term expected returns, but if so, only because I am more exposed to the relevant size and value risk factors. If that is all true, I have not added expected return without more risk, it is just that those additional risk factors are not the same as the market risk factor.

So, adjusted only for the market risk factor, if all this is true and works out around as expected, in the long run it may look like "superior risk-adjusted returns." But that would only be because I was only adjusting for the market risk factor. I would expect if you then also adjusted for the small and value risk factors, it would not in fact look superior, just riskier and with higher returns.

Incidentally, I also put way more of my stock portfolio than 30% in tilted funds, but that is a different issue. And the degree to which it is actually tilted from a market portfolio depends on the actual factor loadings of those funds, and I actually don't even pretend to try to track that.
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