Small Cap Value heads Rejoice !!!

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drumboy256
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Re: Small Cap Value heads Rejoice !!!

Post by drumboy256 »

SafeBonds wrote: Mon Jan 16, 2023 11:17 am I guess we're a little off topic but it is really interesting how so many of us have higher international allocations than other Bogleheads or are even overweight International. Among my stock allocation I am

40% US (About 50/50 AVUV / the low cost value index fund in my 401k)
40% Developed Int'l (about 50/50 AVDV and DFA Intl Value fund)
20% Emerging markets (DFA Emerg Value)

To get us back on topic we can talk about how our international allocation has small cap value funds. Like I mentioned I have a large allocation to AVDV. I have read here in Bogelehads that small cap international is a better diversifier to US stocks than large cap international because mega cap stocks are all international megacorps with the same global clients, but smaller companies are more affected by their local companies. So that is another reason why AVDV is such a good fund that I recommend. But since I have such a high allocation to international I am happy with my large allocation to DFA International Value, which is not a small cap fund. I have this in my 401k. If I had a, say, 20% international allocation that so many have here I would have my whole international developed allocation in AVDV. (The 20% allocation is popular here because Bogle recommended 0%-20% and Vanguard recommended 20%-40%, so that is where they overlap)
That's one of the reasons I goldilocks with 30% International which is a mix of AVDV, AVGE and VTMGX. I think the value "premium" of small-mid-cap of AVDV is also the sweet spot of not getting locked into the value trap of just being small since the factors Internationally are different than perhaps US or even Emerging Markets. I do think a tilt away from large cap / mega cap companies over the next 10-15 years is where the market is moving because the result is valuations and earnings that sustained them getting there, just aren't going to keep going on forever. I figure if a person has a LEAST 20% in International at this stage of the game, they'll more than likely keep it because they see the value of it. The US only folks--- I somewhat feel bad for them--- but at the same time, I don't feel bad either.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | 20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
NiceUnparticularMan
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Re: Small Cap Value heads Rejoice !!!

Post by NiceUnparticularMan »

SafeBonds wrote: Mon Jan 16, 2023 11:17 am I guess we're a little off topic but it is really interesting how so many of us have higher international allocations than other Bogleheads or are even overweight International. Among my stock allocation I am

40% US (About 50/50 AVUV / the low cost value index fund in my 401k)
40% Developed Int'l (about 50/50 AVDV and DFA Intl Value fund)
20% Emerging markets (DFA Emerg Value)

To get us back on topic we can talk about how our international allocation has small cap value funds. Like I mentioned I have a large allocation to AVDV. I have read here in Bogelehads that small cap international is a better diversifier to US stocks than large cap international because mega cap stocks are all international megacorps with the same global clients, but smaller companies are more affected by their local companies. So that is another reason why AVDV is such a good fund that I recommend. But since I have such a high allocation to international I am happy with my large allocation to DFA International Value, which is not a small cap fund. I have this in my 401k. If I had a, say, 20% international allocation that so many have here I would have my whole international developed allocation in AVDV. (The 20% allocation is popular here because Bogle recommended 0%-20% and Vanguard recommended 20%-40%, so that is where they overlap)
With a mere 40% of stocks in ex-US (very wimpy by the standards here), I wouldn't mind if it was all value, but I would probably not do only SV but would keep at least a good chunk in ex-US LV as well. I agree it may not be as good a diversifier in "normal" times as ex-US SV, but in scenarios where country-specific risk has shown up for US companies, I would not necessarily want to be entirely out of ex-US LV.

In practice I have never been at my actual target allocations (US or ex-US) due to limited options in employer plans.
gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

NiceUnparticularMan wrote: Mon Jan 16, 2023 2:46 pm
SafeBonds wrote: Mon Jan 16, 2023 11:17 am I guess we're a little off topic but it is really interesting how so many of us have higher international allocations than other Bogleheads or are even overweight International. Among my stock allocation I am

40% US (About 50/50 AVUV / the low cost value index fund in my 401k)
40% Developed Int'l (about 50/50 AVDV and DFA Intl Value fund)
20% Emerging markets (DFA Emerg Value)

To get us back on topic we can talk about how our international allocation has small cap value funds. Like I mentioned I have a large allocation to AVDV. I have read here in Bogelehads that small cap international is a better diversifier to US stocks than large cap international because mega cap stocks are all international megacorps with the same global clients, but smaller companies are more affected by their local companies. So that is another reason why AVDV is such a good fund that I recommend. But since I have such a high allocation to international I am happy with my large allocation to DFA International Value, which is not a small cap fund. I have this in my 401k. If I had a, say, 20% international allocation that so many have here I would have my whole international developed allocation in AVDV. (The 20% allocation is popular here because Bogle recommended 0%-20% and Vanguard recommended 20%-40%, so that is where they overlap)
With a mere 40% of stocks in ex-US (very wimpy by the standards here), I wouldn't mind if it was all value, but I would probably not do only SV but would keep at least a good chunk in ex-US LV as well. I agree it may not be as good a diversifier in "normal" times as ex-US SV, but in scenarios where country-specific risk has shown up for US companies, I would not necessarily want to be entirely out of ex-US LV.

In practice I have never been at my actual target allocations (US or ex-US) due to limited options in employer plans.
I feel that your method is totally workable. At the end of the day, the best strategy in investment is the the one that you can stick with.

I don't specifically target Small Value, but I do believe that factors will continue to work over time, and that factors such as value and momentum tend to work better in smaller smaller companies, so I specifically purchase funds that have target smaller companies along with other factors like value, quality, and momentum. I try to evaluate a fund based upon its overall factor exposure, costs, and any possible negative alpha. That is why I have a portfolio that is smaller and more value focused than most people.
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Ketawa
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Re: Small Cap Value heads Rejoice !!!

Post by Ketawa »

SafeBonds wrote: Mon Jan 16, 2023 11:17 am I guess we're a little off topic but it is really interesting how so many of us have higher international allocations than other Bogleheads or are even overweight International. Among my stock allocation I am

40% US (About 50/50 AVUV / the low cost value index fund in my 401k)
40% Developed Int'l (about 50/50 AVDV and DFA Intl Value fund)
20% Emerging markets (DFA Emerg Value)

To get us back on topic we can talk about how our international allocation has small cap value funds. Like I mentioned I have a large allocation to AVDV. I have read here in Bogelehads that small cap international is a better diversifier to US stocks than large cap international because mega cap stocks are all international megacorps with the same global clients, but smaller companies are more affected by their local companies. So that is another reason why AVDV is such a good fund that I recommend. But since I have such a high allocation to international I am happy with my large allocation to DFA International Value, which is not a small cap fund. I have this in my 401k. If I had a, say, 20% international allocation that so many have here I would have my whole international developed allocation in AVDV. (The 20% allocation is popular here because Bogle recommended 0%-20% and Vanguard recommended 20%-40%, so that is where they overlap)
I'm market weight for region splits. My whole portfolio, exclusively in my IRA and TSP account:

15% QSMLX
7% QICLX
3% QTENX
10% QSPIX

5% DFSVX
2% DISVX
8% DEMGX

34% TSP S Fund
16% TSP I Fund

The TSP Mutual Fund Window is limited to 25% of the total TSP balance, otherwise I'd have a lot more in DFA funds. Earlier in the thread, I posted my thought process for picking the DFA funds that I chose. I had to make a decision about whether to prioritize having enough emerging markets in my TSP that it would overall have market weight region splits, vs putting more emerging markets in my IRA; I went with the former, which is why DEMGX is such a relatively large holding compared to the other DFA options.
NiceUnparticularMan wrote: Mon Jan 16, 2023 2:46 pm With a mere 40% of stocks in ex-US (very wimpy by the standards here), I wouldn't mind if it was all value, but I would probably not do only SV but would keep at least a good chunk in ex-US LV as well. I agree it may not be as good a diversifier in "normal" times as ex-US SV, but in scenarios where country-specific risk has shown up for US companies, I would not necessarily want to be entirely out of ex-US LV.

In practice I have never been at my actual target allocations (US or ex-US) due to limited options in employer plans.
40% of stocks in ex-US is basically market weight. Personally, I think that's a great choice. My asset allocation is set to market weights for region splits simply because I want to take the decision out of my hands. I've been at market weight, wherever it is, for the last 10 years.
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

Ketawa wrote: Mon Jan 16, 2023 11:23 pm
SafeBonds wrote: Mon Jan 16, 2023 11:17 am I guess we're a little off topic but it is really interesting how so many of us have higher international allocations than other Bogleheads or are even overweight International. Among my stock allocation I am

40% US (About 50/50 AVUV / the low cost value index fund in my 401k)
40% Developed Int'l (about 50/50 AVDV and DFA Intl Value fund)
20% Emerging markets (DFA Emerg Value)

To get us back on topic we can talk about how our international allocation has small cap value funds. Like I mentioned I have a large allocation to AVDV. I have read here in Bogelehads that small cap international is a better diversifier to US stocks than large cap international because mega cap stocks are all international megacorps with the same global clients, but smaller companies are more affected by their local companies. So that is another reason why AVDV is such a good fund that I recommend. But since I have such a high allocation to international I am happy with my large allocation to DFA International Value, which is not a small cap fund. I have this in my 401k. If I had a, say, 20% international allocation that so many have here I would have my whole international developed allocation in AVDV. (The 20% allocation is popular here because Bogle recommended 0%-20% and Vanguard recommended 20%-40%, so that is where they overlap)
I'm market weight for region splits. My whole portfolio, exclusively in my IRA and TSP account:

15% QSMLX
7% QICLX
3% QTENX
10% QSPIX

5% DFSVX
2% DISVX
8% DEMGX

34% TSP S Fund
16% TSP I Fund

The TSP Mutual Fund Window is limited to 25% of the total TSP balance, otherwise I'd have a lot more in DFA funds. Earlier in the thread, I posted my thought process for picking the DFA funds that I chose. I had to make a decision about whether to prioritize having enough emerging markets in my TSP that it would overall have market weight region splits, vs putting more emerging markets in my IRA; I went with the former, which is why DEMGX is such a relatively large holding compared to the other DFA options.
NiceUnparticularMan wrote: Mon Jan 16, 2023 2:46 pm With a mere 40% of stocks in ex-US (very wimpy by the standards here), I wouldn't mind if it was all value, but I would probably not do only SV but would keep at least a good chunk in ex-US LV as well. I agree it may not be as good a diversifier in "normal" times as ex-US SV, but in scenarios where country-specific risk has shown up for US companies, I would not necessarily want to be entirely out of ex-US LV.

In practice I have never been at my actual target allocations (US or ex-US) due to limited options in employer plans.
40% of stocks in ex-US is basically market weight. Personally, I think that's a great choice. My asset allocation is set to market weights for region splits simply because I want to take the decision out of my hands. I've been at market weight, wherever it is, for the last 10 years.
That's sounds like a logical and understandable process. I decided to underweight US due to valuations and the high likelihood of me retiring somewhere overseas. I also specifically overweighted Emerging Markets relative to Developed Markets ex US also due to valuations and lower correlations with US stocks. Only time will tell if it was the right decision, but I'm comfortable with it either way.

How did you decide upon your large to small slant?
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Ketawa
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Re: Small Cap Value heads Rejoice !!!

Post by Ketawa »

gtwhitegold wrote: Tue Jan 17, 2023 12:31 am How did you decide upon your large to small slant?
I didn't decide on a specific breakdown, I simply chose my preferred option in each account type. I would hold more small cap funds if there were other multi-factor investments available. I prefer QICLX to AVDV because I believe in momentum more than small cap.
NiceUnparticularMan
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Re: Small Cap Value heads Rejoice !!!

Post by NiceUnparticularMan »

Ketawa wrote: Mon Jan 16, 2023 11:23 pm 40% of stocks in ex-US is basically market weight. Personally, I think that's a great choice. My asset allocation is set to market weights for region splits simply because I want to take the decision out of my hands. I've been at market weight, wherever it is, for the last 10 years.
Interestingly, back when I settled on that it was a modest overweighting of US, and I was persuaded by some research that a little home country bias was a good thing. At the time, though, ex-US had done relatively well recently, and so the global weight people were more dominant in discussions here.

Recently, of course, 40% became more or less market weight. I guess theoretically I should have been upping my US percentage to keep tracking my intended home country bias, but I am way too lazy for that.
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imak
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Re: Small Cap Value heads Rejoice !!!

Post by imak »

Adding to value rejoicing: AQR's latest research note

Value: Why Now?
Capturing the Comeback in Its Early Innings, A Long/Short Value Strategy Is as Attractive as It Has Been in the Past 30 Years
https://www.aqr.com/Insights/Research/W ... ly-Innings

Interesting excerpt on fundamentals:
"You might wonder, though, whether value spreads are at extreme levels for a fundamental reason – which gets to our second lens: implied growth rates. In order to justify current valuation multiples from a fundamental perspective, expensive companies in developed markets would have to outgrow their cheap industry peers by approximately 90% over the next five years (Exhibit 3). This is 3-5x higher than analyst expectations and almost 2x the maximum growth differential seen in the historical sample.

In other words, value spreads are likely at extreme levels because market participants are over-extrapolating growth, leading to extremely attractive forward-looking expected returns for the value factor. This overall finding is robust across various methodologies, including adjustments for intangibles, adjustments for repurchases, and exclusion of mega cap stocks."
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gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

Ketawa wrote: Tue Jan 17, 2023 11:15 am
gtwhitegold wrote: Tue Jan 17, 2023 12:31 am How did you decide upon your large to small slant?
I didn't decide on a specific breakdown, I simply chose my preferred option in each account type. I would hold more small cap funds if there were other multi-factor investments available. I prefer QICLX to AVDV because I believe in momentum more than small cap.
Makes sense, and I do agree that other factors are more important than small, but I personally prefer to have some exposure to everything, so I decided to split my Developed Ex-US between ISCF AND AVDV when I can. Right now I'm just using SFILX for that in my accounts that don't allow for fractional shares of ETFs.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Nathan Drake wrote: Fri Jan 13, 2023 11:14 am
MotoTrojan wrote: Fri Jan 13, 2023 10:53 am
averagedude wrote: Fri Jan 13, 2023 12:34 am I've been away from this forum lately, but I came back to rejoice my small cap value tilt! Lost money last year just like most people did, but perhaps not as much. Still behind though since I started this tilt thing but I have faith that there is a pot of gold at the end of the rainbow.Now if only International stocks will finally pay off so I won't feel so stupid about my investing decisions.
68% ex-US today. In due time my friend...
Ha! There's very few on here that have as much exUS as I do at roughly 60%. Most people can't fathom having that much international but think 100% US is just fine.

It felt pretty good allocating most of 2022's funds to AVDV/AVES last year while they both corrected sharply and the USD soared....any meaningful correction on the currency or geopolotical situation should see a nice boost to exUS
Agree, been a nice boost and still have a huge potential currency tailwind (GMO had a fantastic piece on that last year). My current target is 60% (40/40/20) so I am sinning a little. If my taxable portfolio continues to dwarf my tax-advantaged I may shift that to 50/50 down the road, but riding this wave for the foreseeable future.
Startled Cat wrote: Fri Jan 13, 2023 3:19 pm 83% ex-US here.
WOW that is some serious conviction. What is the story here? Highly tactical? Would you reduce if XYZ happens?
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Re: Small Cap Value heads Rejoice !!!

Post by Dry-Drink »

imak wrote: Tue Jan 17, 2023 2:23 pm
"You might wonder, though, whether value spreads are at extreme levels for a fundamental reason – which gets to our second lens: implied growth rates. In order to justify current valuation multiples from a fundamental perspective, expensive companies in developed markets would have to outgrow their cheap industry peers by approximately 90% over the next five years (Exhibit 3). This is 3-5x higher than analyst expectations and almost 2x the maximum growth differential seen in the historical sample.
It's eerie that I recently complained AQR has been hammering home the concept of "value spreads" without addressing the difference in earnings that could account for a large portion of it:
viewtopic.php?p=7050020#p7050020

Glad to hear AQR is recognizing it and reminding us the value spread is mostly unaccounted for by earnings spreads.
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Re: Small Cap Value heads Rejoice !!!

Post by Startled Cat »

MotoTrojan wrote: Wed Jan 18, 2023 12:19 pm WOW that is some serious conviction. What is the story here? Highly tactical? Would you reduce if XYZ happens?
I like ex-US value for the same reasons described in recent posts so I've been putting most new contributions there (some in US small value, but I've been a little hesitant since this has gained a lot in the last few years).

Plenty of posters are proudly US-only or far overweight US, so I don't think my portfolio is especially extreme by that standard. I also have significant real estate holdings which are entirely in the US. That said, I'm looking to add a bit more US exposure to my stock portfolio for diversification and tax-efficiency.
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Startled Cat wrote: Wed Jan 18, 2023 1:46 pm
MotoTrojan wrote: Wed Jan 18, 2023 12:19 pm WOW that is some serious conviction. What is the story here? Highly tactical? Would you reduce if XYZ happens?
I like ex-US value for the same reasons described in recent posts so I've been putting most new contributions there (some in US small value, but I've been a little hesitant since this has gained a lot in the last few years).

Plenty of posters are proudly US-only or far overweight US, so I don't think my portfolio is especially extreme by that standard. I also have significant real estate holdings which are entirely in the US. That said, I'm looking to add a bit more US exposure to my stock portfolio for diversification and tax-efficiency.
Tax-efficiency is a big one. Especially in factor products, huge differential today in yields.
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Re: Small Cap Value heads Rejoice !!!

Post by Nathan Drake »

MotoTrojan wrote: Wed Jan 18, 2023 4:49 pm
Startled Cat wrote: Wed Jan 18, 2023 1:46 pm
MotoTrojan wrote: Wed Jan 18, 2023 12:19 pm WOW that is some serious conviction. What is the story here? Highly tactical? Would you reduce if XYZ happens?
I like ex-US value for the same reasons described in recent posts so I've been putting most new contributions there (some in US small value, but I've been a little hesitant since this has gained a lot in the last few years).

Plenty of posters are proudly US-only or far overweight US, so I don't think my portfolio is especially extreme by that standard. I also have significant real estate holdings which are entirely in the US. That said, I'm looking to add a bit more US exposure to my stock portfolio for diversification and tax-efficiency.
Tax-efficiency is a big one. Especially in factor products, huge differential today in yields.
I’d gladly pay higher taxes on larger gains :)
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Re: Small Cap Value heads Rejoice !!!

Post by GRP »

In order for a proposed factor to pass the "sniff test" in the factor literature, it must survive taxes and transactions costs. If it didn't, it wouldn't be a factor.
Almost nothing turns out as expected.
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Re: Small Cap Value heads Rejoice !!!

Post by SafeBonds »

GRP wrote: Wed Jan 18, 2023 6:55 pm In order for a proposed factor to pass the "sniff test" in the factor literature, it must survive taxes and transactions costs. If it didn't, it wouldn't be a factor.
That is one of the 5 criteria a proposed factor has to meet in order to be a factor in Swedroe & Berkin's book on Factor Investing. "Investibility".
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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan »

Nathan Drake wrote: Wed Jan 18, 2023 6:51 pm

I’d gladly pay higher taxes on larger gains :)
Totally with you there!
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Re: Small Cap Value heads Rejoice !!!

Post by Startled Cat »

Nathan Drake wrote: Wed Jan 18, 2023 6:51 pm I’d gladly pay higher taxes on larger gains :)
Morningstar shows trailing-twelve-months yields of 1.74% for AVUV and 3.17% for AVDV. In 2021, AVUV had 100% QDI, and AVDV only had 71.2% QDI. When you run the numbers in a high tax rate scenario where the rates are 36.1% on qualified dividends (20% federal + 3.8% NIIT + 12.3% state) and 53.1% on non-qualified dividends (37% federal + 3.8% NIIT + 12.3% state), the tax cost ratio comes out to 0.63% for AVUV and 1.30% for AVDV. I'm pretty bullish on ex-US value, but that 67 basis point delta is a big hurdle to overcome. Foreign tax credit just compensates for double-taxation (if I understand it correctly), so I'm not sure it would be fair to count it to AVDV's advantage.
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Re: Small Cap Value heads Rejoice !!!

Post by JasonHutt »

.....
Last edited by JasonHutt on Sat Jan 21, 2023 9:39 am, edited 1 time in total.
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Re: Small Cap Value heads Rejoice !!!

Post by Nathan Drake »

Startled Cat wrote: Fri Jan 20, 2023 7:58 pm
Nathan Drake wrote: Wed Jan 18, 2023 6:51 pm I’d gladly pay higher taxes on larger gains :)
Morningstar shows trailing-twelve-months yields of 1.74% for AVUV and 3.17% for AVDV. In 2021, AVUV had 100% QDI, and AVDV only had 71.2% QDI. When you run the numbers in a high tax rate scenario where the rates are 36.1% on qualified dividends (20% federal + 3.8% NIIT + 12.3% state) and 53.1% on non-qualified dividends (37% federal + 3.8% NIIT + 12.3% state), the tax cost ratio comes out to 0.63% for AVUV and 1.30% for AVDV. I'm pretty bullish on ex-US value, but that 67 basis point delta is a big hurdle to overcome. Foreign tax credit just compensates for double-taxation (if I understand it correctly), so I'm not sure it would be fair to count it to AVDV's advantage.
In a period of slight international outperformance (2000-2010), DM SCV outperformed US SCV by 1% annualized.

If the next decade has much stronger exUS outperformance, AVDV will likely do even better than 1% more. So it more than offsets the added cost, if you strongly believe it to have higher expected returns (which I do).

https://www.portfoliovisualizer.com/bac ... ion2_2=100

That said, I have about 50% of my portfolio in tax sheltered accounts and I prioritize international in these accounts and have most of my US assets in taxable.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Re: Small Cap Value heads Rejoice !!!

Post by Forester »

Quick Excel math:

For US small cap value (IJS) to reach its May 2006 zenith vs large cap growth (IVW), IJS would be 48% higher at $144.

The average IVW/IJS ratio since 2000 is 1.84, implying that IJS "should" be $110, about 13% higher.
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Re: Small Cap Value heads Rejoice !!!

Post by Kenster1 »

For international Dev and EM I’m probably sticking with predominantly Large-Midcaps or Multi-cap but with Value & Profitability tilt.

In the Int’l and EM space the long-term factor expected higher returns mainly came from Value & Profitability. Yes Small benefited but barely - it was thin. Add in the higher trading costs and higher ER plus small company risks — I just don’t see the benefits in targeting it. There’s been some papers written about why this may be the case —- part of it has to do with the differing business/funding/M&A/investment landscape & opportunities for small companies versus that in the US.

***Still not sure yet - may throw my hands in the air and just do 50/50 Large & Small
Last edited by Kenster1 on Sun Jan 29, 2023 8:54 am, edited 1 time in total.
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BenS
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Re: Small Cap Value heads Rejoice !!!

Post by BenS »

Dear Bogleheads,

I have attached three plots which might help to elucidate these discussions. These plots show the long term performance of Fama/French/Novy-Marx factors in different markets (i.e. US, Developed, and Emerging) per data from Professor French's website. Each plot shows the 20-year forward geometrically annualized return of the five common factors across each of three markets. Note for developed and emerging markets there is only ~30 years of data, so there is some sample bias in these types of plots. I have also included the means in parenthesis in the legend.

Nevertheless, the SMB factor doesn't seem to amount to much (most of the time) and historically is the least worth pursuing, especially outside of US markets. Also note that the Developed MKT-RF has lagged the US and Emerging MKT-RF over the entire domain of the time series, typically in the range of 3 - 4% versus ~6 % for US and Emerging markets. I appreciate that historical returns don't predict future returns.

What are your thoughts?

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drumboy256
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Re: Small Cap Value heads Rejoice !!!

Post by drumboy256 »

BenS wrote: Fri Jan 27, 2023 7:58 pm Dear Bogleheads,

I have attached three plots which might help to elucidate these discussions. These plots show the long term performance of Fama/French/Novy-Marx factors in different markets (i.e. US, Developed, and Emerging) per data from Professor French's website. Each plot shows the 20-year forward geometrically annualized return of the five common factors across each of three markets. Note for developed and emerging markets there is only ~30 years of data, so there is some sample bias in these types of plots. I have also included the means in parenthesis in the legend.

Nevertheless, the SMB factor doesn't seem to amount to much (most of the time) and historically is the least worth pursuing, especially outside of US markets. Also note that the Developed MKT-RF has lagged the US and Emerging MKT-RF over the entire domain of the time series, typically in the range of 3 - 4% versus ~6 % for US and Emerging markets. I appreciate that historical returns don't predict future returns.

What are your thoughts?

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To be frank, historical returns are nice for framing context of factors but don't necessarily showcase the factors present (by numbers) or guidelines for present day factors. That said, with historical returns showcasing small cap value outperforming total market indices, it's always hard to argue for or against those value factors as for the sole reason to invest. As I've said in other threads, the US only crowd (imo) could be in for a bruising in the future based on the lagging of developed markets against total international let alone total US markets.

I also think the quote "normal" returns of 4,5 or 6% returns over the next 5-10 years will not be representative of the last few decades of growth. If anything, that tells me that I need to be mindful of the risk factors to my investing and tune out the noise.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson | 20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
Random Walker
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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker »

BenS wrote: Fri Jan 27, 2023 7:58 pm
What are your thoughts?

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Adds conviction to my heavily tilted plan. Persistent over time, pervasive across markets. Data shows presence after publication of the factors. Out of sample data both temporally and geographically supports belief.

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

Post by NiceUnparticularMan »

That sort of data is why I was long interested in finding a reasonably inexpensive way to invest in EM Value, but not so much concerned about EM Small or specifically EM Small Value.
SafeBonds
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Re: Small Cap Value heads Rejoice !!!

Post by SafeBonds »

NiceUnparticularMan wrote: Sat Jan 28, 2023 7:29 am That sort of data is why I was long interested in finding a reasonably inexpensive way to invest in EM Value, but not so much concerned about EM Small or specifically EM Small Value.
It makes me feel good about my 20%-of-stock allocation to DFEVX DFA Emerging Markets Value. Though I've held it for about 10 years and it hasn't paid off yet, I'm staying the course.
NiceUnparticularMan
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Re: Small Cap Value heads Rejoice !!!

Post by NiceUnparticularMan »

SafeBonds wrote: Sat Jan 28, 2023 10:30 am It makes me feel good about my 20%-of-stock allocation to DFEVX DFA Emerging Markets Value. Though I've held it for about 10 years and it hasn't paid off yet, I'm staying the course.
Since I am still in accumulation, I just like to think of how clever I have been using my excess profits from US stocks to keep buying more and more shares of ex-US stocks at bargain basement prices.
Nathan Drake
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Re: Small Cap Value heads Rejoice !!!

Post by Nathan Drake »

NiceUnparticularMan wrote: Sat Jan 28, 2023 7:29 am That sort of data is why I was long interested in finding a reasonably inexpensive way to invest in EM Value, but not so much concerned about EM Small or specifically EM Small Value.
AVES is an excellent fund. It is actually quite small at 16B average weighted market cap. But it's too difficult to invest in specifically EM SMALL Value due to trading frictions/liquidity.

The compromise doesn't seem to be all that significant by going a little larger and selectively targetting value
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Nathan Drake
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Re: Small Cap Value heads Rejoice !!!

Post by Nathan Drake »

SafeBonds wrote: Sat Jan 28, 2023 10:30 am
NiceUnparticularMan wrote: Sat Jan 28, 2023 7:29 am That sort of data is why I was long interested in finding a reasonably inexpensive way to invest in EM Value, but not so much concerned about EM Small or specifically EM Small Value.
It makes me feel good about my 20%-of-stock allocation to DFEVX DFA Emerging Markets Value. Though I've held it for about 10 years and it hasn't paid off yet, I'm staying the course.
I am in a similar boat with AVES being 20%. I am tempted to sin a little and allocate more.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
bikechuck
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Re: Small Cap Value heads Rejoice !!!

Post by bikechuck »

[quote=Ketawa post_id=7067350 time=1673933013 user_id=29

I'm market weight for region splits. My whole portfolio, exclusively in my IRA and TSP account:

I've been at market weight, wherever it is, for the last 10 years.
[/quote]

My condolences
NiceUnparticularMan
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Re: Small Cap Value heads Rejoice !!!

Post by NiceUnparticularMan »

Nathan Drake wrote: Sat Jan 28, 2023 11:17 am
NiceUnparticularMan wrote: Sat Jan 28, 2023 7:29 am That sort of data is why I was long interested in finding a reasonably inexpensive way to invest in EM Value, but not so much concerned about EM Small or specifically EM Small Value.
AVES is an excellent fund. It is actually quite small at 16B average weighted market cap. But it's too difficult to invest in specifically EM SMALL Value due to trading frictions/liquidity.

The compromise doesn't seem to be all that significant by going a little larger and selectively targetting value
Yeah, I am starting to use AVES. It is fine with me.

Edit: By the way, it is always fun getting reminders of what a total wimp I am. Like, EM for me was set at 20% of the 40% in ex-US (this is stocks percentages), so only 8% of stocks to begin with. And then because of account limitations only like half of that is specifically in EMV, so like 4ish%.
gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

Nathan Drake wrote: Sat Jan 28, 2023 11:17 am
NiceUnparticularMan wrote: Sat Jan 28, 2023 7:29 am That sort of data is why I was long interested in finding a reasonably inexpensive way to invest in EM Value, but not so much concerned about EM Small or specifically EM Small Value.
AVES is an excellent fund. It is actually quite small at 16B average weighted market cap. But it's too difficult to invest in specifically EM SMALL Value due to trading frictions/liquidity.

The compromise doesn't seem to be all that significant by going a little larger and selectively targetting value
I agree that it is difficult to invest in EMSV, but I'm trying to do so anyway. I currently have a hodgepodge of holdings in EM with an attempt to target EMSV, but I'm comfortable with it and I expect it to do well in the future. My current EM allocation is below:

DEMSX - DFA Emerging Markets Small Cap Portfolio Institutional Class - 15.22%
EYLD - Cambria Emerging Shareholder Yield Etf - 1.99%
FEMS - First Trust Emerging Markets Sm Cap AlphaDEX Fund - 8.26%

When I roll over my employer's plan, I intend to increase my weights in FEMS and EYLD and add DGS - WisdomTree Emerging Markets Small Cap Dividend Fund to my portfolio at around 40% FEMS / 40% DGS / 20% EYLD to reduce possible idiosyncratic risk.

I would also like to add that AVES, DFEVS, and DEMGX all seem like fine options however.
gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

From looking at correlations between AVDV and BOSVX, it looks like BSVO - Bridgeway Omni Small-Cap Value ETF will be highly correlated with AVDV once the fund is converted to an ETF format. This would make them good tax loss harvesting partners if you just want a small value slant.

However, I'm thinking about using AVUV or BSVO and AVDV alongside the iShares Multifactor funds, SMLF and ISCF since they have considerably different factor profiles. My line of thinking is that this would add a small rebalancing bonus. Does this make sense or is it probably overkill at this point?
Apathizer
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Re: Small Cap Value heads Rejoice !!!

Post by Apathizer »

gtwhitegold wrote: Sat Jan 28, 2023 12:55 pm From looking at correlations between AVDV and BOSVX, it looks like BSVO - Bridgeway Omni Small-Cap Value ETF will be highly correlated with AVDV once the fund is converted to an ETF format. This would make them good tax loss harvesting partners if you just want a small value slant.

However, I'm thinking about using AVUV or BSVO and AVDV alongside the iShares Multifactor funds, SMLF and ISCF since they have considerably different factor profiles. My line of thinking is that this would add a small rebalancing bonus. Does this make sense or is it probably overkill at this point?
It seems like overkill. Constantly tinkering with a portfolio is counterproductive. I'm trying to resist the temptation to constantly check the markets. I've pretty well settled on a fairly easy, simple portfolio with light-moderate factor slants. Now I just need to develop the discipline not to check it constantly. :-|
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

Apathizer wrote: Sat Jan 28, 2023 12:59 pm
gtwhitegold wrote: Sat Jan 28, 2023 12:55 pm From looking at correlations between AVDV and BOSVX, it looks like BSVO - Bridgeway Omni Small-Cap Value ETF will be highly correlated with AVDV once the fund is converted to an ETF format. This would make them good tax loss harvesting partners if you just want a small value slant.

However, I'm thinking about using AVUV or BSVO and AVDV alongside the iShares Multifactor funds, SMLF and ISCF since they have considerably different factor profiles. My line of thinking is that this would add a small rebalancing bonus. Does this make sense or is it probably overkill at this point?
It seems like overkill. Constantly tinkering with a portfolio is counterproductive. I'm trying to resist the temptation to constantly check the markets. I've pretty well settled on a fairly easy, simple portfolio with light-moderate factor slants. Now I just need to develop the discipline not to check it constantly. :-|
I understand. I am targeting a portfolio that is completely titled in equities and uses AQR Style Premia and Managed Futures along with Zero Coupon Treasuries and short term TIPS for diversification and I just intend to add funds to rebalance most of the time and when needed, I'll rebalance when it gets out of the 5/25% bands.
SafeBonds
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Re: Small Cap Value heads Rejoice !!!

Post by SafeBonds »

gtwhitegold wrote: Sat Jan 28, 2023 1:45 pm
Apathizer wrote: Sat Jan 28, 2023 12:59 pm
gtwhitegold wrote: Sat Jan 28, 2023 12:55 pm From looking at correlations between AVDV and BOSVX, it looks like BSVO - Bridgeway Omni Small-Cap Value ETF will be highly correlated with AVDV once the fund is converted to an ETF format. This would make them good tax loss harvesting partners if you just want a small value slant.

However, I'm thinking about using AVUV or BSVO and AVDV alongside the iShares Multifactor funds, SMLF and ISCF since they have considerably different factor profiles. My line of thinking is that this would add a small rebalancing bonus. Does this make sense or is it probably overkill at this point?
It seems like overkill. Constantly tinkering with a portfolio is counterproductive. I'm trying to resist the temptation to constantly check the markets. I've pretty well settled on a fairly easy, simple portfolio with light-moderate factor slants. Now I just need to develop the discipline not to check it constantly. :-|
I understand. I am targeting a portfolio that is completely titled in equities and uses AQR Style Premia and Managed Futures along with Zero Coupon Treasuries and short term TIPS for diversification and I just intend to add funds to rebalance most of the time and when needed, I'll rebalance when it gets out of the 5/25% bands.
Same here. My bond portfolio is EDV and I Bonds. And my stocks are fully tilted, except for some fund restrictions on 401ks. And I also use 5/25% rebalancing bands. Best of luck to us both :beer
Massdriver
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver »

I haven’t really tinkered in a while.

Tax advantaged roughly:
45% VT
28% AVUV
18% AVDV
9% AVES

Taxable roughly:
39% VTI
16% SLYV
14% VEA
16% AVDV
7% AVES
2% VWO
1% AVUV
3% REET
2% VSS

Target is 50% MCW and 50% factor funds with the exception of EM where I’m targeting 100% AVES in my taxable.

Sinning a bit in tax advantaged accounts.

No bonds currently but I have a decent amount of cash for some expected expenses and potential emergencies in a savings account.

Edit: Adjusted for accuracy
And again was off. I’m just going on memory. :sharebeer
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Kenster1
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Re: Small Cap Value heads Rejoice !!!

Post by Kenster1 »

BenS wrote: Fri Jan 27, 2023 7:58 pm Dear Bogleheads,

I have attached three plots which might help to elucidate these discussions. These plots show the long term performance of Fama/French/Novy-Marx factors in different markets (i.e. US, Developed, and Emerging) per data from Professor French's website. Each plot shows the 20-year forward geometrically annualized return of the five common factors across each of three markets. Note for developed and emerging markets there is only ~30 years of data, so there is some sample bias in these types of plots. I have also included the means in parenthesis in the legend.

Nevertheless, the SMB factor doesn't seem to amount to much (most of the time) and historically is the least worth pursuing, especially outside of US markets. Also note that the Developed MKT-RF has lagged the US and Emerging MKT-RF over the entire domain of the time series, typically in the range of 3 - 4% versus ~6 % for US and Emerging markets. I appreciate that historical returns don't predict future returns.

What are your thoughts?
-
Nice job with showing that data!

Yes I like AVES (Avantis EM Value ETF) - nice multi-cap spread with a dose of smallcaps and has quite a nice chunk of midcap allocation. Weighted Avg Market-Cap is relatively quite small - in the Midcap range. Indeed I'm not going to chase after additional sliver (and risks) of EM SCV allocation.

I also really like Avantis' documentation (Monthly ETF Field Guide) they produce - shows nice charts of Value/Profitability weighting across the market-caps for each of their funds.

---AVES (Avantis EM Value ETF) - page 49-50 of the current Dec ETF Field Guide: https://www.avantisinvestors.com/avanti ... ewsletter/

---AVDV (Avantis International Small Value ETF) - info is on page 43-44

For International Developed markets - I'm focused on targeting large-mid caps (w/ Value-Profitability factor tilt) but now I've been changing my mind and warming up to the idea of splitting it with International Developed SCV (e.g. AVDV).
-
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gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

SafeBonds wrote: Sat Jan 28, 2023 2:13 pm
gtwhitegold wrote: Sat Jan 28, 2023 1:45 pm
Apathizer wrote: Sat Jan 28, 2023 12:59 pm
gtwhitegold wrote: Sat Jan 28, 2023 12:55 pm From looking at correlations between AVDV and BOSVX, it looks like BSVO - Bridgeway Omni Small-Cap Value ETF will be highly correlated with AVDV once the fund is converted to an ETF format. This would make them good tax loss harvesting partners if you just want a small value slant.

However, I'm thinking about using AVUV or BSVO and AVDV alongside the iShares Multifactor funds, SMLF and ISCF since they have considerably different factor profiles. My line of thinking is that this would add a small rebalancing bonus. Does this make sense or is it probably overkill at this point?
It seems like overkill. Constantly tinkering with a portfolio is counterproductive. I'm trying to resist the temptation to constantly check the markets. I've pretty well settled on a fairly easy, simple portfolio with light-moderate factor slants. Now I just need to develop the discipline not to check it constantly. :-|
I understand. I am targeting a portfolio that is completely titled in equities and uses AQR Style Premia and Managed Futures along with Zero Coupon Treasuries and short term TIPS for diversification and I just intend to add funds to rebalance most of the time and when needed, I'll rebalance when it gets out of the 5/25% bands.
Same here. My bond portfolio is EDV and I Bonds. And my stocks are fully tilted, except for some fund restrictions on 401ks. And I also use 5/25% rebalancing bands. Best of luck to us both :beer
Same here. I'm very restricted on my options in my main employer's account and my wife is as well, but she has DFSTX - DFA Small Cap available, which is good enough I suppose. I'm going to transition to a new career in the next year or so and I will likely roll over my entire employer account into my solo 401k and have most everything tilted then. Should my wife change employers, we'll likely keep her traditional balance in her current employer's account and roll over her Roth 401k and cash balance pension plan into Roth IRA accounts.
freyj6
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Re: Small Cap Value heads Rejoice !!!

Post by freyj6 »

AVUV back at all time high as of today. So much for the bear market :D
BitTooAggressive
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Re: Small Cap Value heads Rejoice !!!

Post by BitTooAggressive »

I am happy with VBR. I am fine with getting some mid cap diversification too.
SafeBonds
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Re: Small Cap Value heads Rejoice !!!

Post by SafeBonds »

BitTooAggressive wrote: Thu Feb 02, 2023 3:25 pm I am happy with VBR. I am fine with getting some mid cap diversification too.
I chose to move from VBR to AVUV near the covid bottoms when I tax loss harvested, and I'm happy with my decision, but I respect VBR investors. The rock bottom expense ratio is amazing. Especially as a Boglehead, you gotta admire that. Unlike the factors, lower expenses always pay off each and every year.
gtwhitegold
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Re: Small Cap Value heads Rejoice !!!

Post by gtwhitegold »

SafeBonds wrote: Thu Feb 02, 2023 7:26 pm
BitTooAggressive wrote: Thu Feb 02, 2023 3:25 pm I am happy with VBR. I am fine with getting some mid cap diversification too.
I chose to move from VBR to AVUV near the covid bottoms when I tax loss harvested, and I'm happy with my decision, but I respect VBR investors. The rock bottom expense ratio is amazing. Especially as a Boglehead, you gotta admire that. Unlike the factors, lower expenses always pay off each and every year.
Nothing wrong with that. It seems like really deep value funds like RSV and DEEP don't have comparable returns to the risks that you take, but most SV tilts should be rewarded over time. People just need to be aware of what trade-offs they are making with different fund options.
shriram
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Re: Small Cap Value heads Rejoice !!!

Post by shriram »

It seems like AVUV is getting bid up quite a bit! Is anyone hitting a pause to wait for a drop? I started investing in AVUV since last year. Got in at a couple of good points with (relatively) lower price point (~$65). I am wondering if I should just DCA into AVUV (similar to other part of portfolio - a Vanguard Target date fund). Or should just keep some dry powder ready and buy the dip?
Nathan Drake
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Re: Small Cap Value heads Rejoice !!!

Post by Nathan Drake »

shriram wrote: Thu Feb 02, 2023 9:17 pm It seems like AVUV is getting bid up quite a bit! Is anyone hitting a pause to wait for a drop? I started investing in AVUV since last year. Got in at a couple of good points with (relatively) lower price point (~$65). I am wondering if I should just DCA into AVUV (similar to other part of portfolio - a Vanguard Target date fund). Or should just keep some dry powder ready and buy the dip?
If I am taking a pause on AVUV it's because it's now my highest holding :)

Now, just a few weeks ago it was AVDV or AVES. So I just invest into my laggards as a natural rebalancing act of DCA'ing
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Kenster1
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Re: Small Cap Value heads Rejoice !!!

Post by Kenster1 »

.
So Bloomberg recently invited Avantis Investors’ CIO Eduardo Repetto to its ETF IQ show on 1/23 --- to discuss AVUV (Avantis US Small Cap Value ETF)

https://www.bloomberg.com/news/videos/2 ... -bloomberg

Starts at the 15:00 min mark.
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NiceUnparticularMan
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Re: Small Cap Value heads Rejoice !!!

Post by NiceUnparticularMan »

I also ended up mostly rotating out of VBR for tax loss harvesting reasons, but we still have it in our HSA. I agree it makes a really nice long-term core holding, particularly if you are just blending some SV with TSM or S&P 500 anyway (in which case you can just hold more VBR to get whatever overall small/value exposure you want). It is cheap, has a lot of holdings, has by far the highest AUM in its class--just all the things you would want in a hopefully-for-life sort of investment.
NiceUnparticularMan
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Re: Small Cap Value heads Rejoice !!!

Post by NiceUnparticularMan »

shriram wrote: Thu Feb 02, 2023 9:17 pm It seems like AVUV is getting bid up quite a bit! Is anyone hitting a pause to wait for a drop? I started investing in AVUV since last year. Got in at a couple of good points with (relatively) lower price point (~$65). I am wondering if I should just DCA into AVUV (similar to other part of portfolio - a Vanguard Target date fund). Or should just keep some dry powder ready and buy the dip?
Since the expected return on AVUV is presumably positive (otherwise you should be selling it all immediately), there is a better than even chance it will go up from its current price and never be lower again (adjusting for any dividends and such).

That truism strikes some people as something that couldn't possibly be true, but it is. Meaning you can go look at individual ETF prices and more often than not, they first wander up and then never wander back below again.

Now, if you are looking just at every return that comes across on the ticker, that may be a small odds ratio--like 50.000001% of the time it never goes back below, or something like that (I made up the exact number of zeroes). But the longer you are talking about waiting, the more above 50% that creeps.
IMRTguy
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Re: Small Cap Value heads Rejoice !!!

Post by IMRTguy »

AVUV seems to be very tax efficient despite turning over a large portion of its portfolio it shows no capital gains and dividends are 100% qualified. Is this due to the ETF structure? If so long term ETFs should create a lot of wealth in comparison to a similar mutual funds which would have annual capital gains/ordinary income from turnover.
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