International: anyone tilt emerging or small cap?

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NYCaviator
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International: anyone tilt emerging or small cap?

Post by NYCaviator »

I have (what I think is) a reasonable 20% allocation to international in VXUS. I understand it's market weighted, which is the point of the index, but the largest holdings of VXUS are multinationals (much like VTI). In our current global economy, the multinationals are so intertwined, that I'm really not sure you're getting that much diversification by holding VXUS (which is why lots of people argue that VTI is plenty exposed to intl.)

I've done quite a bit of research and reading and I am thinking about a slight tilt to EM or intl. small cap. The reason is that I think they have the most potential for future growth. Obviously, I could be completely wrong on this as I don't have a crystal ball.

Is anyone else tilting EM or intl. small cap for their international holdings? If so, what's your logic and what are your holdings?
Tamalak
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Re: International: anyone tilt emerging or small cap?

Post by Tamalak »

It's a strategy question that's been bugging me. If the market tries to equalize the risk-adjusted returns of every sector of the stock market, should a boglehead then tilt towards those sectors that offer less correlation?

Or - will the market already take the value of anti-correlation into account and give those sectors a lower risk-adjusted return.
asif408
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Re: International: anyone tilt emerging or small cap?

Post by asif408 »

With only a 20% holding in international, a slight tilt to EM or international small cap probably wouldn't move the needle, you'd only be talking about a few percent at most. If you had a 40-50% international equity allocation or a crazy one like mine (90% international), then it might be worth it.
David Althaus
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Re: International: anyone tilt emerging or small cap?

Post by David Althaus »

VXUS seems to have about 20-25% in emerging markets according to the fact sheet from Vanguard.

All the best
livesoft
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Re: International: anyone tilt emerging or small cap?

Post by livesoft »

Yes, I tilt to small cap. I own VEU / VEA in taxable originally as a pair for tax-loss harvesting. I own VEU, SPDW, VSS, and DGS in tax-advantaged.

9-box style grid for the foreign equities looks like this:
12-18-10
13-17-08
08-09-04

while M* reports that VTIAX / VXUS looks like this:
22-35-19
06-09-05
01-02-01

I do not tilt to emerging markets. Vanguard Portfolio Watch shows I have no tilt to emerging markets with 26% in my foreign equities and 25% expected.
Last edited by livesoft on Tue May 24, 2022 8:45 am, edited 2 times in total.
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Re: International: anyone tilt emerging or small cap?

Post by KyleAAA »

I do. My international allocation is about 40% VXUS, 40% developed small value (AVDV), and 20% dividend/small value emerging markets (DGS).
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burritoLover
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Re: International: anyone tilt emerging or small cap?

Post by burritoLover »

Small cap value is arguably a better tilt within international - although small cap value EM is a bit tricky to invest in (low volume ETFs).
Last edited by burritoLover on Tue May 24, 2022 8:58 am, edited 1 time in total.
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Re: International: anyone tilt emerging or small cap?

Post by NYCaviator »

burritoLover wrote: Tue May 24, 2022 8:36 am Small cap value is arguably a better tilt within international - although small cap EM is a bit tricky to invest in (low volume ETFs).
Great point. If you look at some of the EMs they’re thinly traded. Any recommendations for a small cap intl?
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Re: International: anyone tilt emerging or small cap?

Post by quietseas »

NYCaviator wrote: Tue May 24, 2022 8:49 am
burritoLover wrote: Tue May 24, 2022 8:36 am Small cap value is arguably a better tilt within international - although small cap EM is a bit tricky to invest in (low volume ETFs).
Great point. If you look at some of the EMs they’re thinly traded. Any recommendations for a small cap intl?
Avantis AVDV/AVES
Vanguard VSS
You might want to join Rational Reminder forum and read over there, will be a stronger contingent of small international and ISCV supporters over there.
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burritoLover
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Re: International: anyone tilt emerging or small cap?

Post by burritoLover »

NYCaviator wrote: Tue May 24, 2022 8:49 am
burritoLover wrote: Tue May 24, 2022 8:36 am Small cap value is arguably a better tilt within international - although small cap EM is a bit tricky to invest in (low volume ETFs).
Great point. If you look at some of the EMs they’re thinly traded. Any recommendations for a small cap intl?
As far as small cap value, AVDV for developed international (as quietseas mentioned). I don't find a small-cap only by itself particularly attractive but if you look at factor investing and believe the reasoning there, small and value has a premium over market historically across the globe. AVES would be a good small cap value EM fund but M1 Finance doesn't allow you to trade in this ETF due to low volume.
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Re: International: anyone tilt emerging or small cap?

Post by muffins14 »

I hold about 40% in international, and about 3/8 of that is in small value either as AVDV or FNDC.

Generally I’m accepting higher risk for higher expected returns
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Re: International: anyone tilt emerging or small cap?

Post by donaldfair71 »

quietseas wrote: Tue May 24, 2022 8:50 am
NYCaviator wrote: Tue May 24, 2022 8:49 am
burritoLover wrote: Tue May 24, 2022 8:36 am Small cap value is arguably a better tilt within international - although small cap EM is a bit tricky to invest in (low volume ETFs).
Great point. If you look at some of the EMs they’re thinly traded. Any recommendations for a small cap intl?
Avantis AVDV/AVES
Vanguard VSS
You might want to join Rational Reminder forum and read over there, will be a stronger contingent of small international and ISCV supporters over there.
I will hop in after these wonderful recommendations and throw in:

DISV from DFA
DFEV from DFA
RetiredCSProf
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Re: International: anyone tilt emerging or small cap?

Post by RetiredCSProf »

I have been thinking I have "too much" in small-cap and E.M. in my international holdings.

What %age of E.M. in int'l is considered neutral (not necessarily market-weight, but not a tilt)? I have been thinking that 20% of int'l is neutral, but maybe it is closer to 25%?

What %age of small-cap in int'l is considered neutral (not a tilt)?

In Fido, I hold IXUS, which shows 4% in small-cap and 16% in mid-cap. Would a small-cap tilt be 5%? 10%? 20%? Would you tilt small-cap only or mid-caps as well?
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Re: International: anyone tilt emerging or small cap?

Post by sschullo »

NYCaviator wrote: Tue May 24, 2022 8:14 am I have (what I think is) a reasonable 20% allocation to international in VXUS. I understand it's market weighted, which is the point of the index, but the largest holdings of VXUS are multinationals (much like VTI). In our current global economy, the multinationals are so intertwined, that I'm really not sure you're getting that much diversification by holding VXUS (which is why lots of people argue that VTI is plenty exposed to intl.)

I've done quite a bit of research and reading and I am thinking about a slight tilt to EM or intl. small cap. The reason is that I think they have the most potential for future growth. Obviously, I could be completely wrong on this as I don't have a crystal ball.

Is anyone else tilting EM or intl. small cap for their international holdings? If so, what's your logic and what are your holdings?
Nope. Only VG Total International index.
Never in the history of market day-traders’ has the obsession with so much massive, sophisticated, & powerful statistical machinery used by the brightest people on earth with such useless results.
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NYCaviator
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Re: International: anyone tilt emerging or small cap?

Post by NYCaviator »

donaldfair71 wrote: Tue May 24, 2022 9:23 am
quietseas wrote: Tue May 24, 2022 8:50 am
NYCaviator wrote: Tue May 24, 2022 8:49 am
burritoLover wrote: Tue May 24, 2022 8:36 am Small cap value is arguably a better tilt within international - although small cap EM is a bit tricky to invest in (low volume ETFs).
Great point. If you look at some of the EMs they’re thinly traded. Any recommendations for a small cap intl?
Avantis AVDV/AVES
Vanguard VSS
You might want to join Rational Reminder forum and read over there, will be a stronger contingent of small international and ISCV supporters over there.
I will hop in after these wonderful recommendations and throw in:

DISV from DFA
DFEV from DFA
I've been eyeing some of the new DFA ETFs. These look pretty good.
dcabler
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Re: International: anyone tilt emerging or small cap?

Post by dcabler »

I have a 60/40 portfolio with stock broken down as 50% US and 10% international

My international is all ISCF which is mid/small cap by Morningstar's definitions. I hold no EM (anymore).

Cheers.
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Re: International: anyone tilt emerging or small cap?

Post by Triple digit golfer »

Paging Nathan Drake.
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imak
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Re: International: anyone tilt emerging or small cap?

Post by imak »

32% of my total portfolio allocation is international which consists of:
12% Intl Developed LCV (FNDF/PXF)
12% Intl Developed SCV (FNDC/PDN)
4% EM LCB (VWO/IEMG)
4% EM SCB/SCV (EEMS/DGS)

Edit: Emerging market small cap value (DGS) is significantly ahead of total market (VWO) YTD. The diversification to SCV helped in this drawdown.
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Re: International: anyone tilt emerging or small cap?

Post by donaldfair71 »

NYCaviator wrote: Tue May 24, 2022 6:49 pm
donaldfair71 wrote: Tue May 24, 2022 9:23 am
quietseas wrote: Tue May 24, 2022 8:50 am
NYCaviator wrote: Tue May 24, 2022 8:49 am
burritoLover wrote: Tue May 24, 2022 8:36 am Small cap value is arguably a better tilt within international - although small cap EM is a bit tricky to invest in (low volume ETFs).
Great point. If you look at some of the EMs they’re thinly traded. Any recommendations for a small cap intl?
Avantis AVDV/AVES
Vanguard VSS
You might want to join Rational Reminder forum and read over there, will be a stronger contingent of small international and ISCV supporters over there.
I will hop in after these wonderful recommendations and throw in:

DISV from DFA
DFEV from DFA
I've been eyeing some of the new DFA ETFs. These look pretty good.
Concentrated factor exposure with DFA’s experience behind it? What’s not to love?

I don’t presently tilt, but if I did, I’d be in the DFA/Avantis camp more than any other. If for no other reason than bang for your buck.
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Re: International: anyone tilt emerging or small cap?

Post by grabiner »

I do overweight emerging markets because I expect more diversification, and I overweight international small-cap (with Vanguard's VSS) and value (with iShares' IVLU and Avantis' AVDV) in international just as I do in US.

I don't overweight factors quite as much in international as I do in US, because there is more of a cost difference. In the US, I can use Vanguard's VFVA for my value overweight. In international, the non-Vanguard funds are more expensive, and Vanguard's emerging markets and small-cap funds, which I hold in my taxable account, have been less tax-efficient.
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Re: International: anyone tilt emerging or small cap?

Post by miket29 »

I have a slight tilt. EWX (S&P Emerging Markets Small Cap ETF), VEMAX (Vanguard Emerging Markets Stock Index Fund), and ISCF (iShares MSCI Intl Small-Cap Multifactor)
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Re: International: anyone tilt emerging or small cap?

Post by cegibbs »

I don’t use international funds or small cap. Not necessary in my opinion.
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Re: International: anyone tilt emerging or small cap?

Post by NYCaviator »

grabiner wrote: Tue May 24, 2022 8:48 pm I do overweight emerging markets because I expect more diversification, and I overweight international small-cap (with Vanguard's VSS) and value (with iShares' IVLU and Avantis' AVDV) in international just as I do in US.

I don't overweight factors quite as much in international as I do in US, because there is more of a cost difference. In the US, I can use Vanguard's VFVA for my value overweight. In international, the non-Vanguard funds are more expensive, and Vanguard's emerging markets and small-cap funds, which I hold in my taxable account, have been less tax-efficient.
I read up on AVDV and really like it. ER is low enough to stomach and I like the way they invest. $1.6B in assets, but only average of 217k in average trading volume. Is that anything to worry about? This would be a buy and hold investment for my taxable account.
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Re: International: anyone tilt emerging or small cap?

Post by grabiner »

NYCaviator wrote: Wed May 25, 2022 7:01 am
grabiner wrote: Tue May 24, 2022 8:48 pm I do overweight emerging markets because I expect more diversification, and I overweight international small-cap (with Vanguard's VSS) and value (with iShares' IVLU and Avantis' AVDV) in international just as I do in US.

I don't overweight factors quite as much in international as I do in US, because there is more of a cost difference. In the US, I can use Vanguard's VFVA for my value overweight. In international, the non-Vanguard funds are more expensive, and Vanguard's emerging markets and small-cap funds, which I hold in my taxable account, have been less tax-efficient.
I read up on AVDV and really like it. ER is low enough to stomach and I like the way they invest. $1.6B in assets, but only average of 217k in average trading volume. Is that anything to worry about? This would be a buy and hold investment for my taxable account.
For a buy-and-hold investment, low volume isn't that important. ETF.com says that it trades at a 0.12% spread. Therefore, if you buy it now at the ask, and sell it 12 years from now at the bid, you will earn 0.12% less than the fund does, an additional annualized cost of 0.01%.

And it appears to be fine for a taxable account; 2021 tax costs for value ETFs says that it has been tax-efficient because of its low yield.
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Re: International: anyone tilt emerging or small cap?

Post by MitchL »

NYCaviator wrote: Wed May 25, 2022 7:01 am I read up on AVDV and really like it. ER is low enough to stomach and I like the way they invest. $1.6B in assets, but only average of 217k in average trading volume. Is that anything to worry about? This would be a buy and hold investment for my taxable account.
1/3 of my stocks are International.
1/3 of my International stocks are in AVDV.

I have been cautious with trades, limiting each purchase lot to a few hundred shares, but haven't had any significant trouble with bid-ask spreads or poor liquidity.
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Re: International: anyone tilt emerging or small cap?

Post by harvestbook »

I used a slightly modified Merriman portfolio, so 10 percent emerging and 15 percent Vanguard ex-US small cap. Overall international is 45 percent using only Vanguard Mutual funds. I'm not sure if I'd do all this if I started out today, but it's what I've been using so staying the course. I doubt it makes a big difference but occasionally it's psychologically soothing ("Ooh, at least I am not overweight US tech stocks...") and annually rebalancing is slightly more interesting.
I'm not smart enough to know, and I can't afford to guess.
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Re: International: anyone tilt emerging or small cap?

Post by invest4 »

I had this type of thinking / portfolio setup in the past. Since I discovered this forum, I have come to believe this type of tinkering within ones portfolio is most often simply is not worth the effort for some of the reasons already given (not likely to make an appreciable difference) and have a greater appreciation for simplicity in ones portfolio.

The desire to "optimize" ones portfolio is a very strong one which similarly satisfies the inherent need many people have to "do something" vs being satisfied with a portfolio that is 'good enough' and simply stay the course...the cycle continues.

Best wishes.
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Re: International: anyone tilt emerging or small cap?

Post by muffins14 »

invest4 wrote: Wed May 25, 2022 10:17 am I had this type of thinking / portfolio setup in the past. Since I discovered this forum, I have come to believe this type of tinkering within ones portfolio is most often simply is not worth the effort for some of the reasons already given (not likely to make an appreciable difference) and have a greater appreciation for simplicity in ones portfolio.

The desire to "optimize" ones portfolio is a very strong one which similarly satisfies the inherent need many people have to "do something" vs being satisfied with a portfolio that is 'good enough' and simply stay the course...the cycle continues.

Best wishes.
I will admit that the more time that passes, the more I realize the most important thing is luck (how good are the markets overall during your investing years).

I hope I put myself in a slightly better position with tilting to small-cap value, but luck is going to be the dominant factor in my final portfolio value and retirement spending levels, I think
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Re: International: anyone tilt emerging or small cap?

Post by muffins14 »

What are the current thoughts on FNDC?

It’s currently more valuey than it used to be, which is interesting.

I’m considering abandoning it in favor of consolidating into AVDV, but currently don’t mind holding both, especially since the holdings are somewhat different and expense ratios are the same
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Re: International: anyone tilt emerging or small cap?

Post by richard.h.gao »

muffins14 wrote: Wed May 25, 2022 9:19 pm What are the current thoughts on FNDC?
I dumped all my holdings in FNDC for PDN. It's better diversified.
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Re: International: anyone tilt emerging or small cap?

Post by muffins14 »

richard.h.gao wrote: Wed May 25, 2022 9:45 pm
muffins14 wrote: Wed May 25, 2022 9:19 pm What are the current thoughts on FNDC?
I dumped all my holdings in FNDC for PDN. It's better diversified.
By what metric? They have a large overlap and PDN seems less valuey than FNDC and also is more correlated to the US market than AVDV is.
Crom laughs at your Four Winds
richard.h.gao
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Re: International: anyone tilt emerging or small cap?

Post by richard.h.gao »

muffins14 wrote: Wed May 25, 2022 9:50 pm
richard.h.gao wrote: Wed May 25, 2022 9:45 pm
muffins14 wrote: Wed May 25, 2022 9:19 pm What are the current thoughts on FNDC?
I dumped all my holdings in FNDC for PDN. It's better diversified.
By what metric? They have a large overlap and PDN seems less valuey than FNDC and also is more correlated to the US market than AVDV is.
Weightings in the top holdings.

Schwab also charges you $25 to transfer your assets out, per asset, in addition to a $50 transfer fee. I'm never going back to Schwab nor will I ever buy any Schwab ETFs or mutual funds.
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Re: International: anyone tilt emerging or small cap?

Post by muffins14 »

richard.h.gao wrote: Wed May 25, 2022 9:59 pm
Schwab also charges you $25 to transfer your assets out, per asset, in addition to a $50 transfer fee. I'm never going back to Schwab nor will I ever buy any Schwab ETFs or mutual funds.
No fees for buying or selling or transferring ETFs at fidelity. I thought all brokers were like that now for ETFs
Crom laughs at your Four Winds
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