Golden Butterfly and Vanguard

[thisisallen]

Did anyone notice that the Vanguard SCV mutual and etf funds underperformed the iShares and Spyder etfs - by a lot?

Vanguard VSIAX (Admiral shares) and VBR (ETF) returned about 24% whereas IWN, IJS and SLYV all returned about 31%.

-according to Morningstar

[dualstow]

Interesting. I almost didn't read this thread because of the title- I don't run a golden butterfly. However, I do hold both VBR and the admiral shares for small cap value stocks (Vanguard) as part of the equity portion of my pp.

[Tyler]

After doing a lot of fund research lately, this doesn't surprise me.

1) The variation in returns between different indices (CRSP, S&P, Russell, etc) all ostensibly following the same thing is a lot larger than you think, and differences of more than 10% in any given year are not that uncommon in the small cap space. It is magnified in a really good year (like this one with SCV).

2) The size filters used by different companies (Vanguard, Blackrock, etc) also affect the results. Vanguard has a larger band that allows more companies to stay in VBR once they actually grow to mid caps, as this reduces turnover and taxes. Other funds are more strict. The end result is that something like SLYV is a lot more "small" overall than VBR.

In general I'd expect the delta to average out over time. Some years one fund may do better than the others, and some years it will do worse.

[buddtholomew]

I chose IJS in taxable and specifically not VBR as it includes more mid-caps with the potential for greater capital gains taxes attributed to REIT holdings.

Both ETF's also track different indices as Tyler said.

[thisisallen]

@Tyler: then which Benchmark/Index do you use on your site for SCV, and specifically the GB?

The SCV performance this year proves Larry Swedroe's theory that if you are going to tilt towards an asset class then it should be a full tilt, not blended with anything else. Based on his research, his company, Buckingham, offers a fund, BOSVX, that contains the smallest and most valuey companies. This year it performed better than any other fund, about 34%. Catch is that you can only buy the fund thru a Buckingham advisor and that will cost you 1.25% of your investment.

DFA is another company that focuses on small companies. However their fund DFSVX (available thru their advisors) returned only about 28% - so lower than iShares or Spdr ETFs,

Looks like either Spdr at Schwab (No Transaction Fee) or IJS at Fidelity (NTF) would be the best choice.

[dualstow]

The SCV performance this year proves Larry Swedroe's theory that if you are going to tilt towards an asset class then it should be a full tilt, not blended with anything else.

If you run his Min Fat Tails portfolio with all those short term treasuries, I guess it makes sense to not dilute equities with anything but small value. That's his recipe.

But, in a year where a pp with small value underperforms specifically due to an underperforming small cap value stock section, would that "prove" that one should blend with S&P?

[thisisallen]

But, in a year where a pp with small value underperforms specifically due to an underperforming small cap value stock section, would that "prove" that one should blend with S&P?

Would you pls elaborate on this pt.

It is confusing (to me) to see SCV connected with the PP. The PP is 4X25, without SCV.

If you are speaking about the GB, a VPP, then that does have SCV and LCB together in its stock section. And if you are asking if the blend of SCV and LCB is the "secret sauce" behind the success of the GB in backtesting then I would say "yes."

[dualstow]

Would you pls elaborate on this pt.

It is confusing (to me) to see SCV connected with the PP. The PP is 4X25, without SCV.

The pp is about 25% equities, yes. Originally, Browne recommended a few mutual funds of pretty volatile stocks. Not small value or anything, but something he deemed appropriate.

In his radio archives, you can hear him saying that the S&P or a broad index is fine. I think that's also the case in his Fail-Safe Investing book. I don't think that precludes having some smallcap value, though. It doesn't break the pp and make it a vp in the way that having only 10-15% equities (or gold or cash) does. That's my opinion, anyway. Others may disagree.

I discovered the pp when I already owned some slice-and-dice: smallcap blend, smallcap value, midcap blend. When I constructed a pp, I didn't sell those funds, and if I had put them aside and not counted them as part of the pp stock portion, I would have had a very, very small pp and no money for stocks. So, I added some S&P. Good enough.

As far as I know, the Golden Butterfly is Taylor's creation, not Larry Swedroe's, right?
Yes, Swedroe is a big proponent of SCV and has been for a long time.
I was just saying that if you follow Swedroe's portfolio, which calls for a lot of tips and short-term treasuries, you should probably stick with his exact recipe. Make the equities really count.

I don't think having smallcap value in the equity portion of the pp is going to hurt it.

As for the Golden Butterfly...I don't know. You'll have to ask Taylor. But I see 20% largecap in there - https://portfoliocharts.com/portfolio/golden-butterfly/

So, I was commenting on your line which I quoted.
However, it seems the subject of your original post is really about the different holdings of ETFs and funds that call themselves small value.

[thisisallen]

Good. that's clear.

Yes, it is Tyler who came up with the GB, not Larry Swedroe. BTW, I think Larry S. recommends 5 yr Treasuries now to combine with the SCV.

You may be interested in this article on factor investing.
http://investorfieldguide.com/alpha-or-assets/

He discusses about Smart Beta. One of his conclusions is that an investor could use a combination of a broad fund with a concentrated fund to end up with a Smart Beta effect.
Perhaps the 20% LCB and 20% SCV in the GB combines in a way to give this Smart Beta effect?

[dualstow]

Ah, 5-year notes, that sounds familiar.
Thank you for the link- I'll have to check that out.

It'll be interesting to see if any of the lazy portfolios and other popular portfolios change when interest rates change. Who knows, maybe cash will be beloved again one day. I hope they don't change too much or they will have to lose the "lazy" status.

Seems like Smallcap value will continue to be popular with a variety of investors in 2017.

[Tyler]

@Tyler: then which Benchmark/Index do you use on your site for SCV, and specifically the GB?

There is no single source. To rebuild more than just a few years, the data is reconstructed from a variety of sources.

My own index calculations derived from Fama French data: 1972-1978
Russell 2000 Value Index: 1979-1998
VISVX: 1999+

In the upcoming update, we'll even be adding MSCI data in there to try to improve the consistency of index construction methodology as much as possible.

I personally would not read so much into one year of returns as to judging which SCV index fund is superior to another. As I mentioned earlier, they all dance around a bit and your tune may change next year. Select your favorite by whatever inherent qualities you like, but don't waste too much time second guessing yourself later.

[buddtholomew]

Looks like either Spdr at Schwab (No Transaction Fee) or IJS at Fidelity (NTF) would be the best choice.

The volume on IJS is pretty thin, and SLYV is pathetic. Could be a problem with the bid/ask, particularly in a down market. Caveat emptor.

I expect IJS will become more liquid if this small-cap rally persists

[Mr Vacuum]

Wow, I had noticed those similar but different indexes tend to race around each other like the M&M's on the scoreboard at the ballpark, but I hadn't noticed the spread at the end of 2016. Comparing VB and IJR at portfoliovisualizer.com, IJR returned +8% over VB in 2016. The last time the spread was that big was 2009, when it was VB at +10%. The discerning tax loss harvester may want to pay attention to valuations before trading and getting hammered when they swing back.

[thisisallen]

VB is different than VBR (SC vs SCV).

SLYV has low volume but has been around since 2004 and at Morningstar seems to return consistently a bit better except in 2014 and 15. And 2016 it outperformed by a lot.
Could someone pls explain how the bid/ask effects the performance. Does the NAV include the effect of the bid/ask?

In this boom or bust asset class the volatility is what gives the extra boost in good times.
But from 2009-15 Growth stocks outperformed Value.

[thisisallen]

^ thx for the explanation. Yikes. I think SLYV is showing a 7% spread.

Do you see the bid/ask effect in the NAV?
Or in the performance numbers?

I guess what I am asking: is there a way to compare the performance of 2 different ETFs with different spreads?
If you don't trade the fund often, except for re-balancing, then is the spread less important?

[Kevin K.]

Larry Swedroe has been writing about the difference in SCV funds and ETFs quite a bit lately. In a recent post on Bogleheads he says that not just Vanguard but even his "alma mater" (so to speak) DFA's small value offerings have gotten too large, asset-wise, to invest in the truly "valuey" way he prefers:

http://www.etf.com/sections/index-inves ... nopaging=1

Specifically he said most recently hs uses Bridgeway's small cap value ETF (BOSVX) instead of either the Vanguard or DFA funds in client portfolios these days. Obviously this has implications for those of us attracted to the GB and Larry portfolios.

[mathjak107]

^ thx for the explanation. Yikes. I think SLYV is showing a 7% spread.

Do you see the bid/ask effect in the NAV?
Or in the performance numbers?

I guess what I am asking: is there a way to compare the performance of 2 different ETFs with different spreads?
If you don't trade the fund often, except for re-balancing, then is the spread less important?

it isn't a 7% spread on slyv i show 119.65 and 119.95 . that is a tiny fraction of a percent .

[thisisallen]

OK. That sounds good. The day I checked on Morningstar I thought it said 7%
Thx for clarifying.

[InsuranceGuy]

[deleted]

[mathjak107]

slyv is like ijs