Small Cap Value seems cheap at the moment

[ppnewbie]

Any one have any thoughts on why small cap value is so cheap at the moment. VIOV seems to have a P/E of 4.87 (accoring to yahoo). I have a some questions that I would love to hear peoples opinion about.

- VBR vs VIOV? OR any other SCV etf people use here.
- Anyone concerned about the Small Cap Value company debt levels and how exposed they are to high interest rates?
- If if these companies get hammered with debt issues, what do folks think is the worst case scenario for the small cap value?

[vnatale]

Any one have any thoughts on why small cap value is so cheap at the moment. VIOV seems to have a P/E of 4.87 (accoring to yahoo). I have a some questions that I would love to hear peoples opinion about.

- VBR vs VIOV? OR any other SCV etf people use here.
- Anyone concerned about the Small Cap Value company debt levels and how exposed they are to high interest rates?
- If if these companies get hammered with debt issues, what do folks think is the worst case scenario for the small cap value?

I've continuously been in and with no changes the Vanguard Index Small Cap Value since January 2003. I think the record states that I would have been much better off with growth during all that time?

[ppnewbie]

Which small cap value fund are you in? And feel free to throw out any growth fund you think are good. But I am trying to stay disciplined and stick to a golden butterfly.

Especially after this article by Tyler.

https://portfoliocharts.com/2021/12/16/ ... ortfolios/

[boglerdude]

high rates hurt weak companies. value should surge when they start printing again.

[ppnewbie]

I am concerned about how many of these companies can survive high interest rates. Does any know a good way to see debt to equity ratios for the CRSPR small cap value indexes or the SP 600 small cap value index?

[foglifter]

Which small cap value fund are you in? And feel free to throw out any growth fund you think are good. But I am trying to stay disciplined and stick to a golden butterfly.

Especially after this article by Tyler.

https://portfoliocharts.com/2021/12/16/ ... ortfolios/

I'm in GB as well and I use AVUV (mostly) and SLYV for SCV exposure. I know, AVUV is not an index fund, but the ER is quite reasonable at 0.25% and AUM has grown to 6B+.

[Smith1776]

Given equal fees, I actually think that an active factor fund is better than an indexed factor fund. The active fund can't be front run and can engage in better patient trading.

[ppnewbie]

Can you throw out some names of small cap value active index funds if you have any?

[ppnewbie]

I have VBR in my portfolio but would add a different ETF if I find something better.

[boglerdude]

Vanguard active funds. Thousands of boomers watching how much the managers spend on catering etc.

> debt to equity ratios for the CRSPR small cap

"Its all priced in" - That Guy

[foglifter]

I have VBR in my portfolio but would add a different ETF if I find something better.

BTW technically VBR is more of a mid/small cap value fund as it has 32% in mid caps and 34% in SCV. So when you compare SCV funds it's important to watch the capitalization weights. AVUV has only 4% in midcaps and 54% in SCV.

SLYV and IJS are good choices as well.

[whatchamacallit]

I was going to refer to Paul Marriman's website for best SCV funds but it appears to be down.

https://paulmerriman.com/best-in-class- ... endations/

The one I remember being most recommended was AVUV


I personally lost the faith for SCV and just do total stock market.

I couldn't handle the fatigue of finding the best SCV funds.

[vnatale]

Which small cap value fund are you in? And feel free to throw out any growth fund you think are good. But I am trying to stay disciplined and stick to a golden butterfly.

Especially after this article by Tyler.

https://portfoliocharts.com/2021/12/16/ ... ortfolios/

This one:

https://www.morningstar.com/funds/xnas/vsiax/quote

[ppnewbie]

Thanks Vinny. VBR (which I currently am invested in) is the etf version of VSIAX.

https://thoughtfulfinance.com/vsiax-vs-vbr/

[ochotona]

I have VBR in my portfolio but would add a different ETF if I find something better.

I'm considering Advantis AVUV.

[whatchamacallit]

I know how I have seen small cap value indexes have out performed the market but is there an actual small cap value fund that was able to out perform?

Maybe you could say DFSTX has but barely as of lately. I don't necessarily think it will continue but it looks like the time to move to small cap value was right after a big market draw down. I personally lost faith in small cap value and was discouraged by all the different implementations of it in different funds.

Screenshot 2023-10-18 10.42.29 PM.png (215.94 KiB) Viewed 31437 times

[boglerdude]

Past performance doesnt mean future results. There are thousands more investors throwing money into small value today than 20 years ago. Much more efficient markets.

Counter-narrative trading does tempt my brainstem tho. There's blood in the streets with long bonds

[ochotona]

Maybe the point now is to get into microcap value which is basically not tradeable for the big ETF makers. Things like the AAII Shadow Stock Portfolio, where you buy and mostly hold 30 microcap stocks. There is some turnover every quarter, but it's like 2-3 per quarter. So 8-12 per year... 1/4 to 1/3 turnover annually? That's doable.

[whatchamacallit]

I saw this one on bogleheads:

small cap value bogleheads live coming up on 24th.

https://www.bogleheads.org/forum/viewto ... st=7513037

[Kevin K.]

Good article on SCV fund choices here:

https://www.whitecoatinvestor.com/small-cap-value-etf/

For what little it's worth I was splitting SCV half-and-half between VBR and AVUV but decided to just stick with VBR in the interests of simplicity. It's true that VBR is really more of a small/mid blend compared to super-value-y actively managed funds from Avantis or DFA, but if you look at a Golden Butterfly with half each VTI and VBR the equities are pretty much perfectly spread across large, medium and small caps. And with these other funds you are not only gambling that they'll earn you enough over time to be worth paying 8x times the expense ratio of VBR but also that it's going to be worth it the whole time you own them to have to live with higher volatility and the need to read their annual reports closely to look for changes in how they are managed. End of the day I thought VBR was good enough. YMMV.

RE: mention of Tyler's post on SCV, LTT's and gold as assets in "efficient" portfolios you might want to at least skim ERN's article on gold as a hedge against sequence-of-returns risk to see his comments on the PP, GB and All Weather Portfolios:

https://earlyretirementnow.com/2020/01/ ... s-part-34/

There are of course endless debates on Bogleheads and elsewhere about whether the small and/or value premiums still exist (of which the Paul Merriman discussion linked to earlier in this thread is the most recent). IMHO for someone still in the accumulation stage with decades of investing still ahead of them some amount of small-cap value (along the lines of what Jim Dahle/aka The White Coat Investor recommends in the article I shared the link to) makes all kinds of sense, compared to just owning TSM and thereby letting the fate of your entire equity stake be determined by the out-performance of the FAANG stocks. But I think that ERN makes a lot of good points, one of which doesn't get discussed nearly enough on investing forums: the tremendous increase in the availability of information in real time and the simultaneous decrease in opportunities to generate alpha through research or insider info. My guess is that the stellar performance of Vanguard's Wellesley fund since its inception in 1970 had everything to do with the ability to hand-pick downtrodden companies and sectors based on research - and of course that's how Buffett and Munger built Berkshire Hathaway. But Munger in particular has been quite vocal in saying that the opportunities to do what they did don't exist anymore, precisely due to the lack of any way to get a leg up through the kind of careful poring over of balance sheets and other research that was their MO for many decades.

So you have to weigh value and small premia against an information "discount" when it comes to equities. And with gold surely it's important to take into account that Browne (a) recommended real physical gold and might have had very different thoughts about paper stuff whose price can be and has been manipulated, and (b) primarily recommended gold because he said it was an inflation hedge - which is simply wrong.

[ppnewbie]

Just listened to Paul Merriman's podcast.

https://podcasts.apple.com/us/podcast/h ... 0631759073

And I will listen to this one next.

https://podcasts.apple.com/us/podcast/1 ... 0633393337

[Kevin K.]

I like Paul Merriman and certainly spent years owning a complex, Merriman Ultimate (see Portfolio Charts) slice-and-dice portfolio after reading tons of stuff about modern portfolio theory and factor investing. But the problem IMHO with Paul's arguments is he (like so many others) is basing his recommendations on backtesting, and the future is not the past.

There's a great article on Ray Dalio and Bridgewater (I'll post it as a gift article below) that's a perfect illustration of how and why alpha created by having access to hard-to-get info isn't anywhere near so easy to achieve anymore. Charlie Munger and Warren Buffett have said the same thing: no one could ever make the kind of money they did again because the same information is now available to pretty much all investors in real time due to the power of computers and the exponential increase in the rate at which news travels.

Not to say that the small-cap value premium doesn't still exist from time to time or that owning a bit of SCV to offset the S & P 500's total reliance on mega-cap tech stocks for its returns isn't a good idea. Bill Bernstein in the new edition of his "Four Pillars of Investing" points out that SCV and international are indeed under-valued at the moment, meriting a modest bump in one's allocation to them, but that's it. YMMV.

https://www.nytimes.com/2023/11/01/busi ... =url-share

[Kevin K.]

Also perhaps of interest is this new post from Ben Carlson on how much slicing and dicing helps vs. KISS:

https://obliviousinvestor.com/asset-all ... snt-magic/

[mathjak107]

high borrowing costs and rising wages represent headwinds which may persist even after inflation comes down .

Unlike larger firms, smaller companies are not benefiting that much from rising productivity.

SLYV has returned about 1% ytd vs over 20% for the s&p and 19% for the total market funds