Bias toward small cap and value - how much?

[FIREd]

I am about 2/3 Large caps, 1/3 mid and small caps. About 52% value, 48% growth. Pretty close to the Wilshire 5000's composition but with a slight small cap/value tilt.

According to Mornigstar X-ray tool, the break down is as follow:

[Spanky]

Quote:

Of your US allocation, what % do you have in small vs large, and what % is value vs. growth/market?

25% Large growth
25% Large value
25% Small growth
25% Small value

[megacorp-firee]

Quote:

Originally Posted by Spanky 25% Large growth 25% Large value 25% Small growth 25% Small value

Could you give the specific stocks or indices please.
Thanks.

[chinaco]

We are 70% stock 30% fixed.

Of the stock allocation, we are a bit heavy domestic large cap. Approximately 45% holdings are in domestic Large Cap (Blend) equity. about 15% is in small and mid cap domestic mix of growth/blend.
10% is foreign.

I am intending to move a bit more of the domestic LC to foreign equity (approx 5% - 10%). But I will move it gradually over several years (5 years). I no longer make big moves all at once if I can avoid it.

My target is:

40% Bonds/fixed
25% Domestic LC
10% Domestic MC
10% Domestic SC
15% Foreign (5% emerging markets) Might adjust down domestic LC/MC/SM and make foreign 20%. But for now I am targeting a boost of 5%.

Most of the reallocations will happen in tax deferred accounts.

[Spanky]

Quote:

Originally Posted by megacorp-firee Could you give the specific stocks or indices please. Thanks.

Vanguard 500 Index (VFINX) Vanguard Value Index (VIVAX) Vanguard Small Cap Index (NAESX) Vanguard Small Cap Value Index (VISVX)

[tulak]

Quote:

Originally Posted by Spanky Vanguard 500 Index (VFINX) Vanguard Value Index (VIVAX) Vanguard Small Cap Index (NAESX) Vanguard Small Cap Value Index (VISVX)

VFINX and NAESX are large/small cap blends, not growth.

When I first saw your allocation, I thought it was an interesting idea: split between value/growth and go for a rebalancing benefit?

With what you have above, it seems like your going for a value-tilt instead?

As a side-note, I had my US equities split into similarly. About a month ago, I decided I wanted to simplify and went with TSM. This was after reading the diehards thread on the 'core 4' and backtesting a complete portfolio with these four funds compared to a portfolio with just TSM. In the end, there wasn't much difference.

I don't want to argue that you couldn't get a little bit more performance, but the idea of holding one fund was too appealing. Now instead of having to rebalance between my original 10-12 funds, I'm down to about 5-6 for the entire portfolio.

[Htown Harry]

Quote:

Originally Posted by Nords Imagine if our "indexes" were equal-weighted or fundamentally-weighted instead of cap-weighted.

The ever-imaginative folks at Powershares think they have one for you: PRFZ

"...seeks to replicate, before fees and expenses, the FTSE™ RAFI US 1500 Small-Mid Index. The objective of the Index is to track the performance of small and medium-sized U.S. companies. Companies are selected based on the following four fundamental measures of size: book value, cash flow, sales and dividends. Each of the equities with a fundamental weight ranking of 1,001 to 2,500 is then selected and assigned a weight equal to its fundamental weight. The fundamentally weighted portfolio is rebalanced and reconstituted annually."

The web site shows superior theoretical returns when the index strategy is backtested against the Russell 2000 and the S&P small cap indexes. PowerShares.com - FTSE RAFI US 1500 Small-Mid Portfolio - PRFZ They also have a similar fund for the top 1000 companies in their ranking scheme.

This is not a recommendation, just an observation for conversation's sake. This ETF and the "index" are only 18 months old, it's very thinly traded and has a gross expense ratio just over 1%.

But it is an interesting idea...reminds me a bit of the old "dogs of the Dow" strategy.

[tightasadrum]

Quote:

Originally Posted by Nords Tracking error is only an "error" if it reduces your returns. Imagine if our "indexes" were equal-weighted or fundamentally-weighted instead of cap-weighted. I remember a study several years ago claiming that the collective returns of the S&P 500, midcap 400, & smallcap 600 outweighed the TSM returns of the S&P1500. It'd be interesting to see a followup.

Nords,

Look at the ETF "RSP". It equally weights the stocks on the SP500 list instead of cap weighting. In fact, I own in instead of an SP500 index fund. Time will tell whether that was a correct decision or not.

[joesxm3]

fwiw - my t rowe price newsletter that arrived yesterday had an article saying that we had just passed the top of the value better than growth curve and are now heading into a several year growth better than value period.

this is their commentary, not mine - i have no idea.

[Nords]

Quote:

Originally Posted by Htown Harry The ever-imaginative folks at Powershares think they have one for you: PRFZ

Quote:

Originally Posted by tightasadrum Look at the ETF "RSP".

As I re-read my post I see I need to clarify.

I know that there are funds like those. My point is that it would be a very different world if fund managers had to compare their performance to benchmarks that were weighted by other than capitalization.

Just like today's managers choosing the benchmarks that best reflect their performance, instead of the benchmarks that best reflect the composition of their funds...

[Lsbcal]

I was using FIRECalc to try to minimize the drawdown on our portfolio. Found that when the SV=6% and SP500=LV=22% with other 50% in 1mo Treasury bills that the drawdown was minimized given our particular mix of cash flows. Of course, FIRECalc doesn't offer all the asset classes available today. I found it interesting that the value tilt helped with drawdowns. But of course, that's the past.

Such an extreme value tilt will create a lot of tracking error. I think of TE as: (1) 1st year you underperform the market because international stocks sparkle, (2) 2nd year you underperform the market because large growth explodes up, (3) 3rd year its large growth, (4) etc, etc, etc. So how many years can you take this. I'm not that patient.

Currently we have our international's in LV and the US equities are tilted to LG (using Vanguard Primecap) with a good dose of midcaps. Practically no small caps. I note that funds like Wellington have been doing well for years without a lot of small caps. But I might pick up a little small cap value (because of the FIRECalc runs above) if and when we come out of some years of underperformance.