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Thoughts on Dimensional Fund Advisors’ investment approach and ETFs?
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Selling it after some short term underperformance is the worst thing you can do honestly. I would suggest owning some DFSV though.
For those not willing to go into individual stocks: DFSV (eu defence etf), also ASWJ (indo pacific ex china etf)
You are right, evaluating AVUV vs DFSV and so forth makes more sense than outright comparing Avantis and DFA.
They hold 556 of the same companies. DFSV has about 250 more in total. Is the slightly increased diversification worth the extra fees to you?
AVUV or DFSV are what I use to benchmark.
Thanks. It matches with what I have found so far, apart from DFAU which from what I understand has a very slight filter tilt and DFUS would be the closer equivalent to VTI, is that correct ? I'd already be covering factors for US with a 14% allocation to DFSV
I know that is a favorite among many and I think I heard Dimensional recently released one as well, DFSV.
Instead of large cap growth, which is already a great portion of SPY, why not small cap value (like AVUV or DFSV)? It is a risk/reward play, it’ll actually lower your concentration in US mega caps and it targets (allegedly) undervalued stocks instead of highly valued ones. Aside from that, I’d argue that allocating 30% total to you “diversifiers” and 90% to stocks, actually doesn’t give you too much risk diversification if that’s what you’re looking for. Utilities and staples are still stocks, even if they’re less volatile. 5% in managed futures or hold won’t give you a significant risk reduction, etc.
Small cap value to diversify from your heavy voo position. AVUV or DFSV are best in class.
When you have an allocation at 5% or less it basically becomes negligible to affecting rate of return , at least for funds , if it were individual stocks which could return 20% or more than it can affect your overall cagr. Also VB is the largest market cap of small cap funds https://www.morningstar.com/funds/why-how-index-us-small-caps, I would do either 100% AVUV/ DFSV for your small cap part, or have a core small core fund like IJR or SCHA then add SCV. To replace VOOG and tech , use QQQ VOO 35% QQQ 25% AVUV 40%
Well, 50/10/40 is going to slightly underweight mid and small caps, since VTI is more like 15-20% VXF iirc. This suggests a teeny bit lower expected return long term and a teeny bit higher beta. I prefer to underweight one specific segment of the market: small cap unprofitable growth. This segment, in every market for all time, is a *dog*. Negative returns left and right. Think speculative biotech company that implodes 4/5 times due to failing a phase three drug trial. AVUV or DFSV are good options. They specifically target small cap, value (low price to book ratio), profitability (strong gross profitability) companies. Its inherently riskier (volatility, sequence risk, dispersion of outcomes) than just VXF as a blend approach, but it has higher expected returns. SPY returned like 10% CAGR since '93, but DFSVX (OG version of DFSV, very similar to AVUV, small cap value mutual fund) returned a bit over 11% cagr for those thirty some odd years. Largely due to ball busting outperformance in the early 2000s. These funds expressly avoid small cap unprofitable growth companies.
Well my barbell worked perfectly. I own all the Mag7 but own a lot of DFSV (small cap fund) which was up 3.4% today. I actually had my best day this year. The market rotated to small caps today. I got stopped out of TSLA, but kept everything else.
Here we are basically talking about Dimensional Fund Advisors and Avantis fund advisors. The make the best value /size/profitability factor tilt funds. Classics involve AVUV/DFSV, AVES, DFIV, AVDV, AVGV, AVMV, AVLV, AVNV, etc
Biiiig AVUV guy here. Much newer than DFSVX (isn’t DFSV the new ETF version of DFSVX?) and they’re functionally very, very, nearly the same.
Why would you buy *and then* ask? Want people to reassure you? Dump VIG, JEPI, I whatever it is, SCHD can stay cause it's a large cap value fund (coincidentally), and there's no tax drag in an IRA. I like VOO, I also prefer small cap value to large cap value with extremely reputable long term outperformwrs like DFSV (refer to DFSVX for past performance, 31 years of over 11% CAGR which is huge vs the s&p) or AVUV.
I’d told more meaningfully. These are closet index funds. AVUV, DFSV, QVAL. Could also look ex-US. Or do both in a fund of funds like AVGV.
My broker doesn't offer any dimensionals, can you suggest an ETF? DFSV?
Rabbit hole time! What you're looking for is *risk factors*. Efficient markets only systematically compensate risks that investors cannot diversify. These priced risks have been defined in the 5-factor capital asset pricing model by Fama and French. The factors are equity, value, size, reinvestment, and profitability. Equity risk premium is the expected return in excess of the risk free rate (tbills or bonds or whatever is the best yielding risk free asset at the time). You get the equity risk premium exposure in your portfolio by simply holding stocks at market cap weights, like VTI in the USA or VT for global markets. Other priced risks are small caps, value stocks, and then especially value stocks with robust profitability or value stocks that reinvest conservatively (this means small cap value instead of small cap growth). Value in essence means that investors are demanding a greater discount on future cash flows (aka larger *expected* returns) because they precieve some risk in that company. Diversifying among risky companies like this leads to higher expected returns, so your portfolio grows faster/larger. Small cap value has outperformed the market since 1993 when the first true small cap value fund was deployed by Dimensional Fund Advisors, DFSVX. This fund returned like 11.18% CAGR when the s&p500 returned 9.95%. that's 30 years of over a percent per year outperformance, enormous implications for compound growth. We now have multiple great products in the small cap value space. AVUV (Avantis small cap value, very similar to DFSVX) and DFSV (ETF version of DFSVX released 2021). In a different vein, some small value funds have focused on free cash flows and future cash flows and lean into raw profitability like CALF and RWJ. AVUV/DFSV focus on low price to book companies with robust operating profitability so they have a financial focus, CALF and RWJ are focused on raw cashflows so they lean into consumer discretionary. I personally have 30% of my portfolio between AVUV, AVDV, and AVES. AVDV is international small cap value. AVES is emerging markets value.
Yes, you should be risky. However, you should only take compensated risks. That's how you build wealth. Watch "5-factor investing with ETFs" by Ben Felix on YouTube. It's a great primer for understanding why financial markets reward certain risks. You should have a portfolio based on market cap weighted equities. After than, you will overweight certain priced risk factors like value, size, profitability, reinvestment, as defined in the 5-factor capital asset pricing model. The theory has held up for 40 years, and the realized outperformance has been over a percent in excess of the market when dimensional deployed their small cap value fund in 1993 (DFSVX). Compounding with an extra percent per year is *enormous* for growth of your portfolio. Check out that YouTube video. Some favorites for accessing the value and size and profitability premia are DFSV and AVUV for US small cap value. There's also CALF and RWJ, they focus more on raw cashflow and cashflows growth mainly in consumer discretionary companies, whereas AVUV and DFSV focus on financials and low price to book companies with robust operating profitability. These different approaches to the value and profitability premia will perform differently in different market conditions. As lending rates go down, financials in small caps do better since mortgage lending is pegged to the 10-yr rate. Covid revenge spending has really benefited consumer discretionary. Stuff like that. Diversification is great.
That's not smart money, that's astrology for men. Technical analysis is like casting bones and trying to read the future of the stock market in the pattern they make in the dirt. *Actual* smart money for a retail investor is tailoring a portfolio for your desired risk adjusted returns. Able to handle decades of sequence risk, volatility, etc? Maybe overweight to the 5-factor CAPM risk premia with small cap value profitability funds like AVUV or DFSV are the right move for you. Efficient frontier in the market is the market portfolio, but you can reduce your risk adjusted optimization for larger future expected returns with excess compensated risk premia with value, small caps, profitability, reinvestment, and equity.
There's a difference between price and value :). You want to make sure that the fund is targeting the right type of stocks. What I did was use this tool to determine what factors the funds actually target, and then subtract the fees from the alpha: https://www.portfoliovisualizer.com/factor-analysis#analysisResults I found that DFSV and AVUV were both better than VBR, even after accounting for fees. Personally, I use AVUV, with DFSV as the tax loss harvesting pair. But also I'm just some guy on the Internet so take it with a grain of salt. :)
The 5-factor capital asset pricing model begs to differ. I've got a 40 yr time horizon and you're telling me to buy large caps when their shiller cape levels are at the same magnitude as pre great-depression and as the dotcom bubble runup? It's not over complicated when youre a college educated chemical engineer whose hobby is reading dissertations and financial treatises. It's also only recently possible for the retail investor due to the deployment of Avantis and Dimensional ETFs that allow domestic and international value targeted investing. Even with the value winter and the last 15 years of easy money era large crap growth, small value has still beaten large growth over the last 30 years. DSFVX, dimensional's small cap value mutual fund now available as DFSV in ETF format returned a geometric CAGR of 11.13% after fees. that's 118 basis points above the s&p500's geometric return of 9.95%. I'm perfectly content with my portfolio. 401k is maxed each year at 50/50 FXAIX/FTIHX (VOO, VXUS essentially) and my IRA is 100% small cap value or emerging markets value funds a la AVUV, AVDV, and AVES (mostly AVUV, keeping it roughly 60/40 US/international access all accounts). It's five funds, each with their own risk profile. It's extremely more diversified than a simple s&p index fund, and as a student of finance and history, the expected returns are potently higher, especially with country diversification. The safe withdrawal rate in retirement will be substantially higher than a pure large cap, one country strategy. All the gen Z and millennials on this site seem to have no understanding that the US underperformed international markets from 1950-1989 (do the math, that's 39 years) and the US underperformed in the 00's. They also seem completely oblivious to the fact that over every single rolling 20 year period, small cap value has outperformed the market. Every single 20 year period. That's how you capitalize on undiversifiable systemic risk premia (have a long time horizon to weather sequence risk). The practical complications involved with rebalancing a portfolio once a year between 5 simple buckets based on percentages is trivial. It takes minutes every year.
The diversification doesn't result in lower expected returns. It results in higher expected returns (sans bonds). The manager is taking a fee to (ideally) provide a high sharpe ratio portfolio on the efficient frontier. When you look backwards, all data is skewed to the US due to price multiple expansion, so saying that diversifying to international stocks for example results in lower returns is a fallacy. It resulted in lower returns, but future forecasts over long time frames EXPECT high average returns with international diversification. This is especially true with emerging markets and small cap value, both of which also had a rough patch the last decade compared to large cap growths returns. Diversification increases EXPECTED returns, not decreases. Of course, adding bonds decreases volatility and expected returns, so they're a flavor to add depending on the desired sharpe ratio and risk tolerance. For example, I may wish to optimize a portfolio to the efficient frontier by adding a risk free asset, but what if I don't want an optimized sharpe ratio? If I'm willing to increase the denominator and stomach more volatility in exchange for a theoretically higher CAGR (based on 5-factor CAPM + efficient markets) I could invest in high volatility, higher expected return assets classes like small cap value using DFSV or AVUV. Paired with a domestic index, an international index, and some additional overweight to emerging markets value (AVES) and international small cap value (AVDV), the overall risks of the portfolio are less than the sum of their parts pursuant to markowitz portfolio theory.
No one's going to listen to me because "mUh mEricAn stOcKs alWayS ouTpErFor- #NO THEY DONT All US outperformance that's expressed over the rest of the world occured since 2009. Most of the American market is fairly valued, except for the mega caps which are making the s&p ridiculously overpriced just by the relative weights of a handful of overpriced companies. International has enormously better valuations on average, and obviously so does value oriented funds. Time to buy AVUV, AVNV, VXUS, DFSV, stuff like that. I do not omit the S&P, it's just a much smaller part of my portfolio down to 35%.
I mean, I guarantee I know more about it than most of reddit or my coworkers. The funny truth is that you don't need anything to make the correct investment choice and outperform the average investor. Very simple market cap weight portfolio (this includes significant international diversification) plus tilts to the value and profitability risk premia plus whatever fixed income necessary to be conservative and absorb the blow of an unpredictable financial crisis. I certainly would like to shovel more money into small cap value than I am able to at the moment, since the 401k's small cap "value" option is some garbage wellington mutual fund that doesn't even fully reproduce the performance of the Russel 2000, which is significantly shittier than targeted small value funds like DFSV or AVUV.
Could always check out small cap value if you want a etf thats risk embracing but different from your large growth. Something like AVUV or DFSV. Do your own research though cause its not for every one.
AVUV and AVDV for the long haul. DFSV can replace AVUV easily.
I am factor investing for retirement with a 20 year time horizon. For the equity portion of the portfolio, why not do 100% small cap value? All model portfolios for factor investing I've seen have a tilt towards small cap value mixed in with total stock market funds. Would it be alright if I cut out total stock market ETFs in favor of more SCV? Here are 3 portfolios I am considering. Please give me your opinion on what is best, I want to be as aggressive as possible: Portfolio 1: VTI (42%), DFSV (14%), VXUS (24%), DISV (8%), DFEV (12%) Portfolio 2: VTI (28%), DFSV (28%), VXUS (16%), DISV (16%), DFEV (12%) Portfolio 3: DFSV (56%), DISV (32%), DFEV (12%) I have portfolio 3 in my individual account. Is it too risky/not diversified enough for an IRA? Please help.
For US? May as well just go all in VTI. The big tech still make up a very significant portion of VTI. Equity diversifiers to tack onto this would be VXUS (international) and/or something like AVUV/DFSV (small cap value).
Value has historically performed better. Growth has just had a recent run the last decade or so. Nobody knows if this will continue or we'll revert to the norm. I'd just invest in a total market fund to have both. I do like small cap value (AVUV or DFSV) for someone that's young, assuming you can handle watching it during some periods of lower performance. You're probably limited on this in a 401k, most small cap value funds there tend to be very expensive. Great for an IRA, though.
I major in economic quantitative analysis. My allocation is 56% DFSV, 32% DISV, 12% DFEV
No. I'd avoid ESG stuff like the plague. It's just a political circlejerk. Maybe a little small cap value? I like AVUV or DFSV. The indices are OK too. That's something that you really got to stick to, though. It can get a bit volatile. Make sure you know what you're getting into. VTI and VXUS is already fairly aggressive. Stick with that until you're more comfortable.
Maybe use a Golden Butterfly approach: 20% GLDM 20% VGSH 20% VGLT 20% stockpicks or VTI or QMOM 20% VBR or AVUV or DFSV That way you have the portfolio overwhelmingly tilted to assets less likely to downtrend at the same time as your stockpicks.
you should check out DFSV, it’s like IWM but with momentum factored in
As I noted above, DFSV is an ETF version of it now. Everyone can purchase ETFs :)
To add to this, if someone wants to look at AVUV over a longer time period, DFSVX is a closer comparison (its modern ETF counterpart is DFSV, which AVUV aims to improve upon)
Thanks for the tip, I'll look into DFSV. Mostly looking to add the SCV not to increase gains but to reduce beta just a little.
If I had to choose between those two I would pick ISCV. If you are open to suggestions I would pick DFUV (market wide value) or DFSV small cap value. They are from dimensional who basically started the whole small cap value indexing. Originally they only did mutual funds, but in the last year or so started doing ETFs also. In my opinion adding a tilt is not going to do much. For it to have anything significant you really need to make it at least 20% of your portfolio if not more. When people do value factor research they are doing it with the assumption of 100% allocation normally to show those really outsized returns in the long run.
Over the next 20 - value and momentum investing typically. Some ETFs include MTUM, VFMO, QMOM for momentum and AVUV, DFSV, QVAL for value. Could simply allocate 10% to value, 10% to momentum, and 80% to a market fund like VT and be expected to outperform Next year or so - safer cash-like investments, probably
Yes it is the case that overweighting small caps should result in greater returns. This is called smart beta or factor investing. And a lot of good responses but let's summerize some points here: * Smaller companies have a premium, but it is usually concentrated on the small value. Small growth tends to underperform the market. * You need to filter out junk companies to capture to premium. ETFs following passive indexes do no filter out junk companies. * You need to instead search for factor ETFs that aim to capture the premium. These have more complex filters to try to capture the factor premiums. That ones you'll want to look at are SCV factor or size factor ETFs. * Smart beta can lead to decades of underperformance before gapping up, so you need to be completely sold into the idea if you take this approach because you will likely lag the market some years. Factor (Smart Beta) ETFs by Company: * [Avantis](https://www.avantisinvestors.com/content/avantis/en/investments.html?referrer=/content/avantis/en/investments.html) * [Blackrock](https://www.blackrock.com/us/financial-professionals/products/investment-funds#!type=all&style=All&view=perfNav&pageSize=25&pageNumber=1&sortColumn=totalNetAssets&sortDirection=desc&search=Factor%20ETF) * [Dimensional](https://us.dimensional.com/etfs#OurETFs) * [Fidelity](https://www.fidelity.com/etfs/different-types-of-etfs) * [JP Morgan](https://am.jpmorgan.com/us/en/asset-management/adv/investment-strategies/etf-investing/capabilities/factor-etfs/) * [Vanguard](https://advisors.vanguard.com/investments/all?strategy=Factor) Notable SCV ETFs: * AVUV * DFSV * SVAL Notable SCV Ex-US ETFs: *DISV *AVDV *ISVL Avantis and Dimensional are pretty popular in this space right now due to their superior filters. Avantis was built by former Dimensional employees while Dimensional's private funds consistently overperformed the market before making their funds public. Both of them also offer a slightly SCV tilted Total Market Fund, Dev Intl Market fund, and Emerging Market fund alternatives. It should be factor ETFs do have a higher expense ratios, but are generally still low enough to result in some positive Beta.
DFSV - Dimensional US Small Value DISV - Dimensional International Small Value This is the best way to play this theme in a systematic and diversified manner. Don't go all in but tilt you're portfolio to these and stick with it for the long term.
70% US and 30% international. I equally distributed the US portion between AVUV, DFSV, and VIOV and the international portion between AVDV, DISV, and ISVL.
DFSV/DISV was the OG in the FF factor game. Then a few guys left dimensional and started Avantis a couple years ago, who offer AVUV and AVDV. Up to you to decide which one is better (these two are probably the best in the game at the moment) - Avantis targets both value and profitability in initial screening, while dimensional targets value primarily in initially screening for stocks.