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There is good reason to believe that small stocks and value stocks will, in
the long run and on average, tend to have higher risk-adjusted returns than
large and growth stocks, respectively. In order to seek exposure to both
the small and value risk factors at the same time, it seems natural to invest in
a small-cap value fund.
There are several similar-seeming investment options
available. Which is best?
The funds are listed in rough order of our overall preference.
Preferences are listed separately for use in
retirement accounts and for taxable accounts.
For a listing of our preferences in other asset classes, see
here.
Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)
 | Bridgeway Omni Small-Cap Value Fund (BOSVX). E/R: 0.60%. This
fund is both extremely small (as measured by weighted average market
capitalization) and extremely valuey (as measured by weighted average book to
market value). It basically has a strategy of
emulating the returns of the
20% most valuey of the 5% of US publicly traded companies with the lowest
market capitalization (excluding "penny stocks").
|
| PowerShares S&P SmallCap 600 Pure Value ETF (RZV). E/R: 0.35%.
This ETF tracks the S&P SmallCap 600/Citigroup Pure Value Index. It is
both extremely small (as measured by weighted average market capitalization)
and extremely valuey (as measured by weighted average book to market value). Unlike
virtually all other passively managed funds, this fund isn't weighted by
market cap, but rather by "value-ness." For more information on ETFs, see here.
|
| PowerShares Russell 2000 Pure Value Portfolio (PXSV).
E/R: 0.39%. This fund attempts to track the Russell 2000® Pure Value
Index.
|
| Vericimetry US Small Cap Value Fund (VYSVX). E/R: 0.60%. This
fund is both extremely small (as measured by weighted average market
capitalization) and extremely valuey (as measured by weighted average book to
market value). It basically has a strategy of
emulating the returns of the
most valuey of the 10% of US publicly traded companies with the lowest
market capitalization (or those smaller than the 1200th largest, whichever of
the two measures which results in a higher market cap breakpoint).
|
| DFA US Small Cap Value Portfolio (DFSVX). E/R: 0.50%. This
fund is both extremely small (as measured by weighted average market
capitalization) and extremely valuey (as measured by weighted average book to
market value). It basically has a strategy of
emulating the returns of the
25% most valuey of the 10% of US publicly traded companies with the lowest
market capitalization (or those smaller than the 1000th largest, whichever
of the two measures which results in a higher market cap breakpoint).
|
| DFA US Targeted Value Portfolio (DFFVX). E/R: 0.38%. This
fund is similar to the above fund, only with somewhat less of a small-cap
orientation. Specifically, it excludes the largest 72% or so of
companies. It basically has a strategy of
emulating the returns of the
25% most valuey of the US publicly traded companies with a market
capitalization within the smallest 18% of all such companies.
We don't like this fund as much as DFSVX because the stocks it invests in
aren't as small in market capitalization or as valuey.
|
| Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX).
E/R: 0.08%. We don't like this fund as much as RZV because the stocks it invests in
aren't as small in market capitalization and they aren't as valuey. We
also don't like that this fund has quite a bit of REITs in it.
|
| Vanguard Small Cap Value ETF (VBR). E/R: 0.08%. This ETF is a
share class of the Vanguard Small Cap Value Index Fund (VISVX). For more information on ETFs, see here.
We don't like this fund as much as RZV because the stocks it invests in
aren't as small in market capitalization and they aren't as valuey. We
also don't like that this fund has quite a bit of REITs in it.
|
| Vanguard S&P Small Cap 600 Value ETF (VIOV). E/R: 0.20%. This ETF is a
share class of the Vanguard S&P Small Cap 600 Value Index Fund Institutional
Shares (VSMVX). For more information on ETFs, see here.
We don't like this fund as much as DFSVX because the stocks it invests in
aren't as small in market capitalization and they aren't as valuey. We
also don't like that this fund has quite a bit of REITs in it.
|
| Vanguard Russell 2000 Value ETF (VTWV). E/R: 0.20%. This ETF is a
share class of the Vanguard Russell 2000 Value Index Fund Institutional
Shares (VRTVX). For more information on ETFs, see here.
We don't like this fund as much as DFSVX because the stocks it invests in
aren't as small in market capitalization and they aren't as valuey. We
also don't like that this fund has quite a bit of REITs in it.
|
| Vanguard Small Cap Value Index Fund (VISVX). E/R: 0.24%.
This fund tracks the CRSP US Small Cap Value Index. While its expense
ratio is lower than DFSVX and DFFVX above, the stocks it invests in are
nowhere near as valuey as either of the above, and nowhere near as small or as
well diversified as those in DFSVX. We also don't like that this fund
has quite a bit of REITs in it.
|
| iShares S&P Small Cap 600 Value Fund (IJS). E/R: 0.25%.
This ETF tracks the S&P SmallCap 600/Citigroup Value index. For more information on ETFs,
see here.
|
| iShares Russell 2000 Value Fund (IWN). E/R: 0.25%. This ETF
tracks the Russell 2000 Value index. For more information on ETFs, see
here.
|
| SSgA streetTRACKS U.S. Small Cap Value Index Fund (DSV). E/R: 0.27%. This ETF
tracks the Dow Jones Small Cap Value Index. For more information on ETFs, see
here.
|
| iShares Morningstar Small Value Fund (JKL). E/R: 0.30%. This ETF
tracks all stocks which Morningstar considers to be "Small Value." For more information on ETFs, see
here. |
| Bridgeway Omni Tax-Managed Small-Cap Value Fund (BOTSX). E/R: 0.60%. This
fund is both extremely small (as measured by weighted average market
capitalization) and extremely valuey (as measured by weighted average book to
market value). It basically has a strategy of
emulating the returns of the
20% most valuey of the 5% of US publicly traded companies with the lowest
market capitalization (excluding "penny stocks"). It attempts to lessen
the tax burden associated with owning the fund.
|
| PowerShares S&P SmallCap 600 Pure Value ETF (RZV). E/R: 0.35%.
This ETF tracks the S&P SmallCap 600/Citigroup Pure Value Index. It is
both extremely small (as measured by weighted average market capitalization)
and extremely valuey (as measured by weighted average book to market value). Unlike
virtually all other passively managed funds, this fund isn't weighted by
market cap, but rather by "value-ness." As an ETF, we expect
this fund to be perfectly capital gains tax efficient (which is good).
However, it has a dividend yield that is three times as high as DTMVX below.
While this contributes to making this fund more "valuey", it also makes it
somewhat less tax efficient. For more information on ETFs, see here.
|
| PowerShares Russell 2000 Pure Value Portfolio (PXSV).
E/R: 0.39%. This fund attempts to track the Russell 2000® Pure Value
Index. As an ETF, we expect this fund to be perfectly capital gains
tax efficient. For more information on ETFs, see here.
|
| DFA Tax-Managed U.S. Targeted Value Portfolio (DTMVX). E/R: 0.46%. This
fund is both relatively small (as measured by weighted average market
capitalization) and extremely valuey (as measured by weighted average book to
market value). It basically has a strategy of
emulating the returns of the
25% most valuey of the 18% of US publicly traded companies with the lowest
market capitalization (i.e., those smaller than the 500th largest). It also endeavors to maximize tax-efficiency by
minimizing both capital gains and dividend distributions. This tax
management causes its pre-tax performance to be expected to diverge fairly markedly (in a random
fashion) from the similar (non-tax-managed) DFSVX (its higher market
capitalization causes its pre-tax performance to further diverge from DFSVX).
|
| Vanguard Small Cap Value Index Fund Admiral Shares (VSIAX).
E/R: 0.08%. We don't like this fund as much as RZV because the stocks it invests in
aren't as small in market capitalization and they aren't as valuey. We
also don't like that this fund has quite a bit of REITs in it.
|
| Vanguard Small Cap Value ETF (VBR). E/R: 0.08%. This ETF is a
share class of the Vanguard Small Cap Value Index Fund (VISVX). While ETFs by their very nature tend
to be more (capital gains) tax-efficient than non-ETFs, Vanguard ETFs are an
exception — they will be exactly as tax-efficient as their parent fund. For more information on ETFs, see here.
We don't like this fund as much as DTMVX because this fund
has quite a bit of REITs in it.
|
| Vanguard S&P Small Cap 600 Value ETF (VIOV). E/R: 0.20%. This ETF is a
share class of the Vanguard S&P Small Cap 600 Value Index Fund Institutional
Shares (VSMVX). While ETFs by their very nature tend
to be more (capital gains) tax-efficient than non-ETFs, Vanguard ETFs are an
exception — they will be exactly as tax-efficient as their parent fund. For more information on ETFs, see here.
We don't like this fund as much as DTMVX because this fund
has quite a bit of REITs in it.
|
| Vanguard Russell 2000 Value ETF (VTWV). E/R: 0.20%. This ETF is a
share class of the Vanguard Russell 2000 Value Index Fund Institutional
Shares (VRTVX). While ETFs by their very nature tend
to be more (capital gains) tax-efficient than non-ETFs, Vanguard ETFs are an
exception — they will be exactly as tax-efficient as their parent fund. For more information on ETFs, see here.
We don't like this fund as much as DTMVX because this fund
has quite a bit of REITs in it.
|
| Vanguard Small Cap Value Index Fund (VISVX). E/R: 0.24%.
This fund tracks the CRSP US Small Cap Value Index. While its expense
ratio is lower than DTMVX above, the stocks it invests in are less
valuey, less small, and less diversified than those
in DTMVX. We don't like that
this fund has quite a bit of REITs in it.
|
| iShares S&P Small Cap 600 Value Fund (IJS). E/R: 0.25%.
This ETF tracks the S&P SmallCap 600/Citigroup Value index. For more information on ETFs,
see here.
|
| iShares Russell 2000 Value Fund (IWN). E/R: 0.25%. This ETF
tracks the Russell 2000 Value index. For more information on ETFs, see
here.
|
| SSgA streetTRACKS U.S. Small Cap Value Index Fund (DSV). E/R: 0.27%. This ETF
tracks the Dow Jones Small Cap Value Index. For more information on ETFs, see
here.
|
| iShares Morningstar Small Value Fund (JKL). E/R: 0.30%. This ETF
tracks all stocks which Morningstar considers to be "Small Value." For more information on ETFs, see
here.
|
| Vericimetry US Small Cap Value Fund (VYSVX). E/R: 0.60%. This
fund is both extremely small (as measured by weighted average market
capitalization) and extremely valuey (as measured by weighted average book to
market value). It basically has a strategy of
emulating the returns of the
most valuey of the 10% of US publicly traded companies with the lowest
market capitalization (or those smaller than the 1200th largest, whichever of
the two measures which results in a higher market cap breakpoint).
This fund is poorly rated here because, while it is expected to be extremely
small and valuey, it is not expected to be particularly tax efficient,
compared to the other offerings above. |
This web page contains the current opinions of Eric E. Haas at the time it is
written — and such opinions are subject to change
without notice. This web page is intended to serve two purposes:
| To educate the public; and |
| To provide disclosure of Mr. Haas' opinions to prospective clients.
We believe that prospective clients are well-served by being made aware of
what they are buying — and what they are buying is advice
that is based on these opinions. |
We believe the information provided here to be useful and accurate at the time
it is written.
Information contained herein has been obtained from sources believed to be
reliable, but is not guaranteed.
No investor should invest solely on the basis of information listed here.
Before investing, it is important to consult each prospective investment's
prospectus and consider both its risk/return characteristics and its effect on
your overall portfolio.
This information is not intended to be a
substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Altruist
recommends consultation with a qualified tax adviser, CPA, financial planner, or
investment adviser. If you would like to discuss the rationale or support
for any particular idea expressed on this web page, feel free to
contact us. |
