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Further slicing/dicing/tilting within internationals

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  • Further slicing/dicing/tilting within internationals

    Been thinking about whether I want to delve into cutting up my international holdings. Most of it is in TSP I Fund, which tracks MSCI EAFE (23% Japan, 19% UK, 10% ea France/Germany/Switzerland, no Korea). I don't know what the growth/value or large/mid/small division is but I imagine it's probably fairly standard.

    For comparison, VTIAX is 80/16/4 l/m/s, even between growth/value, and includes other areas (11% Americas, with total 15% emerging).

    Are there many people who get into int'l small caps, int'l value, or specific areas like SE Asia or Latin America? I know these funds exist, but a lot of the ones I've seen are actively managed with high expense ratios or just aren't doing well. This degree of slicing and dicing seems a bit deeper than most of us are willing to go, and aside from a few world or Japan small cap funds I've seen, aren't close to being worth the fees.

  • #2
    I'm actively working on reducing asset classes in my portfolio, not increasing them.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

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    • #3
      I've always tilted to mid/small and EM, but never anything fancier than that.  I try to keep EM at about 1/3 of my international holdings.  There aren't really even any cheap int'l small cap options - VSS, SCHC, SCZ, and IEUS are all more mid than small cap.

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      • #4
        I think a strong argument can be made for international small caps using VSS or alternative. First off 0.17% isn't 0.05% but it's pretty darn cheap. More importantly international small caps behave differently than the multinational large caps that are often government run, and more highly correlated with global and US funds. Holdings within VSS on the other hand are more tied to home country performance and currency and the fund provides nice internal diversification with some countries doing well and others poorly in the same year which lowers volatility.

        EM is a little harder if a sell beyond VTIAX EM market weighting. I use a 5% tilt but am committed to long term rebalancing (very painful last 5 years).

        I'm sure international value tilting has its merits, but I refuse to go there for simplicity sake. Maybe one day I'll add an intValue ETF. Anyone have a low cost favorite?

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        • #5
          Yes, I used DISVX (http://www.morningstar.com/funds/xnas/disvx/quote.html), from a previous advisor relationship, as an international small value holding. It tends to track independently of a core international fund, which provides diversification and lowers volatility of the portfolio. Since leaving the advisor, I have used VSS as a substitute, recognizing that the lack of value tilt makes it less desirable than DISVX for me.

          There are other options (http://etfdb.com/mutualfund/DISVX/) to consider.

          I also have emerging markets exposure, approximately 25% of my international holdings.

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          • #6




            Been thinking about whether I want to delve into cutting up my international holdings. Most of it is in TSP I Fund, which tracks MSCI EAFE (23% Japan, 19% UK, 10% ea France/Germany/Switzerland, no Korea). I don’t know what the growth/value or large/mid/small division is but I imagine it’s probably fairly standard.

            For comparison, VTIAX is 80/16/4 l/m/s, even between growth/value, and includes other areas (11% Americas, with total 15% emerging).

            Are there many people who get into int’l small caps, int’l value, or specific areas like SE Asia or Latin America? I know these funds exist, but a lot of the ones I’ve seen are actively managed with high expense ratios or just aren’t doing well. This degree of slicing and dicing seems a bit deeper than most of us are willing to go, and aside from a few world or Japan small cap funds I’ve seen, aren’t close to being worth the fees.
            Click to expand...


            DMFA - didn't you tell me to KISS?

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            • #7
              I weight developed and emerging markets evenly, with each comprising 10% of my portfolio, so that's an EM tilt.

              I briefly held separate European developed markets and Asian developed markets, but that was when I TLHed from developed markets into the two funds and they fell further, which allowed me to TLH out of them later.

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              • #8
                A brief search indicates many use EFV (iShares IntValue, ER 0.4%), and FNDF (Schwab Intl Fundanental, ER 0.32%). EFV looks a bit more valuey, heavier in financials. FNDF a bit cheaper, lower dividend yield.

                I'll keep EFV on my radar for a component in my Roth.

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                • #9







                  Been thinking about whether I want to delve into cutting up my international holdings. Most of it is in TSP I Fund, which tracks MSCI EAFE (23% Japan, 19% UK, 10% ea France/Germany/Switzerland, no Korea). I don’t know what the growth/value or large/mid/small division is but I imagine it’s probably fairly standard.

                  For comparison, VTIAX is 80/16/4 l/m/s, even between growth/value, and includes other areas (11% Americas, with total 15% emerging).

                  Are there many people who get into int’l small caps, int’l value, or specific areas like SE Asia or Latin America? I know these funds exist, but a lot of the ones I’ve seen are actively managed with high expense ratios or just aren’t doing well. This degree of slicing and dicing seems a bit deeper than most of us are willing to go, and aside from a few world or Japan small cap funds I’ve seen, aren’t close to being worth the fees.
                  Click to expand…


                  DMFA – didn’t you tell me to KISS?
                  Click to expand...


                  Yeah, because complicated slicing/dicing using more expensive funds doesn't reliably beat simple portfolios with cheap ones, and it's very easy to get lost in the shuffle or let a glitzy fund with killer returns like FSIMX slaying the index while charging 10x the expense ratio.  Even if you're not a complete newbie, there's no proven advantage for the average investor getting super-deep.

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                  • #10
                    I try to keep it simple with vtiax and vss.

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                    • #11
                      While simplicity is elegant and compelling, I guess one has to decide if they really believe in factor investing.  Larry Swedroe's new book is quite compelling but put me in the column of net yet sold that factors such as momentum, quality, profitibility, etc... can reliably be harvested with the current MFs and ETFs at our disposal.  Then again, I'm sure many were making the same arguments against the small and value premiums in their infancy (ans still are).

                      I think ultimately everyone has a few decisions to make;

                      1) How simple do you want your portfolio. (3 fund index portfolio up to a complex slice and dice portfolio)

                      2) Which factors do you really believe in (i mean really believe in enough to hold for decades of underperformance if need be).  To me this means believing the backtesting is not statistical noise AND believing in the behavioral rational for their existence.

                      3) Which factors can be actually realized through MF/ETFs that have both low enough cost and high enough factor load.  For me this is not quite there yet for momentum, but getting close.

                      4) Which factors must be eliminated for the sheer sake of simplicity, and the fact there there are diminishing returns with each new introduced factor.  For me, this is where international value tilting falls by the wayside.

                      5)  Deciding how often one will allow oneself to "tinker" when new academic research is compelling.  WCI had replied to me that any more than once every five years is too much and will likely cause more harm to your portfolio.  I tend to agree.  Recency bias and faulty data mining must be avoided.  This still is the biggest argument for me to simplify and not use all of the factors I believe in.

                       

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                      • #12
                        Most factor level premia have been destroyed by their discovery, and implementation is often far from the academic factor as described. In the last ten years, its basically been obliterated, and per other research that makes sense as once things become public knowledge they are arbitraged away. A great one is the small premium, its mostly structural (result of several one time exchange/index mergers) and the contribution of microcaps, not small as most investable ETFs are and you have to make sure the one you choose is getting the cap of the companies in the right range as they vary widely.

                        Momentum is the only one that makes sense across every spectrum, but there is no easy way to implement it within an ETF structure (those that say they are, are pretty bad) and you can still get crushed. Then how do you know when youre in a draw down vs. the reasons behind the factors working have changed? Value (again, depending on how defined) had a draw down period of greater than most peoples investing lifetimes at one point. No thank you.

                        Each of these factors makes sense given their particular time and regimes, but not knowing future regimes and what other esoteric things may give one factor the edge over another, they seem like products to be sold for the most part. I like structural advantages, and stray away from overly slicing anything anymore.

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                        • #13




                          Been thinking about whether I want to delve into cutting up my international holdings. Most of it is in TSP I Fund, which tracks MSCI EAFE (23% Japan, 19% UK, 10% ea France/Germany/Switzerland, no Korea). I don’t know what the growth/value or large/mid/small division is but I imagine it’s probably fairly standard.

                          For comparison, VTIAX is 80/16/4 l/m/s, even between growth/value, and includes other areas (11% Americas, with total 15% emerging).

                          Are there many people who get into int’l small caps, int’l value, or specific areas like SE Asia or Latin America? I know these funds exist, but a lot of the ones I’ve seen are actively managed with high expense ratios or just aren’t doing well. This degree of slicing and dicing seems a bit deeper than most of us are willing to go, and aside from a few world or Japan small cap funds I’ve seen, aren’t close to being worth the fees.
                          Click to expand...


                          If you want to get involved with international small caps, have you considered Fidelity Total International Index Fund (FTIPX)?  It's total stock market for international stocks, covering developed international, emerging markets, as well as large, mid, and small caps.  All for 0.11% ER.  I'm with WCI -- keep it simple.

                          Edit: I see you are considering VTIAX -- Vanguard's total international index fund.  I stand by my comments above, keep it simple and just buy the index.

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                          • #14
                            I do prefer Fido's total int'l index to Vanguard's, actually, but p much just because my IRAs are with them and I trade them free. I use Vanguard's funds for reference because everyone seems to know them.

                            Fido just changed their ERs to match or beat Vanguard in the major index funds (FSTVX = VTSAX, FUSVX = VFIAX, and so on), but their total bond index doesn't seem to do quite as well as Vanguard, and their int'l index funds are only about half a year old, but seem very closely structured. Very small differences (2% or less) with mid-small and emerging between the two.

                            What I'm asking is how commonly people dig deeply into the international portion of their portfolio, whether the built-in percentages of the index funds tend to be good enough for their plans, or whether they try to emphasize a particular company size, value/growth, developed/emerging, specific regions, etc. Seems like the total int'l index funds are good enough for most. That's all I hold at the moment. Just wondering if I want to be more creative; I don't think I do.

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                            • #15
                              Int'l represents 35% of our entire allocation and ~43% of stock allocation.

                              Of that 35%:
                              • 20% is Total Int'l
                              • 10% is Int'l Small (VSS)
                              • 5% is EM (bringing EM to ~30% of Int'l allocation)

                              I would have considered Vanguard's Int'l LV if it wasn't an active fund.

                              My employer's 401k had DISVX which I was excited to use over VSS. However, they removed it from its offerings right when I started working so that was a no go.

                              My wife's 403b initially had DFEVX (EM Value) which I was also excited to use. However, they changed it to DFCEX (Core Equity EM) right when she started (notice a sad pattern?) which was more expensive and lacked the value tilt. Thus, I decided to stick with Vanguard's EM fund and utilize Roth space for EM.

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