With all respect this doesn't make much sense. You get a premium by owning the factor. If you have to do something special there is no premium.
Larry Swedroe in a column, "What Happened to the Size Premium?", published on the Morningstar site, argues that "It's still here, but investors may need to venture into private equity to use it." (See https://www.morningstar.com/alternative ... ze-premium.) A few exerpts:
"... in the 1990s, 15% of companies in the Russell 2000 had negative 12-month trailing earnings, today that share is about 40%!"
"Because the passage in 2002 of the Sarbanes-Oxley Act greatly increased the cost of being a public company, today companies are waiting to become much larger before going public. The result is that by 2020 the number of US publicly listed stocks had fallen 50% over the prior 20 years, to about 3,500."
"Another outcome from the passage of Sarbanes-Oxley has been that the smallest quintile is made up of much larger stocks today than has been the case historically. For example, Vanguard Small-Cap ETF VB, with $54 billion in assets under management, had an average market cap of $6.8 billion (not so small cap) at the end of March 2024. The takeaway is that to capture the takeover premium in small companies, private markets (in the form of private equity) provide a greater opportunity than in public markets."
We were told we had to wait 10-15 years to get our SCV premium and that time period in which we will be paid just keeps growing. Now they are saying we should expect to wait 25 years. That's not what they told us a decade ago.
If all we have to do is wait 25 years then there is no reason we should be looking at private equity. If we buy into private equity we might have to wait 25 more years. If we own SCV in public markets that return is surely coming soon based on that 10-15 year wait that has now revised to a 25 year wait.
I can look at lottery numbers and tell you that all we had to do is pick low numbers for the Powerball for an expected advantage. The problem is I could not have told you that in advance. Anyone that mentions international SCV, private equity SCV, based on what is performing better is just showing you the past Powerball winning numbers. You should have to do nothing special to capture the SCV premium.
A factor is something we get by simply owning the factor. Anything else is not factor investing.
Statistics: Posted by abc132 — Thu Jul 18, 2024 3:31 pm