Hi rjb112,
Yes indeed, a Small Cap Value mutual fund is a valuable holding within a portfolio. It adds robustness to the portfolio with its diversification attribute and its incremental excess returns (something like 2%) above large cap equity holdings.
This is not a new finding. Folks have been exploiting its benefits for two decades. The original research that identified its benefits was generated in 1992 by the Fama-French University of Chicago academic team. Their model is called the Fama-French Three Factor model.
The signal paper is titled “The Cross-Section of Expected Stock Returns”. It was published in the Journal of Finance. The 3-factor model includes Bill Sharpe’s market Beta term, but was expanded to incorporate a small cap component and a low price-to-book ratio value component. It represented the first perceived shortcoming in Bill Sharpe’s CAPM model.
Here’s a Link to a reasonable summary of the Fama-French work:
http://www.forbes.com/sites/frankarmstrong/2013/05/23/fama-french-three-factor-model/
As the article stated, Fama-French is a better mouse trap (but still imperfect). That discovery shocked some nonscientists. That’s an overreaction. Models are simplifications that incorporate assumptions and constraints; consequently, they are almost never perfect. That’s especially true for disciplines like economics and finance which are strongly influenced by behavioral biases and emotions which are dynamically sensitive to a host of factors.
Paul Farrell’s 8 Lazy Portfolios have practically implemented the Fama-French research in their Index heavy portfolios. Just scan these 8 portfolios, all assembled by acknowledged financial wizards, to judge its near universal acceptance. Here is the Link to Farrell’s frequently referenced scorecard:
http://www.marketwatch.com/lazyportfolio
I have been using the Fama-French work for two decades using a mix of both actively managed and passive Index mutual fund products. The obvious Index choices are Vanguard entries: Vanguard Total Stock Market Index Fund (VTSMX) and Vanguard Small-Cap Value Index Fund (VISVX).
The total stock market fund includes a fair share of small cap components, but adding the focused small cap value holding adds weight to keep portfolio returns high while slightly reducing its overall standard deviation.
The longer term (since 2000) correlation coefficient between the two Vanguard indices is 0.93; a shorter term (dating from 2012) correlation coefficient is 0.95. This minor correlation coefficient disparity between these two funds doesn’t significantly impact portfolio standard deviation, but the historical excess returns is worth pursuing.
By the way, Fama and French are currently pushing an improved 5-factor model. And so research continues……. So you have assigned yourself a never ending task. Good luck and good hunting.
Best Regards.

DLTNX achieved its returns with a lower Beta and has a higher 3yr Sharpe (though DLFNX's is none too shabby).
Is DLFNX you sole core bond holding? If not, care to add a little spice? ADBLX YTD= 5.54%

Actually, I don't want to add any more funds to the stable right now. DLFNX is my core domestic bond fund, yes. I also own MAINX. Not disappointing in terms of the raw numbers, but M* compares it unfavorably with its so-called peers. However, I think the portfolio there is difficult to match with much else. Yes?
Also own PREMX. Also, MAPOX and PRWCX both own bonds, too.
PRWCX =18.8% of portfolio.
MAPOX = 9.1%
DLFNX = 2.47%
MAINX = 3.55%
PREMX = 4%
The all-bond funds are --- as shown --- is just 10.02% of portfolio these days. Thanks for the reply!

Oh, I know, one of the drawbacks of the article (and a bit with M*'s hairsplitting classifications). One reason I always dig deeper. I always look at the blend categories whenever I am analyzing value behaviors and records.
Look at it this way. Graph performance since, say, spring of 1999. P/E and lower divs aside, WEMMX exactly equals performance of the mighty DFSVX --- except for notably better (smoother) dip performance in 02 and 08. Wow. It also clobbers VISVX for the same 15y period, again with half the dip or better.
The 10y graph is, ow, even more dramatic, really significant outperformance, Gabelli tripling, compared with 2.5x for the other two ... and perhaps a third of the dip in 08 with much faster recovery. One team the whole time.
You can readily concoct similar odd comparisons with other SC nongrowth funds. These three are all 4*, Merriman's love of the two cited notwithstanding.
So: in this case the vaunted SCV designation gave you considerably, consistently rougher and bumpier performance for significantly inferior outcomes compared with SCB. What does that tell us? (Hasty second example: compare 10y outperformance, smaller but with identical 08 dip, of small-blend index NAESX vs VISVX.)

http://www.seafarerfunds.com/

DLTNX achieved its returns with a lower Beta and has a higher 3yr Sharpe (though DLFNX's is none too shabby).
Is DLFNX you sole core bond holding? If not, care to add a little spice? ADBLX YTD= 5.54%

FYI: Don't expect funds that have fared well during the rally to hold up during a correction
Regards,
Ted
http://news.morningstar.com/articlenet/article.aspx?id=652086

FYI: Every stock portfolio should include a small-cap value fund.
Regards,
Ted
http://www.marketwatch.com/story/the-one-asset-class-every-investor-needs-2014-06-25/print?guid=C8E0F576-57C9-40C7-89A6-674AD0EB92A9

FYI: One of the interesting trends in yesterday's Consumer Confidence report concerned sentiment towards interest rates
Regards,
Ted
http://www.bespokeinvest.com/thinkbig/2014/6/25/consumers-less-worried-about-higher-rates.html?printerFriendly=true

Copy & Paste 6/21/14: Jack Hough: Barron's
For bond investors, "junk" and "high-yield" used to be synonyms. No longer. Today's bonds from issuers with elevated risk of default simply don't pay all that much. Junk indexes from Barclays and Bank of America Merrill Lynch both hit record low yields of around 4.9% this past week. How low is that? One-year Treasury bills, about the safest investment ordinary investors can buy, have yielded an average of 5.1% since 1953. In other words, the dodgy stuff now pays less than the safe stuff used to.
Of course, junk bonds pay much more than today's Treasuries, whose yields have been suppressed by the Federal Reserve in an effort to stoke the economy. Investors have continued to pile into junk for this relative yield advantage. But then, with the one-year Treasury paying less than 0.1%, scratch-off lottery tickets almost compare favorably. That's no reason to buy them.
From here, junk-bond investors may have more to lose than to gain. In a rosy scenario, the economy gradually improves while the corporate default rate remains exceptionally low, and good junk-bond fund managers earn mid-single-digit returns over the next year. A gloomy scenario looks like 2008, when a popular exchange-traded junk fund, SPDR Barclays High Yield Bond (ticker: JNK), lost 26%. Bank of America Merrill Lynch is predicting total returns for U.S. high-yield of 4% to 5% this year. That's not bad—but the SPDR junk fund has already returned 4.4% year-to-date, implying little upside from here.
Earlier this month, JPMorgan Chase recommended that yield hunters cut junk-bond exposure and switch to stocks. We recently ran a search for stocks that should appeal to junk-bond refugees. It turned up six names, including Amgen (AMGN), Eaton (ETN), and National Oilwell Varco (NOV).
These shares aren't the highest-yielders around. That's for the best, because high yields often come attached to companies with limited growth potential. We began our search by looking only for those with current yields over 2%, roughly the dividend yield for the Standard & Poor's 500 index. But we also looked for estimates of peppy growth in coming years in both profits and dividend payments. For long-term investors, these shares have potential to become high-yielders over time. A 2.5% yield today becomes a 4.9% yield in seven years, assuming a company can increase its payment by 10% a year, and that its share price doesn't change. Of course, rising dividends can attract buyers, sending share prices gradually higher, resulting in handsome total returns.
Stocks are not a direct substitute for bonds. Both are important for investors who wish to keep overall portfolio risk in check. The ideas that follow are alternatives for investors who find that their junk-bond allocation has grown larger than they would like. That could have happened easily: The SPDR junk ETF has now returned an average of 12.6% a year over the past five years, according to Morningstar, versus 4.8% for its high-grade sibling, SPDR Barclays Aggregate Bond (LAG).
AMGEN IS ONE OF the world's largest biotech companies, with sales last year of $18.7 billion, but it has room for growth. Nearly 80% of its revenue comes from the U.S., which leaves plenty of potential to launch medicines overseas. And the company, which specializes in treatments for cancer, kidney disease, and inflammation, has a pipeline of 10 key drugs in late-stage clinical trials with results due through 2016.
Those should more than offset potential revenue declines from legacy drugs facing new competition. Overall revenue for Amgen is expected to increase only modestly, but free cash flow should grow much faster as research spending falls as a percentage of revenue. This year, free cash flow is expected to rise 13% to $6.4 billion. In three years, Wall Street expects it to hit $8.4 billion, or over 9% of the company's current stock market value. Amgen announced a 30% dividend hike in December, but with a yield of just 2%, payments look likely to keep rising at a double-digit pace in coming years.
General Electric (GE) raised its dividend payment 16% this year and plans to lift payments in line with earnings from here on. That looks like a good deal for yield-seekers. Shares already pay 3.3%. GE hopes to buy the power division of France's Alstom (ALO.France), which would cut into share repurchases this year and keep earnings-per-share growth modest, but Wall Street predicts 7% growth next year rising to 12% in three years. In September we predicted that GE stock, then $24, would rise more than 30% to $32 in two years (Sept. 23, 2013, "GE: Not Too Big to Grow"). It's close to $27 now. Keys to GE reviving growth include divesting itself of underperforming businesses, using software and analytics to sell new services to industrial clients, and, in the event of an Alstom deal, making good use of new sales inroads.
Just 13% as big as GE by stock market value, Eaton, which makes power, hydraulic, filtration, and other industrial equipment, isn't struggling to grow. Its earnings per share are expected to rise 15% this year and 17% next year. But Eaton faces a near-term risk in the form of a long-running antitrust case with Meritor (MTOR), which says Eaton used its clout unfairly in selling truck transmissions. A jury agreed. A judgment, which triples economic damages in such cases, could run $1.4 billion to $2.4 billion based on Meritor's claims, versus Eaton's projected earnings of $2.2 billion this year. Morgan Stanley views an award that large as unlikely and says investors should look past the litigation to Eaton's attractive growth prospects, because the stock could get a lift once the matter is resolved. Shares yield 2.5% and payments are expected to grow by nearly one-third over the next two years.
INVESTORS WHO HEED JPMorgan's advice to swap junk bonds for stocks might want to consider shares of JPMorgan Chase (JPM) itself. Its first-quarter profit tumbled 19% on declines in bond trading and mortgages. Many banks saw similar results, driven by the Federal Reserve scaling back bond purchases and by mortgage rates rising. JPMorgan has been investing in technology for its bank branches and new products for its asset-management business that should pay off once the climate turns healthier for banks. Wall Street predicts its earnings per share will top $7.40 in three years, versus a forecast of $5.38 this year. Dividend payments are expected to rise even faster. Shares currently yield 2.8%
International Paper (IP) posted a first-quarter loss on poor weather in North America, a mill shutdown, and a fall in the Russian ruble cutting into results for a joint venture in that country. But the results may understate the company's true earnings power. Box shipments are projected to grow modestly in the U.S. and faster overseas, which bodes well for containerboard demand. Mill restructurings should improve profit margins over time. And the Russian joint venture enjoys low materials costs and hence potential for healthy profits as production ramps up later this year. Free cash flow is expected to total $1.6 billion this year, rising to $2.2 billion in two years. The latter figure is more than 10% of International Paper's stock market value. Shares yield 2.9%. Management has recently spent roughly as much on share repurchases as on dividends.
At the end of May, National Oilwell Varco completed the spinoff of its distribution business NOW (DNOW). The remaining company, which makes equipment and components for oil and gas drilling, is valued at $34 billion. It holds $3.7 billion in cash and $3.1 billion in debt, and is expected to generate free cash of $2.2 billion this year, rising to $3.1 billion in 2016. Shares yield 2.3%, and analysts expect the company to spend its free cash on rising dividends—with payments hitting 3% of today's price within two years. In January we recommended shares of National Oilwell Varco for the company's potential to set the industry standard for floating oil production, storage, and offloading platforms, just as it has done for offshore drilling rigs. Shares since then have returned 12%, adjusted for the spinoff. They still look plenty affordable at 13 times this year's earnings forecast.

I will presume, for others much more savvy; the black swan monitoring model we use, may be too simplistic.
Step 1: Monitor broad market movements globally, as time allows.
Step 2: Monitor personal fund holdings, as time allows; and daily if possible.
Step 3: If a trend appears to have a new beginning or new end; try to determine why.
Step 4: Moving averages may help better identify the trends. A mix of 20, 39, 50, 100 and 200 averages may provide enough information; although these will not identify the root cause of the changes.
Step 5: Buy or sell; dependent upon one's risk/reward emotion.
Step 6: Preserve capital as much as possible; as one can not have advantage of the most favorable trend of all, being the long term compounding of positive capital.
Step 7: When one becomes more familiar with steps 1-6 and how one interacts to these steps, a black swan may be avoided.
The need for a Monte Carlo simulation may be reduced or eliminated; as one has attempted to create a long term (ever flexible, not buy and hold) investment position which may fulfill the future needs from the very actions that result from steps 1-6. A self-fulfilling, real-time methodology of investing. I may suppose this could be named a real-time Monte Carlo; as it will take care of itself going forward. One will not know they have arrived, until they do arrive.
Monitoring today is quick and easy. The speed allows one to "see" the numbers related to personal holdings and become intuitive about movements in pricing.
As to the "whys" one may discover from the numbers is a whole other area of investigation and use of free time. This too, can become an almost intuitive experience.
We all are aware of the many machinations that take place, and are out of our view or access. Obviously, these actions that surround our investments each and every day cause some decision making to become more difficult.
Even if the above seems to complex and not necessary; a simple 50/50 equity and bond mix (of your choice) should not drag a portfolio too far away from a decent and ongoing annual return.
Our personal statistical model is what we view at least once each week, if time allows. If we can take care of today, we will already have taken care of the future tomorrows.
As individual investors, we play amongst the investment gladiators of the entire world.
I sincerely wish all well; as we play this complex game among and with the big kids.
Regards,
Catch

Hi Guys,
Statistical models are a functional tool to help understand the interactions between complex social and physical phenomena.
The most common distribution deployed in this modeling is the Normal (Bell) curve. It’s a good choice for many phenomena, but has shortcomings when applied to investment annual returns, especially at the less likely outcomes that exceed the two standard deviation variation level.
I know, I know you are tired of me riding this hairy horse, but I promise this will be my last post on this matter for an extended time (but not forever). I was just jolted by a lightening bolt this morning, and wanted to share it with you. It could conceivably come to your rescue in your retirement planning.
Nassim Nicholas Taleb documented and named the impact of highly improbable investment events in his hugely successful 2007 book “The Black Swan”. That title alone captured the attention of a hungry public; it was sheer marketing brilliance.
He gave an electrifying name to events that were well known by scientists for many decades as the less exciting “Fat Tails”. Benoit Mandelbrot recognized these outliers in cotton market pricing, studied it for years, and published a superb book, “The (Mis)Behavior of Markets”, on the topic in 2004.
I attempted to incorporate Fat Tail elements when I generated a Monte Carlo code to explore portfolio survival prospects in the mid-1990s. I have long championed the advantages of using Monte Carlo-based analyses as an aid to the retirement decision task.
The scientific and engineering communities have been forever aware that not all physical events surrender to a Normal or Log-Normal statistical distribution. For example, I worked at GE for a short time, and within a week after my arrival, my section chief gave me a copy of a book titled “Statistical Models in Engineering”. I still have it. Various chapters are devoted to Normal, Log-Normal, Gamma, Beta, Rayleigh, Cauchy, Weibull, and other special statistical distributions.
Honestly, today I don’t know the merits, shortcomings, or applications of these numerous modeling options. These tools require specialized knowledge and considerable experience. That’s the bad news. The good news is that investors don’t need that mathematical level of sophistication. I even doubt if these distributions adequately capture real Black Swan events in a satisfactory manner.
My eureka moment was that I finally realized we can integrate Black Swan events into our retirement decision by experimentally using real world historical data in a random fashion. The really good news is that we can easily complete this task using a couple of options available on the Portfolio Visualizer Monte Carlo website that I recently recommended. Here again is the direct Link to that Monte Carlo simulator:
http://www.portfoliovisualizer.com/monte-carlo-simulation
Here’s how to use the Portfolio Visualizer tool to estimate the impact of Black Swan events on your portfolio survival likelihoods.
Complete the short list of required inputs that reflect your holdings, goals, and time scale. In the Simulation Model box, Portfolio Visualizer offers three options: Historical Returns, Statistical Returns, and Parameterized Returns. For our current purposes, only the Historical Returns and Statistical Returns options need to be exercised.
The Statistical Returns do not specifically select Black Swan outliers, but only incorporate the smoothed interpretation of these data. The Historical Returns data set randomly selects from all historical data, so it includes the wild outliers specifically. The experiment is to run both distributions, and simply compare the outcomes. The impact of historical Monte Carlo events on your portfolio survival likelihood is the difference in the calculated probabilities.
I conducted a few experiments, certainly not comprehensive in scope.
Black Swans will lower the likelihood of portfolio survival by zero to only a few percent. Results will depend upon the specifics of your portfolio holdings, etc. I’ve run several test cases for a 50/50 equity/bond mix that generated these sample outcomes. Retirement planning should include a sufficient safety margin to accommodate these surprises.
As a general observation, it appears that Black Swans are minor league players when the timeframe is long(I did most of my check cases with a 30 year time horizon). Sensitivity to Black Swans becomes more acute as timeframe is shortened.
Of course, this analysis only measures the impact of past Black Swans. No logical method can confidently project the frequency or magnitude of future Black Swans. That’s the nature of the uncertain investment beast.
I hope you visit the Portfolio Visualizer site to test the robustness of your portfolio and timeframe to Black Swan events. You just might learn something; I did.
By now, I’m sure you have tolerated enough of Monte Carlo and especially of me. So I’ll jump off the Monte Carlo bandwagon, at least for the moment. Thanks for your patience.
Best Regards.

Am I dreaming, or is the much smaller (and a bit newer) DLFNX outperforming the much bigger and more popular DLTNX?
DLFNX: YTD, 1-year, 3-year: +4.66%, 5.71, 5.40.
DLTNX: 4.07, 4.34, and 5.45.
...OK, then. DLTNX has the edge over DLFNX over the 3-year time-frame by a mere .05.

FYI: The average large-cap growth fund has lagged its large-cap core and value counterparts as well as the broad stock market by a wide margin in the past 15 years. But three growth funds are among the top performing large-cap funds for the period.
Regards,
Ted
http://news.investors.com/investing-mutual-funds/062414-705994-top-large-cap-stock-funds.htm

Talk about can't win for losin' or whatever the phrase is. A multisector bond fund (close to the best for quite some time) does just what it's supposed to do, and since summer 07 matches / marginally outperforms FSICX and DODIX while doing so noticeably more steadily, nice and even. Steady, steady. It ain't PONDX, okay. But Lipper still has it at 5 for preservation, while good ol' M* gives it ** owing to its recategorization six months ago. Evidently justified, but still.

A mixed bag...
ABNDX 12.75 +0.03 (0.24%)
AIBAX 13.55 +0.02 (0.15%)
MAPIX 16.18 +0.06 (0.37%)
LSBRX 15.75 +0.01 (0.09%)
SFGIX 11.80 +0.01 (0.08%)
AHITX 11.60 0.00 (0.00%)
RSIVX 10.42 0.00 (0.00%)
RPHYX 10.01 0.00 (0.00%)
WAFMX 3.27 0.00 (0.00%)
ABALX 25.33 -0.11 (-0.43%)
ANCFX 53.60 -0.25 (-0.46%)
SMCWX 50.58 -0.34 (-0.67%)
CWGIX 47.34 -0.19 (-0.40%)
ANEFX 39.41 -0.18 (-0.45%)
ACMVX 17.12 -0.09 (-0.52%)
TWSMX 7.51 -0.02 (-0.27%)
ABHIX 6.28 -0.01 (-0.16%)
BUFBX 14.94 -0.05 (-0.33%)
PRBLX 39.12 -0.22 (-0.56%)
VVPSX 19.33 -0.15 (-0.77%)
GABAX 68.11 -0.46 (-0.67%)
MFLDX 17.93 -0.01 (-0.06%)
GASFX 30.61 -0.05 (-0.16%)
ARTGX 16.21 -0.01 (-0.06%)
GPROX 12.85 -0.04 (-0.31%)
SCHD 38.30 -0.23 (-0.60%)

@Sven
I do believe OSTIX is high yield at this time.
composition

Retired ... According to M*'s Instant Xray analysis my current allocation to small caps equals about 6% and to mid caps about 18%. This is towards the historical low range for me as I have been as high combine (both small and mid caps) in the 35% range. The current allocation is due in part that some of my flexible portfolio funds now seem to have reduced their allocation to the smids and raised their allocation to large caps. With this, I have been thinking of adding to my small/mid cap positions. My equity allocation bubbles at about 65% domestic and 35% foreign. Overall equities account for about 50% of my portfolio, alternativies about 10%, income about 25%, and cash about 15%.
Old_Skeet

Retired for a year or so, we have had maybe 5-7% in small caps. I recently decided to sell my favorite nominal SC fund GABSX because FLPSX dupes its behavior so closely and is full of SC holdings. I may switch to a position in WEMMX in addition, to satisfy my itch for true SC holdings and also to continue with greedy Gabelli's solid research and results.

For comparison, here's what David Sherman calculated after the October '13 dividend, when RSIVX was brand-spanking new.
Current yield: 8.43%
Approximate expected gross investment yield: 7.12%
Approximate duration: 3.12 yr.
Avg market price: 103.61
Currency exposure: 94.5% U.S. $, 4.5% Canadian $
Estimated liquidity (scale = 1-10; 10 = most liquid): 7.42
Estimated average credit quality: BB*
As I recall, the "approximate expected gross investment yield" of 7.12% was an average of YTW and YTM, so it should be comparable to the current "approximation" (provided in this thread) of 5.9%. That tells us where the portfolio has moved over the past months ... shorter maturity (as in David's report) and lower yield.
Also, that's expected yield "gross of expenses," so the E.R. has to come out to show the yield we'll receive -- so, roughly, 4.7% retail, 4.9% inst'l.
Good news is that there's not much difference between "expected" dividend yield and SEC yield, which probably indicates that the bonds in the portfolio aren't that high-priced, as is the case with so many other bond funds now.