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Small-caps at all?

In retirement, given the streakiness, hot and cold characteristics of small caps and small-cap funds, is it worth holding them at all? If preservation and reduced volatility is the goal in retirement, small-caps would never be the main component of a portfolio. But anyhow, with all of this in mind, my own dedicated small-cap fund is down to just 2% of total. In a fund that's closed, so I'm reluctant to cash-out of it completely.... What think ye all? PRDSX. (And whatever others, too...)


  • I think SC's are good to hold in a diversified portfolio, even for retirees. To me what is important is how volatile the sum of all your holding are. Not 1 holding specifically. In my opinion, yes it would be good to have small caps going forward. I read a few opinion pieces in Barrons to weight small caps over large caps in 2022 and value might be the better theme. But take opinions with a grain of salt of course.

    There may be more tame ways to hold SC's if you are worried about volatility. One is to use a balanced fund. I bought PMEFX earlier this year but I'm sure there might be others like it. GPGOX is a small/mid cap global fund I've held since inception. I think it's closed though. I have a SC value fund and a SC growth fund in smaller quantities (QRSVX and ARTSX). Recently I decided to over weight SCV a bit and bought VBR, Vanguard small cap value ETF.

    I rambled a bit, but to answer your original question, yes I think it is worth having some SC in a diversified buy-and-hold portfolio. The percentage is of course per your liking, but 2% doesn't seem like it would add much to portfolio volatility. I would tend to pick a blend fund (both growth and value stocks) if I only owned 1.

  • edited November 2021
    Yes, I probably have too much of them. I have ARTSX, PRDSX, BRUSX, MSCFX, LCGRX, VVPSX and QRSIX to name just a few. This year many of SC funds are distributing fairly large CGs. Unfortunately, many of the SC funds have closed due to the run up in the market.

    If I didn't own any SCs, I would definitely wait until after distributions are paid to buy a fund I was interested in.
  • edited November 2021
    I believe it makes sense to have some small-cap exposure.
    If the volatility of a dedicated small-cap fund is worrisome,
    you may want to consider funds which invest in a spectrum of different-sized companies.
    My only small-cap fund is VTMSX and it comprised 8.3% of my total portfolio a few months ago.
  • edited November 2021
    Although no SC index funds have been mentioned so far, I would like to add a caution about R2000 (IWM) and extended-market (VEXAX /VXF, FSMAX, USMIX) indexes. These have too much garbage and almost 40% of their components have losses. Moreover, R2000 has a bad annual rebalancing strategy - all on a pre-announced date.

    Other SC indexes don't have similar issues (SLY, VIOO).
  • edited November 2021
    I agree that the Russell 2000 should be avoided.
    For small-cap indexes, I prefer the S&P 600.
    S&P stock selection criteria introduces a slight quality tilt which helps investors avoid the "junkiest" small stocks.
  • More info: PRDSX is actually a QUANT fund, with the statistics and algorithms and momentum and stuff. Certainly not a value or blend play. At 2% of total, and given your replies, I suppose it won't hurt to stick with it, though it won't matter much in relation to the portfolio as a whole. Which is what I suppose I'm looking for. Thank you all.
  • Yes. But everything is transitory, nothing last. My current champ for small cap is CSMVX. steadily up, not volatile, limited down on down day.
  • I own WAMCX and MSSMX ... the latter can be much more volatile and has had a tough year. I wasn't aware of CSMVX but @gk3105gklm keeps mentioning interesting funds to me. To your question... it depends on if you can stomach the volatility in SC for the increase in returns over the SPY. It probably wouldn't be a "main" component but I understood your question to be ... any percentage. Yes would be my answer. A smaller percentage. Separate note: when evaluating many "top performing" SC funds, the mean reversion 10+ years
  • @JonGaltIII : "Separate note: when evaluating many "top performing" SC funds, the mean reversion 10+ years ''
    Would you care to comment more on that statement. Are you talking from the high point to mean or low point to mean ? Also, does this statement work for growth as well as value ?

    Thanks for your time , Derf
  • 1Q2020, CSMVX lost less than FPACX OAKBX , for example, so even though different investment objectives, impressive performance for a small cap growth fund !
  • edited November 2021
    @Crash, you need to decide of what you risk tolerance is, and 2% small cap allocation is not unreasonable. If the forecast is correct, bond return will be subdue in the next several years. Income investors need to look beyond bonds in order to compensate the deficit, i.e. dividend producing stocks, balanced funds, and others.

    As for myself, I always found smaller cap funds provide more opportunities through the market cycles. I use Queens Road Small Cap Value, QRSVX, T. Rowe Price New Horizon, PRNHX (closed to new investors), and T. Rowe Price Mid-cap Value, TRMCX. Last year PRNHX did very well but the rotation from growth to value since last fall has greatly benefited QRSVX and TRMCX. Similarly I am shifting my foreign allocation to smaller caps as well in light of EM impact and China. Grandeur Peak International Stalwarts, GISYX, is my main fund but it is closed to new investors. The global version, GGSOX, is still open.
  • Sorry... I didn't complete my sentence. Was interrupted. Ignore my comment on reversion. Cursory glance at life perf. of some of the SC was interesting but not meaningful given variable time periods of life.

    CSMVX +13.09
    FCPGX +13.71
    BRUSX +13.74
    MSSMX +13.83

    MSCFX: +15.38 and the lowest ER of the list.
  • I owned MSCFX years ago. .... @JonGaltIII and @Sven. Glad for my Balanced funds, for sure. A couple of years ago, I deliberately concentrated and streamlined the portfolio, for simplicity. I do rebalancing in January, and take an estimated yearly chunk out, then. Thank you for the responses. I'll look at the linked funds, too. GGSOX looks like fun, but it's a bit of a redundancy compared to my PRIDX: 9% of portfolio.
  • I owned MSSMX WAMCX until the end of the last cycle. I consider them the ex-champ. In small cap space, I own 8 including CSMVX AFDVX FCPGX FSCRX, favorite 3 are CSMVX AFDVX FSCRX. Here are stat from Marketwatch:
    1 week 13 week YTD 1 year 3 year
    CSMVX (3.43) 12.69 41.30 56.26 31.75
    MSCFX (2.08) 4.96 25.58 33.62 14.40
    WAMCX (6.04) (0.85) 8.90 20.32 34.38
    MSSMX (9.21) (13.09) 5.57 32.28 51.53
    FCPGX (5.32) 2.12 14.51 25.55 25.70
    AFDVX (0.79) 14.42 45.17 54.29 24.72
    FSCRX (0.47) 6.01 35.29 40.96 19.55
    Good luck everyone.
  • @gk3105gklm : It seems you only listed 7. Do you equal weight your small caps ?
    Gobble gobble, Derf
  • edited November 2021
    Happy turkey day to all. AFDVX I've never even seen before. Homework to do. Thanks, guys. I enjoy this kind of homework. AFDVX is shooting through the roof... Wait to do anything with it until it falls to earth again....
  • @Derf: They are not equally weighted. These are the new players. I think investing environment changed sometime in Feb or Mar this year. I got rid of those old champs like MSSMX WAMCX JMCGX.... Recruited new players, CSMVX FSCRX FCPGX OBMCX RIVSX AFDVX FDSCX and COVAX during that time. Will get rid of RIVSX and OBMCX soon , too volatile or unpredictable. CSMVX, AFDVX FCPGX 70% of small cap space.
  • Thank you for your reply @gk3105gklm .
  • Agree with Crash...AFDVX is a good research idea! I currently own ASVIX and it's outperforming this year and has exceptional #'s over the past 3 years as well.
    Curious how others diversify their small cap choices...I prefer starting with Style and have Growth, Blend and Value in both of our (Rollover) retirement accounts.

    AFDVX could be a replacement option for ASVIX...slightly cheaper, slightly more value focused (P/E), Sector allocations are better fit (somethimes I get hungup on this)

    IRA -

    IRA (Wife) -
  • If RUT futures are any indication of where small caps will end the shortened trading day on Friday, nobody is going be anywhere near as happy about their SC holdings detailed here.
  • @stillers : You're right, but there is another day coming.
  • edited December 2021
    @gk3105gklm Thanks for mentioning some "new players". I'm at YE and looking at my SC underperformers - MSSMX and WAMCX and reviewing WAMVX DVSMX CSMVX and during this exercise - throwing a few ETF's in the mix: RWJ IJT SLYJG and XSHQ
    Edit Add:
    Latest Kiplinger (best ETF's for 2022) lists CALF as a SC Value recommendation along with DEEP . Both are up quite a bit YTD: CALF +43% and DEEP +38.94
  • +1.
    Previously mentioned: AFDVX has my attention. I like to wait until January to make my moves.
  • Using MFO screener and other sites, its easy enough to pull up a high flyer SC fund called NEAGX . Consistently beats the SPY even in down cycles, is a Great Owl / HR, Sharpe and APR vs Peer keeps improving every year etc.

    With a 35.84% YTD return and 45% in 1 year and 40% in 3 years, I was surprised to find only 1 mention of it here in the discussions by @BenWP in a timely moves for 2022 thread:

  • @JonGaltIII. That's a gooder!
  • @JonGaltill: Needham is a company brought to my attention here by TheShadow on Nov 1. He pointed out the success of NESGX, the SCG fund. While researching I found that Needham has 3 funds: the Growth Fund (NEEGX) managed by John Barr and Chris Retzler, the Small Cap Growth (NESGX) managed by Retzler alone, and the Aggressive Growth Fund (NEAGX) managed by Barr alone. The first is an all-cap fund, the two others are small cap. NESGX stumbled this year in relative terms, but NEEGX and NEAGX did not. The retail shares are pricy while institutional shares are much cheaper with a TF at Schwab. I am reminded of the PGA tv ad campaign from the 2000's entitled, "These Guys Are Good."

    If I were our old friend The Linkster, I would scream bloody murder at this point because I posted a link to the Kiplinger article on ETFs before you mentioned it. RIP, Ted.
  • @BenWP thanks for the additional info. on Needham. Assuming "The Linkster" is also "Ted"? What's ironic is that as a newbie here - I have been reviewing posts by Ted today on MFO and have really appreciated his many contributions/comments/discussions which are still relevant to me.
  • @JonGaltill: Ted was a treasure, but he was really harsh if you tried to link an article you'd just read but failed to note that he had posted it earlier that day. I think it was said here that he was up before dawn screening links for that day.
  • I see @BenWP ... just read the very nice post from David and the condolences. Now I understand.

    Re: Small Caps: I mean when its YE and you look at a Fido SC Growth comparison like THIS HERE you question why you might still hold MSSMX. Review the MFO Premium and lots of 5's until this last year when it's earned a 1 and a first miss to SPY. So, given this and the MFO profile, would you continue to hold MSSMX or have they lost their mojo? Trying not to chase funds but...
  • @JonGaltill: I had a somewhat similar experience with BCSIX, a long-time SCG holding that had a miserable year. I reduced exposure but kept a small bit because it is a closed fund. The fund had drifted into MCG territory, although that is not a problem with MSSMX. Brown Capital has concentrated funds that trade infrequently. They do well with SC stocks, but their record with MC stocks is middling. MSSMX seems to be invested in hot stocks that just went belly-up this year. I do look at my tax situation before selling to see if shedding a loser will raise or lower my CG.

    We own two MS funds, MGGPX and GLCAX, Kristian Heugh funds. I reduced MGGPX, but increased GLCAX in a tax deferred account just after a huge ST and LTCG distribution in hopes that 2021 was just one bad year. Our initial purchase was really badly timed, not the first time that’s happened. I’m not sure if my approach, admittedly scattershot, can give you any insight. BTW, that’s a handsome chart from Fidelity.
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