\nFTSE Global Small-Cap UCITS ETF<\/td>\n Develop + Emerging<\/td>\n VSML<\/td>\n 0.22%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\nIn case you didn\u2019t notice the ticker for both the iShares and Vanguard one looks rather similar.<\/p>\n
SML stands for small minus large, which is how they are trying to calculate the premium of investing in small caps over large caps.<\/p>\n
If you wish for one fund for your small cap exposure, the cost is lower with VSML. Vanguard just made the cost so low. This is good for folks who just want to cover but don\u2019t want to think so much. <\/p>\n
How big is the difference between WSML and VSML?<\/p>\n
VSML has 90% Develop and 10% Emerging<\/span><\/strong>.<\/p>\nFor one, you will have China (2.2%), Taiwan (2.75%), India (2.42%), Korea (1.5%) that you won\u2019t have in WSML. South Korea and Poland are classified as Developed by FTSE but as Emerging by MSCI. This means WSML won\u2019t have Korea. <\/p>\n
I don\u2019t think I will have VSML in my portfolio because of my believe that we have to remove the \u201cjunk\u201d or less profitable companies from small caps. My ideal fund to express this implementation is one that does that, and we have those for develop markets like AVGS, DDGT. <\/p>\n
When do you use VALL or IMID and when do you have VSML?<\/h2>\n With IMID and VALL, you can have a simple, fuss free 1-fund allocation.<\/p>\n
VSML is useful if you want to peel small caps out and observe how they perform.<\/p>\n
You can express the same IMID or VALL with:<\/p>\n
\nVWRA: 90%<\/li>\n VSML: 10%<\/li>\n<\/ol>\nYou would have a develop + emerging markets large cap and mid cap and a small cap.<\/p>\n
Of course if you want develop only it will be:<\/p>\n
\nIWDA: 90%<\/li>\n WSML: 10%<\/li>\n<\/ol>\nIf it is emerging markets:<\/p>\n
\nSEMA: 90%<\/li>\n EMSD: 10%<\/li>\n \n<\/li>\n<\/ol>\nHow Much Should I have in Small Caps (if I want one)?<\/h2>\n This is a tough question. <\/p>\n
Having something like VSML allow you to observe your small cap. If it is inside say a VALL, you won\u2019t be able to tell the difference. <\/p>\n
How much you should have in something, relative to a general IMID or VALL allocation is how much you believe in the philosophy and evidence behind small minus large.<\/p>\n
Some folks who came from an individual investing world has always been operating in the small cap space and thus know the \u201ctotal package\u201d of risk and returns that come with small cap. <\/p>\n
But for someone who is new to funds, indexing, and have not fully digest how different investment returns can be, you will take time to adjust. I think its always good to start with say 5% of a small to medium portfolio, and spend some time feeling your emotions as you own the portfolio. As you become more familiar perhaps you want to bump it up to 10%. <\/p>\n
Moving above that\u2026 would usually require the person who kind of gets it.<\/p>\n
There are years where small cap did -10% and the rest of the market did 10%. That\u2019s a 20% difference and its not easy to live through. Of course there potentially can be the year where it did 50% while your large cap did 15%. <\/p>\n
Ultimately, the ideal allocation is the one that you are at peace with. <\/p>\n
In Daedalus, my small cap is almost 33-34% of the portfolio. Sometimes, I am also not sure if that is a good idea.<\/p>\n
The lens of someone that stared at the charts below and those who didn\u2019t would look at risk and returns very differently:<\/p>\n