Thanks to YouAreNumberSix for bringing IJS to us for consideration. The IJS ETF sounded interesting as a possible investment so I decided to investigate it a little further.
I first compared its results to mine since the inception of the ETF on July 24th 2000. The IJS showed a total return of 354% since that date, while my portfolio had a total return of 791% since the same date. As I considered my results to be rather extraordinary and probably not likely to be equaled or repeated, I felt that the IJS had quite good results.
I also am aware that as my portfolio has grown and gotten much larger in size, it has been much harder for me to attain the same results, so I decided to compare just the last five full years to see how the IJS results compared. Here’s a little table with the results rounded off:
2011 -14.5 -1.5
2012 +23.0 +18.1
2013 +51.0 +39.7
2014 -9.8 +7.3
2015 +16.0 -6.8
**TOTAL +66.2 +62.4**
So our results were almost identical. Also you’ll notice that our results diverged puzzlingly in 2014 and 2015.
If we throw out 2011 and add in the first 9 months of this year for a more up-to-date five years (their cumulative results in their table only run through Sept 30), my results were up 107.0% and the IJS was up 92.2%. Still pretty good results for the IJS.
I may consider the IJS for a small stock position, but I’ll read more about it first.
IJS is not cheap. It is expensive. I would suggest that the only time to buy a market index is when the market completely collapses, averaging down from a point believed to be near capitulation. (Buffett’s dictum, ‘be greedy when others are fearful’ will be useless. How fearful?) Pick your gurus (Buffett may be one although note, he is patriotic and very much part of the Establishment).
Such times are rare, but surely the only time Saul should be buying the index! They come along every decade or so.
At such a time, ‘market timing’ is completely valid, although you must not run out of money before the bottom. When you think the bottom is reached, you should continue to invest, changing from a % price drop criterion to a time one, e.g. every two weeks, for a couple of months.
I would much rather own a ‘whole market’ index or S&P500 for better yield and lower fees.
Here is what I found about the IJS so far. It is a tad less exciting than it looked before but it sure is an interesting investment idea.
The IJS replicates a subset of the S&P 600 small cap index, more specifically 460 stocks “with a value tilt”. The latter seems to be derived via P/B, P/S and P/E but the secret sauce is not revealed. I’m also not sure who defines which companies should be part of the above subset. I’m pretty sure it’s not Standard & Poors. I suspect it’s the ETF fund managers themselves. But at least all stocks should be part of the S&P600 small cap index. On a side note, the ETF fund managers have to invest only 90% of the money in these stocks. They seem to have a lot of leeway with the remaining 10%.
The good news:
The IJS had great returns since its inception in 2000: according to investopia a CAGR of 10.11% (status Aug 2015)
According to the emittent, blackrock, it delivered 9.8% since inception (status today).
According to Yahoo, we have a performance of +247% or a CAGR of +8.1% (probably plus dividends which would account for the difference).
Fees are low. There is an annual management fee of 0.25% which seems justified given the above performance (and the ongoing need to adjust the holdings to reflect changes in the underlying index).
The bad news:
The fund goes back to 2000 “only”. There is no 100 year CAGR. At best we have someone’s effort to guess which stocks would have been in the S&P600 value fund over the decades but this is no easy undertaking by any means. I’m not sure how robust the results would be. But at least in the 15 years of its existence it has handily outperformed the S&P 500 and the Dow Jones.
Similar things apply to the S&P 600 small cap index. It was launched on October 28, 1994. Therefore there is no such thing as an actual 100 year CAGR. At best we have someone’s effort to create a hypothetical historic version of the S&P600 small cap and calculate the growth.
Bottom line for me:
The IJS looks like an interesting complement to my portfolio. Difficult to argue with performance (even if it’s no guarantee for future performance, it gives some credibility to the expectation). But it has a relatively short history and seems to go up steeper than the S&P600 in bull markets and fall faster in bear markets. Not sure I want this in large doses right now but it’s definitely something I will consider when markets have come down a bit.
Any others with more insights or diverging viewpoints?
How are the returns any different than the Russell 2000? I use IWM to proxy that. The charts look pretty much identical over the last 10 years.
The ETF under discussion is benefiting from the “smaller companies effect”, this has been noticed across multiple markets and countries. To illustrate the effect in the U.K stock market a smaller companies index was created in 1955 which contained the bottom 10% of the companies listed on the London stock exchange by market value.
The index is published by a company called Numis and currently contains about 700 companies. Between 1955-2015 the index has outperformed the FTSE all share by 3.6% per annum and has grown at 15.4% CAGR. £1 invested in 1955 in the all share would be worth £829 by the end of 2015. The same £1 would be worth £6177 in the small companies index.
Please note this index has actually been calculated since 1955, it wasn’t created later with the benefit of rear view mirror investing.
It seems reasonable to assume that small caps in the U.S have/will also outperform mid/large caps over the long term.
Before you all rush off to buy a small cap index one word of warning, the price of out performance is greater volatility, when the FTSE100/S&P500 nose dived in 2007-2009 small caps feel much further.
More info about the UK small cap index can be found here:http://www.numiscorp.com/docs/NSCI%20Annual%20Review%202016_…
Unwize are you a Brit or just widely read? I always get the impression that Saul’s board is very Americana.
Unwize are you a Brit or just widely read?
I am British and have investments in both U.K and U.S stockmarkets