Portfolio Research · Prepared by Sagi Simhi

Building a globally diversified equity portfolio with an academically researched factor tilt.

This project examines a core-satellite portfolio construction: broad global equity exposure combined with a targeted allocation to small-cap value factors. The methodology draws on decades of academic factor research and is presented here as a portfolio construction exercise — not a performance guarantee or a recommendation to trade.

Global Diversification Factor Investing Long-Term Discipline
Core Allocation 80% Global Equity
Factor Tilt 20% Small-Cap Value

Methodology

Portfolio Construction

The portfolio follows a core + factor tilt approach. Eighty percent is allocated to a broad global equity core, providing diversification across thousands of companies in developed and emerging markets with automatic market-capitalization weighting. The remaining twenty percent is directed to a small-cap value factor tilt, designed to increase exposure to segments of the market with historically different long-term return characteristics.

Core — FTSE All-World FWRA · TASE 1209220

Global diversification across developed and emerging markets, automatically weighted by market capitalization.

Factor Tilt — AVGS Small Cap Value AVGS.L

Targeted exposure to the size and value factors identified in academic equity research.

Composition by weight

FTSE All-World 80%
AVGS Small Cap Value 20%

Academic Foundation

Fama-French Factor Research

The Fama-French factor models expanded on the traditional Capital Asset Pricing Model (CAPM) by identifying additional factors historically associated with differences in equity returns. This project's factor tilt is grounded in that research.

Market

Market Factor

Broad exposure to the global equity market as a whole — the primary long-run driver of diversified equity returns.

SMB

Size Factor

Historical evidence suggests smaller companies have exhibited return characteristics that differ from those of larger companies over long periods.

HML

Value Factor

Companies priced lower relative to their fundamentals have historically shown return characteristics distinct from higher-priced growth companies.

These are historically observed factor premiums — not proven, market-beating, or guaranteed sources of return. Factor premiums can underperform for extended periods and may weaken or disappear in the future.

Factor Allocation Simulator

AVGS.L

Explore how increasing or decreasing the small-cap value factor tilt changes portfolio characteristics such as return, volatility, and drawdown. This tool is for exploring sensitivity — it does not identify an optimal or recommended allocation.

Core Asset (All-World) 80%
20% Factor Tilt (AVGS)
0%10%20%30%40%50%

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Structural Comparison

How Portfolio Characteristics Differ

This comparison highlights structural differences between Strategy 20-80 and two widely followed benchmarks — it is not a claim that one has outperformed or will outperform the others.

Characteristic Strategy 20-80 MSCI ACWI S&P 500
Diversification Global core + small-cap value overlay Broad global, cap-weighted US large-cap only
Geographic Exposure Developed + emerging markets Developed + emerging markets United States only
Market Concentration Reduced by small-cap tilt High — top holdings dominate weight Very high — mega-cap concentrated
Mega-Cap Dependency Lower High Very high
Factor Exposure Explicit tilt to size & value Market factor only Market factor, implicit growth/large-cap lean
Volatility Profile Modestly higher, driven by small-cap component Moderate, broad market average Moderate, historically lower than small-cap-tilted portfolios

Risk Disclosure

Where This Strategy May Underperform

A credible portfolio thesis accounts for how and when it can fail. The following are known, structural risks of this approach.

Extended Value Underperformance

Value stocks have historically gone through multi-year periods of lagging growth stocks, sometimes lasting a decade or more.

Small-Cap Volatility

Smaller companies tend to exhibit higher volatility and deeper drawdowns than large, established firms.

Tracking Error vs. Popular Benchmarks

Deviating from cap-weighted benchmarks like the S&P 500 means periods of underperformance relative to widely followed indices.

Psychological Difficulty

Maintaining a factor tilt through a multi-year underperformance cycle requires discipline that is harder to sustain in practice than in theory.

Premiums May Weaken

Increased awareness and crowding into known factors may compress future premiums. Historical patterns are not assured to persist.

Illustration

Simulation & Illustration

The figures below illustrate how this construction might behave under stylized market-regime assumptions, using a calibrated statistical model rather than live exchange data.

Simulations are not predictions of future returns. They illustrate possible behavior under the model's regime assumptions and should not be relied upon to make investment decisions.
Risk-free rate: 2.00% ann. Window: Jan 2015 – Dec 2024 (simulated)
CAGR iCompound Annual Growth Rate — annualized return over the selected window, geometrically compounded.
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Base—
S&P 500—
ACWI—
Volatility iAnnualized standard deviation of monthly returns (monthly σ × √12).
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Base—
S&P 500—
ACWI—
Max Drawdown iLargest peak-to-trough decline in cumulative value within the selected window.
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Base—
S&P 500—
ACWI—
Sharpe Ratio i(Annualized return − 2.0% risk-free) ÷ annualized volatility. Unitless.
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Base—
S&P 500—
ACWI—

Simulation & Illustration

Simulated window: Jan 2015 – Dec 2024 · custom portfolio vs. modeled benchmark proxies, indexed to 0% at the start

Click a legend item to show or hide that series — Core Asset and Factor Tilt are hidden by default.

Illustrative comparison

Strategy 20-80 vs MSCI ACWI Index

Simulated, indexed

Illustrative comparison

Strategy 20-80 vs S&P 500 TR Index

Simulated, indexed

Full Metrics Comparison

All entities, selected simulated window

Entity CAGR Volatility Max Drawdown Sharpe