Does DFA emerging markets have any special sauce?

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sdsailing
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Location: San Diego

Does DFA emerging markets have any special sauce?

Post by sdsailing »

Does DFA emerging markets (DFEMX) have any special sauce?

In other words, do any Bogleeheads believe it would be worth buying at an ER of 0.57 (institutional class) rather than a cheaper index fund such as Fidelity Spartan emerging markets index (FPMAX) at an ER of 0.2 ?

Both are inside a 403b.

Thanks for any discussion.
bowtie
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Re: Does DFA emerging markets have any special sauce?

Post by bowtie »

Strange you ask that, b/c I was wondering the same thing (although I figured the answer may well be 'no')....
I too have been looking into lists available for 403b and 457, also Roth 403b, and there's a long, varied list of funds including DFA, Cox and Dodge, etc. etc. etc. and I too noticed large ER's for many funds. But then I'm used to looking at .07 or so ER's before I started looking at those 403 lists.
Calm Man
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Re: Does DFA emerging markets have any special sauce?

Post by Calm Man »

I wouldn't bother. They would have to beat it by 0.4% a year to even make it worth bothering with. And they probably won't.
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Garco
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Re: Does DFA emerging markets have any special sauce?

Post by Garco »

I like the "edge" that I get from DFEVX (DFA em value). If I were you, depending on options available to you, I would go with FPMAX (.20% ER), or with another new very low expense IM fund, which is "cap weighted" and includes some small-caps: IEMG (iShares EM Core) (.18% ER). Truth in advertising: I own DFEVX in my tax deferred account and IEMG in my taxable.
freddie
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Re: Does DFA emerging markets have any special sauce?

Post by freddie »

Calm Man wrote:I wouldn't bother. They would have to beat it by 0.4% a year to even make it worth bothering with. And they probably won't.
Historically they have beaten the index after ER when looking at 5/10/15/20 year periods. You don't want to pay an advisor .25% to get access to the fund however.
DVMResident
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Re: Does DFA emerging markets have any special sauce?

Post by DVMResident »

As a tilter, I've struggled with maintaining my desired AA, the realities of my 40X(X) options, and the keeping costs low.

When comparing funds I use a method inspired by bertson in "Tilters: how much would you pay for a tilt?":
berntson wrote:Here is how I think about things. My current target is to have a portfolio with .3 hml and .2 smb. In the US, a portfolio with this sort of tilt has historically resulted in about 200 basis points of annualized outperformance. I figure that there is roughly a 50% chance of things going well. If things go well, I expect to get roughly the historic outperformance (could be higher, could be lower, but the expectation value is the historic value). I figure there is also a 50% chance that things go badly and I get nothing. In which case, I will be out the extra costs of tilting.
So, here's how I answer the question:
(1) Look up the FF factor regression (portfoliovisualizer)
(2) Multiple the results by the historical premium of their respective factors (Historical and Expected Returns]Historical Returns)*
(3) Subtract the results of the two funds
(4) Subtract the difference in ER
(5) Divide by 4 **
(6) If >0, use the fund. If <0, don't use the fund.

*Yes, I use US Historical Returns because I don't trust EM historical data, the global markets correlations are converging, and US have the best reported data sets.
**This builds wiggle room for negating events, such arbitrage, and the a level of confidence higher returns over the market noise. This step eliminates many funds, but I want large margin of error built into my predictions before I'm willing to pay more because costs matter. Thus, this is a conservative approach.

Here's step 1:

Code: Select all

DFEMX, FPMAX
Market 1.12,1.14
Size 0.17, -0.11
Value 0.10, 0.32
Alpha -0.16%, -1.55%
Step 2: Using the assumptions of Market gives historical returns of 11.8, small premium of 2.2, and value premium in large cap of 4.1:
DFEMX = 13.8, FPMAX = 13.0
Step 3: 0.87 in favor of DFEMX
Step 4: 0.87/4 = 0.22
Step 5: 0.22 - (0.57-0.2) = -0.15
(only reported 2 digits)
Step 6: I find DFEMX too expensive and would stick with FPMAX.
Calm Man
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Re: Does DFA emerging markets have any special sauce?

Post by Calm Man »

freddie wrote:
Calm Man wrote:I wouldn't bother. They would have to beat it by 0.4% a year to even make it worth bothering with. And they probably won't.
Historically they have beaten the index after ER when looking at 5/10/15/20 year periods. You don't want to pay an advisor .25% to get access to the fund however.
Thank you Freddie. So the advisor adds a minimum of 0.25% more so it needs 0.65% outperformance. But assuming it is a taxable account, I believe those funds are somewhat less or a lot less tax efficient. But my bias against DFA funds is obvious.
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sdsailing
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Re: Does DFA emerging markets have any special sauce?

Post by sdsailing »

Thank you all for your comments. To clarify: this is in 403b, so no tax. Also no advisor fees. Total fees are as stated in OP.

Thanks!
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