"DFA vs. Vanguard. Which is Better?"

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"DFA vs. Vanguard. Which is Better?"

Postby Taylor Larimore » Mon Apr 19, 2010 1:42 pm

Boglehead Allan Roth, has written a column for CBS Moneywatch, in which he compares DFA and Vanguard mutual funds and ETFs.

His answer may surprise you:

DFA vs. Vanguard. Which is Better?
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Postby caklim00 » Mon Apr 19, 2010 2:41 pm

I use both and am in general happy with both Vanguard and DFA. I have certain things that I can nitpick about
DFA: Inability to buy funds in open market
Vanguard: Too much focus on actively managed and niche funds while leaving out SCV International or more Tax-managed strategies.

But, both are better than most alternatives...
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Postby natureexplorer » Mon Apr 19, 2010 3:10 pm

Here we go again, trying to judge which is better based on past performance.
To predict future out- or under-performance however, should costs not be considered? Yet, actual costs of DFA versus Vanguard funds are not even mentioned. :?

What is the average ER of DFA funds? I believe the average ER for Vanguard is 0.25% (not even considering ETFs).

If access to DFA funds means paying a 0.25% advisor fee to the lowest cost advisor Portfolio Solutions, its hard to see how DFA funds can be cheaper at the end of the day. Of course with a big portfolio that access-fee shrinks, but so does the Vanguard ER with Admiral shares etc.
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Postby ddb » Mon Apr 19, 2010 3:16 pm

Fortunately for all of us, the investment world is not limited to Vanguard and DFA. There are other companies that also offer good products, and other ways to invest which do not involve using mutual funds at all (e.g. CDs or individual bonds).

I'm a big believer in the notion that risk factor exposure and costs drive investment results. So, pick a strategy, and implement with the lowest-cost investment options.

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Postby livesoft » Mon Apr 19, 2010 3:18 pm

My take on the DFA vs Vanguard story is that if you have an advisor from DFA, then they will tax-loss harvest and rebalance your portfolio for you. Each of these operations is worth sometimes about 1% extra per year. So the advisor can goose your returns if you do not do these things yourself. Of course, you can always goose your own returns.

Allan Roth did not address these two portfolio management tools. I am not sure if Tower and Zhang did or not.
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Tower/Yang study

Postby Taylor Larimore » Mon Apr 19, 2010 3:33 pm

Allan Roth did not address these two portfolio management tools. I am not sure if Tower and Zhang did or not.


This is a study by Professor Tower and Yang:

Enhanced versus Passive Mutual Fund Indexing: Has DFA Outperformed Vanguard by Enough to Justify its Advisor and Transaction Fees?

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Postby Indices » Mon Apr 19, 2010 3:48 pm

I think there is considerable evidence that DFA funds probably outperform Vanguard slightly. But does anyone know if the outperformance is enough to make up for fees? What kind of fees does a DFA financial adviser charge? I think I might be convincing myself to buy DFA...
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Postby livesoft » Mon Apr 19, 2010 3:56 pm

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Postby caklim00 » Mon Apr 19, 2010 4:09 pm

FWIW, I only use DFA for
1) 529
2) a previous company 401k

So, I'm not paying any advisor fees for DFA access (you can probably argue with me on the 529 as I think its about a .42 asset fee to West Virginia on top of the Core/Core II fund costs).
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Postby ResNullius » Mon Apr 19, 2010 4:18 pm

We'll, I read all the stuff, including the Retire Early commentary. I think I'll stay the course with Vanguard. I don't use only Vanguard index funds, because Vanguard has actively managed funds that usually beat the appropriate index, sometimes not by much, but by enough to offset the minimally additional expense. In the investing world, it's virtually impossilbe to find two sets of identical apples. I prefer my apples.
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Postby Doc » Mon Apr 19, 2010 4:29 pm

ResNullius wrote:... because Vanguard has actively managed funds that usually beat the appropriate index, sometimes not by much, but by enough to offset the minimally additional expense.


How is that possible? I have seen numerous studies linked on this forum that prove that active funds underperform index fund. :?
Last edited by Doc on Mon Apr 19, 2010 4:30 pm, edited 1 time in total.
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Postby Allan Roth » Mon Apr 19, 2010 4:30 pm

natureexplorer wrote:Here we go again, trying to judge which is better based on past performance.
To predict future out- or under-performance however, should costs not be considered? Yet, actual costs of DFA versus Vanguard funds are not even mentioned. :?

What is the average ER of DFA funds? I believe the average ER for Vanguard is 0.25% (not even considering ETFs).



FYI - According to Morningstar, ERs are as follows:

US Stock - DFA .34, Vang .24
Int'l Stock - DFA .55, Vang .31
Muni Bond - DFA .26, Vang .16
Taxable Bond - DFA .25, Vang .16

All of these are excluding any adviser fees which one must have with DFA.
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Postby Levett » Mon Apr 19, 2010 4:43 pm

I'm mildly surprised by the closing comment, but perhaps I'm missing some nuance.

The observation is this: " yet I think a much better question to ask is will DFA and Vanguard likely outperform much more active and expensive mutual funds and ETFs. My answer is YES!"

If your portfolio does include some actively managed funds, as mine does, you want to screen for low turnover, low cost actively managed portfolios--not "much more active and expensive mutual funds and ETFs."

To compare VG and DFA with hyperactive (e.g., "much more active") and much more expensive funds seems to me a not very interesting question with an obvious conclusion. Bob U.
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Postby Allan Roth » Mon Apr 19, 2010 5:02 pm

bob u. wrote:
To compare VG and DFA with hyperactive (e.g., "much more active") and much more expensive funds seems to me a not very interesting question with an obvious conclusion. Bob U.


It may not be interesting to the Bogleheads because we are already convinced that costs and turnover matter. We are not representative of the investing public, I'm sorry to say.
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Postby Random Musings » Mon Apr 19, 2010 5:29 pm

From the article:

I happen to have both DFA and Vanguard in my portfolio, though I admittedly have much more of my portfolio in Vanguard than I do DFA funds.

As I said, the comparison of Vanguard to DFA funds is fascinating, yet I think a much better question to ask is will DFA and Vanguard likely outperform much more active and expensive mutual funds and ETFs. My answer is YES!


With Vanguard/DFA choices plus some good choices of ETF's, I think there are bigger fish to fry.

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Postby nvboglehead » Mon Apr 19, 2010 5:30 pm

I am concerned that the ownership structure at DFA may change down the road. There would be an incentive for this privately held company to go public and then generate more revenue for its stockholders by raising expense ratios on its funds. I could imagine this happening when the ownership of DFA is shifting from one generation to the other. If you were invested in their funds with large, unrealized capital gains, then it would not be easy for you to leave DFA without paying a huge tax bill.

At least at Vanguard, any move to demutualize the firm would require that we, the investor/owners, vote affirmatively to change its ownership structure. We should, and hopefully would, resist any such move in the future.

For me, I am sticking with Vanguard over DFA for the long term.

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Postby Levett » Mon Apr 19, 2010 5:46 pm

Yes. If one of the co-founders of DFA can donate $300 million to the U of Chicago, I guess passive pays. :)

http://www.forbes.com/2008/11/07/giving-chicago-booth-biz-billies-cx_af_1107booth.html

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Postby Helot » Mon Apr 19, 2010 6:05 pm

caklim00 wrote:FWIW, I only use DFA for
1) 529
2) a previous company 401k

So, I'm not paying any advisor fees for DFA access (you can probably argue with me on the 529 as I think its about a .42 asset fee to West Virginia on top of the Core/Core II fund costs).


Are your DFA funds in your former 401k R Class shares? If so that would be an additional .10% or .25%. Apparently, only a limited number of the funds are R Class, the majority are I shares.
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Postby xerty24 » Mon Apr 19, 2010 6:41 pm

Allan Roth wrote:FYI - According to Morningstar, ERs are as follows:

US Stock - DFA .34, Vang .24
Int'l Stock - DFA .55, Vang .31
Muni Bond - DFA .26, Vang .16
Taxable Bond - DFA .25, Vang .16

All of these are excluding any adviser fees which one must have with DFA.

All of which makes you think that DFA would underperform, but that's because you believe in the efficient market and that one index fund is as good as another based on the same index. In fact, DFA seems to be doing something right with their "enhanced index fund" approach. From the paper cited above:

Tower & Yang wrote:The calculations in this section establish that DFA outperforms Vanguard in a way that is not captured by the FF loads.

[From the Summary section]
a. Before style adjustment DFA outperformed Vanguard by 8.9 percent per year.

b. The DFA portfolio outperformed Vanguard’s style-mimicking portfolio by 2.57 percent per year. This reflects the quality of DFA funds relative to Vanguard’s as well as the choices that DFA advisors and their clients make. It, like the rest of our calculations, assumes that Vanguard’s portfolios are rebalanced every month.

c. The DFA portfolio outperformed Vanguard’s Fama-French load-mimicking portfolio by 1.4 or 3.0 percentage points per year, depending on the method of analysis.

d. The DFA constant-style portfolio over the entire 8 year period (using beginning period weights) outperformed the style-mimicking Vanguard portfolio by 2.7 percent per year. This reflects the quality of the DFA funds relative to Vanguard’s.

It's not just DFA was tilted more towards small/value during a period of outperformance, they outperformed noticeably on many different risk-and-style adjusted metrics and didn't underperform on any of them. It seems reasonable to conclude that, based on the data and time period studied, DFA really did beat Vanguard by ~2% annually, after ER but before advisory fees (if any). That's a pretty strong endorsement of DFA, especially if you have free DFA access via a 401k/529 plan but suggests that even paying 0.5-1% in advisory fees might be worth it (noting as the advisors are sure to, that they provide other valuable services as well).
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Postby dharrythomas » Mon Apr 19, 2010 10:24 pm

If the outperformance is because of exposure to different risk factors, And I understand that it's because DFA small funds go for the smallest slice of stocks and their value screens are tighter than dividing the market, then performance will be different but so will the risk profile.

A decision on which is better will boil down to the determination of the decision criteria (how you define best). Since return is not the only factor, it will remain an individual decision. You can ask the question to get whichever answer you want. :wink:
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Postby Sublime8700 » Mon Apr 19, 2010 11:06 pm

Why not diversify between the two strategies and buy some DFA funds if you are mostly in Vanguard, and vice versa?
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Postby Rick Ferri » Mon Apr 19, 2010 11:09 pm

DFA diy wrote:
They miss this low cost champ for do-it-yourself investors: deleted.com.


This is interesting. I am surprised DFA allows you to openly sell access to their funds. They always frowned on firms that scrape a fee off the top. I think it's fine, BTW. But I'm sure your catching flack from some other advisors who want you out of the club.

I've been suggesting for years that DFA put an end to the wholesale selling of access by just create ETFs for all investors to use. An ETF class share would go a long-way toward making their open-end funds more tax efficient.

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Postby Allan Roth » Mon Apr 19, 2010 11:56 pm

Rick Ferri wrote:D
I've been suggesting for years that DFA put an end to the wholesale selling of access by just create ETFs for all investors to use. An ETF class share would go a long-way toward making their open-end funds more tax efficient.

Rick Ferri


What a great idea, Rick!
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Postby xerty24 » Mon Apr 19, 2010 11:58 pm

DFA diy wrote:
They miss this low cost champ for do-it-yourself investors: deleted.com.

Are we now the "only big DFA advisors can post" club? What happened to Mr diy? I'd appreciate a PM from him or one of his friends about his website and/or advisory service.
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Postby yobria » Tue Apr 20, 2010 12:42 am

Thanks for the link Taylor.

As I've said repeatedly on this board, DFA has underperformed my range of (mostly Vanguard) ETFs in almost every case.

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Postby yobria » Tue Apr 20, 2010 12:47 am

livesoft wrote:My take on the DFA vs Vanguard story is that if you have an advisor from DFA, then they will tax-loss harvest and rebalance your portfolio for you. Each of these operations is worth sometimes about 1% extra per year. So the advisor can goose your returns if you do not do these things yourself. Of course, you can always goose your own returns.

Allan Roth did not address these two portfolio management tools. I am not sure if Tower and Zhang did or not.


You, or your advisor, should be TLHing. But that has nothing to do with whether you own DFA or Vanguard funds.

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Postby james22 » Tue Apr 20, 2010 1:09 am

xerty24 wrote:I'd appreciate a PM from him [DFA diy] or one of his friends about his website and/or advisory service.


Me too. :wink:
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Postby caklim00 » Tue Apr 20, 2010 9:11 am

Helot wrote:
caklim00 wrote:FWIW, I only use DFA for
1) 529
2) a previous company 401k

So, I'm not paying any advisor fees for DFA access (you can probably argue with me on the 529 as I think its about a .42 asset fee to West Virginia on top of the Core/Core II fund costs).


Are your DFA funds in your former 401k R Class shares? If so that would be an additional .10% or .25%. Apparently, only a limited number of the funds are R Class, the majority are I shares.
Nope, they are institutional.
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Postby ScottW » Tue Apr 20, 2010 9:35 am

Rick Ferri wrote:I've been suggesting for years that DFA put an end to the wholesale selling of access by just create ETFs for all investors to use. An ETF class share would go a long-way toward making their open-end funds more tax efficient.


I have a question about this. Since DFA funds are "passive" and do not strictly follow indexes, they have more leeway when making trades. Would opening up their funds as ETF classes affect their momentum screens and patient trading practices, and would their tax-managed funds need to alter their behavior in any way?

I can see how ETFs would probably benefit their larger cap offerings, including the domestic and international Core funds, but I wonder if their would be drawbacks to some of their other funds that invest heavily in less liquid securities.
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Postby Rick Ferri » Tue Apr 20, 2010 10:32 am

ScottW wrote:
Rick Ferri wrote:I've been suggesting for years that DFA put an end to the wholesale selling of access by just create ETFs for all investors to use. An ETF class share would go a long-way toward making their open-end funds more tax efficient.


I have a question about this. Since DFA funds are "passive" and do not strictly follow indexes, they have more leeway when making trades. Would opening up their funds as ETF classes affect their momentum screens and patient trading practices, and would their tax-managed funds need to alter their behavior in any way?

I can see how ETFs would probably benefit their larger cap offerings, including the domestic and international Core funds, but I wonder if their would be drawbacks to some of their other funds that invest heavily in less liquid securities.


The ETF business has come a long way in the past five years. The basket for creating redeeming shares doesn't have to be the entire portfolio. It can be a liquid sampling of larger securities that have more liquidity. This is how Vanguard creates and redeems ETF shares.

Rick Ferri

PS. DFA has expressed no interest in ETFs, at least not publicly. So, don't get you hopes up.
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Postby ddb » Tue Apr 20, 2010 11:40 am

Rick Ferri wrote:PS. DFA has expressed no interest in ETFs, at least not publicly. So, don't get you hopes up.


Well, I can't imagine why they'd possibly want to offer unfettered access to their investment strategies. I'm sure the profit margins are great right now, and there isn't really any direct competition if you believe that their management methods will add value going forward.

Also, I don't understand the widespread "hope" among certain DIY investors for no-fee access to DFA funds. I really don't see how having full access to the DFA lineup would allow one to build better portfolios than by using non-DFA funds. This certainly wasn't the case 5 years ago, but the index/ETF landscape has really been working in the investors' favor lately.

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Postby ScottW » Tue Apr 20, 2010 12:05 pm

Rick Ferri wrote:The ETF business has come a long way in the past five years. The basket for creating redeeming shares doesn't have to be the entire portfolio. It can be a liquid sampling of larger securities that have more liquidity. This is how Vanguard creates and redeems ETF shares.


Interesting. I always thought the baskets had to encompass the entire portfolio.

ddb wrote:I really don't see how having full access to the DFA lineup would allow one to build better portfolios than by using non-DFA funds. This certainly wasn't the case 5 years ago, but the index/ETF landscape has really been working in the investors' favor lately.


While I still feel that DFA has an edge over many of their competitors in the value space, I agree that there are plenty domestic options available today to the do-it-yourself investors. However, the pickings are still slim on the international side. I'm skeptical that dividend-oriented funds are a good way to gain value exposure, which leaves EFV and possibly the Schwab RAFI indexes for tax-advantaged accounts (I'd avoid the PowerShares RAFI ETFs due to high expenses). We could use a few low-cost tax-efficient international funds.
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I Switched to DFA

Postby Random Walker » Tue Apr 20, 2010 1:48 pm

I think the VG v. DFA decision can easily come down to personal circumstance. I have read all the books and am quite psychologically disciplined. My compulsiveness reaches its limit when it comes to keeping sufficient records for efficient TLH. I am about 85% taxable and 15% tax deferred. And I have come to believe in small and value tilts as primarily risk story and perhaps a bit behavioral too.
So I considered the following in making the jump from VG to DFA for myself:
1. VG lacked tax managed value funds. The DFA core funds and tax managed funds give me access to small and value tilts with my taxable money.
1a. VG index funds effectively behave as growth funds because of the index construction. With VG there is a major tradeoff between tax efficiency and diversification across risk factors for taxable money
2. With DFA I would therefore have a more efficient portfolio with risk spread better across the 3 risk factors: beta, small, and value. My portfolio is more efficient and more torqued and in a tax efficient manner.
3. DFA has access to international small value which may be a better contributor to a portfolio than EM
4. Securities lending by DFA somewhat offsets the ER difference between DFA and VG
5. The advisor fee of 0.5-1% can potentially be offset by aggressive efficient TLH by advisor throughout the year which I would not do as well on my own.
6. My advisor manages a ladder of individual bonds which I would not do on my own. This presents additonal TLH opportunities and avoids the ER of a bond fund

So i roughly calculated
ER difference perhaps -0.3%
Advisor fee -0.7%
Small &Value tilt + 1.5%
TLH benefit + 0.7%
_______
Total potential advantage ~1.2% per year

I think this is conservative. The small and value tilt might be larger long term. The improved efficiency of the portfolio might result in a smoother ride for the portfolio bringing the annualized return closer to the average annual return, but I can't guesstimate that number. My advisor is managing a ladder of individual bonds as well (which I would not do on my own). This presents additional TLH opportunities that I might not have with bond funds. Lastly there are benefits to advisor that I'll learn about over time that I definitely cannot quantitate now.
So overall, I am just pointing out that the DFA VG decision can come down to personal circumstance and what the advisor does to justify his fee. I think the above are significant issues to consider in the decision making process. I really surprised myself. After reading all the books and enjoying investing, I have effectively handed it all over to an advisor!

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Postby RaleighStClaire » Tue Apr 20, 2010 1:54 pm

Allan Roth wrote:
natureexplorer wrote:Here we go again, trying to judge which is better based on past performance.
To predict future out- or under-performance however, should costs not be considered? Yet, actual costs of DFA versus Vanguard funds are not even mentioned. :?

What is the average ER of DFA funds? I believe the average ER for Vanguard is 0.25% (not even considering ETFs).



FYI - According to Morningstar, ERs are as follows:

US Stock - DFA .34, Vang .24
Int'l Stock - DFA .55, Vang .31
Muni Bond - DFA .26, Vang .16
Taxable Bond - DFA .25, Vang .16

All of these are excluding any adviser fees which one must have with DFA.


I never see how a comparison in ERs is fair without a comparison of additional return from securities lending.
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Postby jwj61 » Tue Apr 20, 2010 2:26 pm

ddb wrote:

Rick Ferri wrote:
PS. DFA has expressed no interest in ETFs, at least not publicly. So, don't get you hopes up.


Well, I can't imagine why they'd possibly want to offer unfettered access to their investment strategies. I'm sure the profit margins are great right now, and there isn't really any direct competition if you believe that their management methods will add value going forward.

Also, I don't understand the widespread "hope" among certain DIY investors for no-fee access to DFA funds. I really don't see how having full access to the DFA lineup would allow one to build better portfolios than by using non-DFA funds. This certainly wasn't the case 5 years ago, but the index/ETF landscape has really been working in the investors' favor lately.


It still puzzles me why a mutual fund company hasn't stepped in to offer a direct competitor to dfa, but without the need for the financial advisor. This has nothing to do with whether the financial advisor provides value, or whether dfa funds are better than Vanguard, or if a dfa copycat can match dfa performance. Independent of those things, traffic in these forums indicates that there is a market for such funds.

It is easy for a company offering those funds to attract investors because they automatically have less expenses by not requiring an advisor. You would be offering exactly the right product for a certain type of investor. Moreover, every time there is positive press for passive investing, you get free advertising.

(If someone starts such a company, I want to be on the board of directors. After all, it is my idea.)
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Postby Lucio » Tue Apr 20, 2010 3:53 pm

RaleighStClaire wrote:I never see how a comparison in ERs is fair without a comparison of additional return from securities lending.


That's a good point. I would add, though, that the added risk from securities lending should also be considered. Counterparties can fail.

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Postby ddb » Tue Apr 20, 2010 4:50 pm

jwj61 wrote:It still puzzles me why a mutual fund company hasn't stepped in to offer a direct competitor to dfa, but without the need for the financial advisor. This has nothing to do with whether the financial advisor provides value, or whether dfa funds are better than Vanguard, or if a dfa copycat can match dfa performance. Independent of those things, traffic in these forums indicates that there is a market for such funds.


If there were a market for such funds, then the funds would exist. Bogleheads.org traffic is by no means a proxy for the broader market of DIY mutual fund investors. Even if it were, I sense that the vast majority of members here would still opt for the lower-cost market index funds.

Additionally, even if there WERE a demand for such a fund company, the initial expense ratios would be way too high to actually attract any investors. Perhaps an established company MIGHT be able to keep costs low and eat the losses for the 5-10 years it would take to establish sufficient AUM, but even that is doubtful.

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Postby KyleAAA » Tue Apr 20, 2010 5:24 pm

If I were already going through a FA anyway, I would probably want to use the cheaper Vanguard funds where possible and DFA for asset classes Vanguard doesn't cover.
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Postby Jack » Tue Apr 20, 2010 5:41 pm

Rick Ferri wrote:The ETF business has come a long way in the past five years. The basket for creating redeeming shares doesn't have to be the entire portfolio. It can be a liquid sampling of larger securities that have more liquidity. This is how Vanguard creates and redeems ETF shares.

How does that actually work? The idea of a public index is that the authorized participants can know at all times exactly what the basket consists of and how its price relates to the current ETF price. That is how they keep the ETF and NAV close to the same price by creating and redeeming shares. If the fund managers can arbitrarily determine what the basket consists of and it differs from the actual holdings of the fund, it seems that it would be possible for the fund managers to game the system and manipulate the ETF vs NAV prices.
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Postby VennData » Tue Apr 20, 2010 7:04 pm

Vanguard has the advantage of the ETF structure that eschews most capital gains, which extends to their sister mutual funds...

Rick Ferri wrote: I've been suggesting for years that DFA put an end to the wholesale selling of access by just create ETFs for all investors to use. An ETF class share would go a long-way toward making their open-end funds more tax efficient. Rick Ferri


...wouldn't DFA have to pay Vanguard to access their patent?

http://www.marketwatch.com/story/vangua ... -structure

I'd think the capital gain tax saving would be a significant factor in the long-run return differences.
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Postby Rodc » Tue Apr 20, 2010 7:16 pm

ddb wrote:
jwj61 wrote:It still puzzles me why a mutual fund company hasn't stepped in to offer a direct competitor to dfa, but without the need for the financial advisor. This has nothing to do with whether the financial advisor provides value, or whether dfa funds are better than Vanguard, or if a dfa copycat can match dfa performance. Independent of those things, traffic in these forums indicates that there is a market for such funds.


If there were a market for such funds, then the funds would exist. Bogleheads.org traffic is by no means a proxy for the broader market of DIY mutual fund investors. Even if it were, I sense that the vast majority of members here would still opt for the lower-cost market index funds.

Additionally, even if there WERE a demand for such a fund company, the initial expense ratios would be way too high to actually attract any investors. Perhaps an established company MIGHT be able to keep costs low and eat the losses for the 5-10 years it would take to establish sufficient AUM, but even that is doubtful.

- DDB


Isn't that sort of the"fundamental" index segment? Which is covered by Fidelity, Schwab, Wisdom Tree? Aren't those funds more or less trying to do the same thing?
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Postby yobria » Tue Apr 20, 2010 7:34 pm

jwj61 wrote:It still puzzles me why a mutual fund company hasn't stepped in to offer a direct competitor to dfa, but without the need for the financial advisor. This has nothing to do with whether the financial advisor provides value, or whether dfa funds are better than Vanguard, or if a dfa copycat can match dfa performance. Independent of those things, traffic in these forums indicates that there is a market for such funds.

It is easy for a company offering those funds to attract investors because they automatically have less expenses by not requiring an advisor.


There are hundreds of funds offering the same products DFA does, though DFA has a unique marketing spin.

What are you not finding at other companies?

Nick
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Postby baw703916 » Tue Apr 20, 2010 7:57 pm

yobria wrote:There are hundreds of funds offering the same products DFA does, though DFA has a unique marketing spin.

What are you not finding at other companies?

Nick


I'm not aware of any other companies offering passively-managed ISV funds with expense ratios < 1%

I use DLS, which is pretty close, although not really value in the strict sense.

Brad
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Postby Rodc » Tue Apr 20, 2010 8:30 pm

baw703916 wrote:
yobria wrote:There are hundreds of funds offering the same products DFA does, though DFA has a unique marketing spin.

What are you not finding at other companies?

Nick


I'm not aware of any other companies offering passively-managed ISV funds with expense ratios < 1%

I use DLS, which is pretty close, although not really value in the strict sense.

Brad


Schwab.

http://quote.morningstar.com/fund/f.asp ... region=USA

Also emerging markets

http://quote.morningstar.com/fund/f.asp ... region=USA

Both are value tilted, though the emerging markets fund is not also small tilted.

Certainly not a direct riff on DFA, but seems to me they are shooting for the same basic market niche.
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Postby yobria » Tue Apr 20, 2010 8:34 pm

baw703916 wrote:I'm not aware of any other companies offering passively-managed ISV funds with expense ratios < 1%

I use DLS, which is pretty close, although not really value in the strict sense.

Brad


I have some DLS too. It's been hard watching it outperform higher fee DFA ISV these past few years.

Seriously ISV is such an esoteric subsubclass that I doubt there'd be much demand. DLS has only $430M in assets.

Given that everything's pretty highly correlated these days, ISV would have a high ER, and it would only be a small portion of ones assets, I doubt the world is missing much here.

Nick
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Postby Rick Ferri » Tue Apr 20, 2010 9:38 pm

Jack wrote:
Rick Ferri wrote:The ETF business has come a long way in the past five years. The basket for creating redeeming shares doesn't have to be the entire portfolio. It can be a liquid sampling of larger securities that have more liquidity. This is how Vanguard creates and redeems ETF shares.

How does that actually work? The idea of a public index is that the authorized participants can know at all times exactly what the basket consists of and how its price relates to the current ETF price. That is how they keep the ETF and NAV close to the same price by creating and redeeming shares. If the fund managers can arbitrarily determine what the basket consists of and it differs from the actual holdings of the fund, it seems that it would be possible for the fund managers to game the system and manipulate the ETF vs NAV prices.


An ETFs NAV is based on what's in the fund, not what's in the index. There are many ETFs that don't have the same securities as the index they are tracking. There is a a lot of sampling and substitution going on.

Indexes and creation baskets are also two different things. The authorized participants (APs) don't really care what's in an index. They only care about what's in the fund manager's basket of securities that they have to turn in for a creation or will receive in a redemption.

Rick Ferri

PS. There are four ETFs that by law must have the exact same securities as the index. They are the four ETFs structured as unit investment trust; SPY, DIA, MDY, and QQQQ. All other ETFs are structured as a 1940s act open-end mutual fund with regulatory relief. They don't have to track an index exactly.
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Postby Robert T » Tue Apr 20, 2010 10:01 pm

.
My simple estimate a few years ago gave DFA a slight edge over alternatives in the 0.2 to 0.3 percent per year range (considering style consistency, block trading, securities lending, reconstitution arbitrage, tax efficiency, expense ratios) – not the 2 to 3% annual DFA outperformance (above factor exposure) sometimes claimed. Don’t think I was too far off – perhaps would be less generous in my estimates today. Just my take. Time will tell. Still think DFA is a first rate fund company and use their funds for college investments (WV529) but not for retirement investments.
.
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Postby speedbump101 » Mon Apr 26, 2010 8:44 pm

Larry Swedroe on DFA and Vanguard
http://moneywatch.bnet.com/investing/bl ... blog-river

More to come

SB...
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Postby Enzo IX » Mon Apr 26, 2010 10:59 pm

I'm in the camp of French and Fama, I'll hopefully let everyone how it went in thirty years.

Since Vanguard small and value is not to the extreme as DFAs I took Mr. Ferri's advice and overloaded value and small more than I would have if I went with a DFA advisor.

Now it doesn't help me in the emerging market region but I just overloaded emerging markets more.

I figure that with the advisor fees it's saving me 40 to 50k a year. That's one expensive yearly lunch.
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Postby UrbanMedic » Mon Apr 26, 2010 11:04 pm

speedbump101 wrote:Larry Swedroe on DFA and Vanguard
http://moneywatch.bnet.com/investing/bl ... blog-river

More to come

SB...


Oh here we go again. While we're on the topic, I should ask my barber if I need a haircut.
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