The best of both Vanguard and DFA

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

The best of both Vanguard and DFA

Post by Wagnerjb » Mon Mar 26, 2007 10:52 am

I have a somewhat unique opportunity to "cherry-pick" DFA funds to complement the Vanguard funds that I already own. My mother uses a fee-only advisor, and he uses DFA funds for her portfolio. He charges 1% for the first $1 million, and 0.5% thereafter. I accompany my mother to the quarterly meetings with the advisor, and the most recent was last Friday.

Towards the end of our meeting, I was complimenting the advisor on the DFA funds and I told him how I would love to use DFA funds, but couldn't justify the 1% fee - especially since it applied to the entire portfolio. He surprised me by offering me access to DFA funds at the incremental 0.5% rate since my assets would be considered by him to be part of one (extended) family. I indicated that most of my assets were in a 401k and thus untouchable, and I believe he will let me use DFA funds for a portion of my portfolio.

This gives me an enticing proposition - some DFA funds, at a reduced rate. I am convinced that 1% on the entire portfolio isn't cost justified unless you are getting the financial advice. For example, the DFA Large Cap portfolio (DFLCX) has basically matched the S&P500 over 10 years (8.29% vs. 8.42% for S&P500). The DFA Int'l Large Cap fund (DFALX) has beaten the EAFE by a slim 0.22% over 10 years. And the 5-year Gov't fund (DFFGX) has underperformed the Lehman 1-10 yr Govt index by 0.33% over 10 years. So....I don't think DFA pays off for the largest bulk of a portfolio.

But - I am very convinced that DFA does value and size better, and they also offer access to asset classes that I cannot get anywhere else. For example, I use EFV for international large value. Over the past 5 years, the EAFE value index (benchmark for EFV) has returned 17.65%. Vanguard int'l Value fund (VTRIX) has returned 17.21% and DFA int'l value (DFIVX) has returned 22.26%.

I am considering using the small amount in my IRA for Emerging markets small, EM value and international small value. I may shuffle things around a bit and use my wife's IRA as well.

I probably only have capacity in our IRAs for maybe 10% of our assets, so my inclination is to go for asset classes that are not available at all at Vanguard. Do you guys see a reason to go for an existing asset class under the logic that DFA does it so much better than Vanguard? Seems like my priority would be a) unavailable asset classes and b) those available, beginning with those where DFA has the largest margin of outperformance.

I am not a knee-jerk kind of guy, so I will undoubtedly incubate on this for a while. And I may have to strategize a bit to see how I can underweight EM in my 401k when I am holding DFA EM funds in my IRA. I currently have Total Int'l in my 401k so it won't be simple....and I don't want to jump into an overweight position in either EM or Int'l these days after the string of great years.

What do you guys think?

Thanks in advance.
Andy

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Mon Mar 26, 2007 11:05 am

My first thought as I was reading was that it would be nice to have access to DFA's international funds, particularly EMV and SV since there is no such thing available from Vanguard (except to the extent VTRIX actually holds some EMV). I see you are thinking the same thing, and I don't really see much of a problem with your logic.

For asset classes where Vanguard does have funds, I think you need to crunch the numbers. Typically, my sense is that DFA's domestic funds tend to give you more value and/or small loading than their nominal Vanguard equivalents. But if you are just going to be blending those funds back into a larger portfolio, using DFA funds with this additional 0.5% cost may or may not be an efficient way to get to your overall targets. In other words, it seems possible to me you may be able to get the same overall factor loading in a less costly way just by using a higher percentage in funds like VISVX. But again, I'd want to run the numbers and see.

User avatar
rob
Posts: 2985
Joined: Mon Feb 19, 2007 6:49 pm
Location: Here

Post by rob » Mon Mar 26, 2007 12:48 pm

I agree with your analysis and I don't see any point going with something you can get close to at Vanguard (or an ETF). I would look at what you want in the International; scv & emv (do they have em small and would you care? - sorry not that familiar with their lineup). If you need it then maybe some tax-managed value on the US side before em (since that is cheaply available @V even though it's not as pure em probably - i like their more equal weights that's all). Way to make use of some connections :-)

Edit: Not sure what they do for bonds (I think they do a mixed US non-US short or something) but might also be worth a look, although as Brian says you need to do the maths.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

User avatar
stratton
Posts: 11082
Joined: Sun Mar 04, 2007 5:05 pm
Location: Puget Sound

Post by stratton » Mon Mar 26, 2007 12:59 pm

I like Rick Ferri's idea of DFA ETFs. That would add more options for diehards. I just can't see the intl. small/value appearing as an ETF though. Those would get flooded with money so fast they'd have to close them because of the problems with finding stuff to buy.

Paul

Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Post by Wagnerjb » Mon Mar 26, 2007 1:40 pm

rob wrote:I agree with your analysis and I don't see any point going with something you can get close to at Vanguard (or an ETF). I would look at what you want in the International; scv & emv (do they have em small and would you care? - sorry not that familiar with their lineup). If you need it then maybe some tax-managed value on the US side before em (since that is cheaply available @V even though it's not as pure em probably - i like their more equal weights that's all). Way to make use of some connections :-)

Edit: Not sure what they do for bonds (I think they do a mixed US non-US short or something) but might also be worth a look, although as Brian says you need to do the maths.
Rob: DFA does have an Emerging Market Small as well as an Emerging Markets Value. My mother has them both, with one-third EM, one-third EM Small and one-third EM value. I might try to get that allocation within a market-based weighting for EM.

DFA has international bonds, but I don't see them coming before the EM and international products in my priority list. And since we are talking about a limited space in my portfolio where I can use DFA, I can easily fill it up with the international products I mentioned. (My taxable portfolio has large cap stocks that I tax-manage, and I will add Int'l Large Cap if the taxable portfolio grows. Thus, I see no benefits from considering DFA for the taxable account.

Brian: I realize that some (or maybe even all) of the DFA outperformance is due to higher size and value loadings. However, if the outperformance comes from the deep value or micro cap stocks (I am assuming DFA holds these), then I don't see how holding more of a diluted value or small cap fund will be equivalent.

Best wishes.
Andy

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Mon Mar 26, 2007 1:58 pm

Andy,

My understanding is that the small and value premiums show up more or less linearly (as the Fama/French equations would imply), with the possible exception of a microcap premium that may not be adequately captured by these linear formulas (but which also may be essentially impossible to capture through a mutual fund with a decent amount of assets to invest, as I believe is the case with the DFA microcap fund), and of course the infamous small growth black hole (which is an anomaly in the Fama/French cross-section).

If that is more or less correct, then it shouldn't matter much how you get to any particular overall factor loading for your portfolio. In other words, suppose 75% of Fund X and 25% of Fund Y got you the same weighted average market cap and P/B as 50% of Fund X and 50% of Fund Z. As I understand it, these portfolio (75X/25Y and 50X/50Z) should have about the same expected return. And that is what I am suggesting you might be able to do with Vanguard funds: if, for example, Fund X was SP500 (or your custom portfolio), Fund Y was DFA SV, and Fund Z was Vanguard SV, and 50X/50Z was cheaper to hold than 75X/25Y, then you could go ahead with 50X/50Z.

Of course, at some point you run out of your ability to use this strategy (eg, it might be impossible to duplicate 25X/75Y with any combination of just X and Z if 25X/75Y actually had a lower weighted average market cap and/or P/B than 100% Z). Still, then you might be better off using all three funds, only adding enough of Y to make up the difference.

User avatar
AzRunner
Posts: 991
Joined: Mon Feb 19, 2007 6:18 pm
Location: Phoenix

Re: The best of both Vanguard and DFA

Post by AzRunner » Mon Mar 26, 2007 2:11 pm

Hi Andy,
Wagnerjb wrote:I have a somewhat unique opportunity to "cherry-pick" DFA funds to complement the Vanguard funds that I already own.
I think your introductory remark serves as an excellent summary of the action you should take. You are able to deal with the Diehards lament that certain asset classes are just not available to them.

Best of luck.

Norm

User avatar
mudfud
Posts: 1218
Joined: Tue Feb 20, 2007 4:34 pm

Post by mudfud » Mon Mar 26, 2007 2:33 pm

BrianTH wrote: My understanding is that the small and value premiums show up more or less linearly (as the Fama/French equations would imply)
I don't have the manuscript handy, but I think the "original" Fama-French 1992 paper "The cross section of expected stock returns" shows a logarithmic relationship between size/value with returns.

Mud
"Are you sure you have tested an a priori hypothesis?" | | Image

User avatar
nick22
Posts: 859
Joined: Sun Mar 04, 2007 11:00 am
Location: Ohio

Andy

Post by nick22 » Mon Mar 26, 2007 2:43 pm

Can you adopt me, so I can actually have reasonable int. small cap coverage?
Nick22

SmallHi
Posts: 1718
Joined: Wed Feb 21, 2007 6:11 pm

Post by SmallHi » Mon Mar 26, 2007 3:30 pm

Wagner,

It may help if you posted your target asset allocation, current holdings, and what money is up for DFA (and in what accounts). Some of your thoughts are accurate, others, in my opinion, are a bit off base.

First, there really is no need for EAFE in a balanced portfolio -- you get more meaningful diversification with LV, Small, and SV Int'l stocks.

Second, DFAs Gov't bond funds have a max 5 year maturity, so comparing it to a 1-10 year index may not be ideal (probably closer to a 1-3 year). Furthermore, there is no need to confine yourself to US only bonds, the Global funds are better (and have beaten the Gov't funds by about 0.75% annually since 1990 with same risk -- and the DFA 5 Yr Gov't has beaten the Vanguard ST Treasury and Federal, but not by much -- so all in all, there has historically been a noticeable DFA bond premium using 5 Year Global as a guide))

As a guide, the following asset classes should reasonably be expected to outpace Vanguard by at least 0.5% annually:

5 YR Global (over ST Treasury, ST Corporate, or ST Bond Index)
US LV
US SC (and Micro)
US SV
US REIT ? (if the past is a guide)
Int LV
Int SC
Int SV
Int'l REIT ? (no basis for this)
EM
EM Value
EM Small

Places where Vanguard has a leg up:

US Int'd Gov't Bonds (a tie)
US TIPS (a tie)
Short/Int'd Munis (assuming the admiral shares)
US Large (probably a dead heat)
Int'l Large (probably a deat heat)

Also, over an entire asset class cycle, I think the TM funds would be very helpful as well if we are talking taxable accounts.

Finally, despite no real live record, I would not ignore the Core/Vector portfolios as a convenient way to get small/value exposure with total market diversification.

hi

dagogo
Posts: 52
Joined: Sat Mar 17, 2007 7:53 pm

Post by dagogo » Mon Mar 26, 2007 3:40 pm

SmallHi wrote:
First, there really is no need for EAFE in a balanced portfolio -- you get more meaningful diversification with LV, Small, and SV Int'l stocks.
SmallHi, I've seen mention of this before....yet most sample portfolios have an EAFE component...why do you believe this?

-dagogo

User avatar
Random Musings
Posts: 5221
Joined: Thu Feb 22, 2007 4:24 pm
Location: Pennsylvania

Post by Random Musings » Mon Mar 26, 2007 3:42 pm

Currently, the only funds I would consider for diversification purposes if I had the opportunity to cherry pick:

- International Small Cap Value
- Emerging Market Small Cap
- International Real Estate
- the tax-managed value funds for my taxable accounts.

I'm not sure about the global fixed incomes - they hold some corporates and even some "no name provided" (not sure what that means) when you look on the DFA site.

RM

SmallHi
Posts: 1718
Joined: Wed Feb 21, 2007 6:11 pm

Post by SmallHi » Mon Mar 26, 2007 3:53 pm

dagogo--

of all the corners of the Int'l Market, Large Blend has the lowest expected returns and the highest expected correlation with the US Market.

Going back 3 decades, adding Int'l LV and Int'l Small resulted in higher returns and less volatility than the same % spent on EAFE (despite the fact that EAFE had less stand alone volatility than either Int'l LV or Int'l SC).

Actually, at 30% International, the lowest risk portfolio I could come up with had its entire Int'l allocation devoted to Int'l SV. Thats right! adding Int'l Small, Int'l Large Value, or especially Int'l Large (and taking away from Int'l Small Value) actually increased risk and decreased returns!

Int'l SV probably offers the best combination of high expected returns with reasonable risk and high diversification benefits of any asset class available.

hi

SmallHi
Posts: 1718
Joined: Wed Feb 21, 2007 6:11 pm

Post by SmallHi » Mon Mar 26, 2007 3:59 pm

I myself think DFGBX is a gem.

If you look at its inception to date returns through the eyes of how much TERM and DEFAULT risk it has been exposed to, (only about 2 years TERM on average, and almost NO default risk whatsoever) it has had an extremely high alpha (over 1% annually). That is very, very tough for a bond fund to do, as the 2 factor bond model is pretty tough on bond funds. (except junk)

For example, even though their Int'd Gov't fund has compounded at almost 7.5% annually since inception net of fees, according to the model, its alpha is 3X less than 5 Year Global! All this means is when shorter bonds shine again, 5 Year global will probably be far superior to Int'd bonds its compared to today, and still be far ahead of ST funds it should be compared to.

dagogo
Posts: 52
Joined: Sat Mar 17, 2007 7:53 pm

Post by dagogo » Mon Mar 26, 2007 4:04 pm

Interesting SmallHi.

Wagnerjb,

Here is a link to a DFA advisor who's thinking seems to be similar to SmallHi's (does not recommend EAFE [in this case anyway]).

http://www.hoganfinancial.com/Quarterly ... er0301.pdf

However, in the sample portfolio, she does not include INTL small value, only Int LV and Int SC.

-dagogo

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Mon Mar 26, 2007 4:08 pm

Hi,

Of course, all the same could be said of US stocks as well--if you want to maximize your volatility-adjusted returns, you should go 100% into SV (and, if necessary, adjust your volatility with your risk-free asset of choice). However, I would note that volatility is an incomplete measure of real investor risk (and arguably not even particularly good at what it does measure).

So, on the US side, I always think that before overweighting SV one must have a satisfactory answer to the question of what makes you different from the average US investor when it comes to your risk tolerances. I think in some sense the same question should be asked internationally as well, although in that case the answer may be a bit more obvious.

For example, as I believe we have discussed before, the value equity premium may simply be the product of the correlation between an investor's human capital risk and the operational risk associated with value companies. But it stands to reason that this correlation will be lower if you are a US investor working in the US and you are looking at value stocks in other countries.

So, I actually agree it may be fine to go entirely with V or SV internationally, but I do think one needs to look beyond just volatility as a measure of risk.

SmallHi
Posts: 1718
Joined: Wed Feb 21, 2007 6:11 pm

Post by SmallHi » Mon Mar 26, 2007 4:15 pm

Brian -- an important difference between what you are saying and what I said.

You said volatility adjusted returns. I said just plain lower risk! Adding a hunk of US SV to TSM may very well increase your risk adjusted returns -- but it almost always at least increases risk! Int'l SV, on the other hand, has actually lowered portfolio risk at every reasonable % allocation due to very low US Market correlations.

I just thought that was interesting, not saying in anyway someone should be all SV for their Int'l allocation. I was saying, however, they should be 0% EAFE.

FYI--the Hogan example excludes ISV because its data series only extends back to 1981, whereas ILV goes back to 1975 and ISC goes back as far as EAFE --1970.

User avatar
Black Knights
Posts: 117
Joined: Wed Feb 28, 2007 10:46 am
Location: Colorado

Post by Black Knights » Mon Mar 26, 2007 4:16 pm

DFA's position on using just Internationa Large Value and NOT EAFE to cover international large equity goes back to a 1996 paper by Rex Sinquefield. Here's a summary from Investor Home:
In an award winning article titled "Where Are the Gains from International Diversification?" (January-February 1996 issue of the Financial Analysts Journal) Rex Sinquefield questioned the arguments that diversified international portfolios and EAFE in particular (1) substantially diversify a U.S. portfolio and (2) have higher expected returns than the U.S. equity market. Based on empirical evidence (from Fama, French, Sharpe and others) from 1970-94, Sinquefield argues that two risk factors (value and size) explain differences in returns in both the U.S. and foreign market. Further he argues that international value and international small stocks diversify U.S. portfolios more than EAFE. Sinquefield therefore concludes that "a sensible reason to diversify internationally is to 'load up' on value stocks and small stocks without concentrating in one geographic region."
I'd be interested in any more recent validation or dispute of this position.
Jed

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Mon Mar 26, 2007 4:19 pm

Hi,

I'm not following you. I used "volatility-adjusted" rather than "risk-adjusted" just to emphasize that as far as I could tell, you were only looking at one measure of risk, namely volatility.

But are you saying that you did in fact use a different measure of risk than volatility?

Edit:

OK, I think I get it--you are saying it lowers the risk of your equity portfolio in absolute terms. But to me that is pretty much a meaningless goal, since via the Tobin Separation Theorem the only real goal when it comes to your risky assets is to maximize your risk-adjusted return, and then you can use a risk-free asset to moderate your risk as you see fit.

User avatar
Vegomatic
Posts: 221
Joined: Tue Feb 27, 2007 11:16 pm

My Fifty Cents

Post by Vegomatic » Mon Mar 26, 2007 4:47 pm

My Fifty Cents

Cheaper is always better than NOT, but ...

Believe that you're aware that a 0.50% Advisor Fee (paid to DFA Advisor or anyone, for that matter) is NOT equivalent to an increase in the expense ratio of a mutual fund by 0.50%; say from 0.30% to 0.80%.

As I've posted on the "other" board, since you're taxed on the NET return of your mutual fund, as opposed to the GROSS, when you invest in a mutual fund, you pay the expense ratio with dollars of pre-tax returns.

When you pay an advisor a fee (unless you can deduct the fee on your tax return), you are paying the fee with AFTER TAX money.

So... a 0.50% Advisor Fee is therefore similar to investing in a mutual fund with an expense ratio that is 0.75% HIGHER than it otherwise would be. For example, IF mutual fund had a 0.30% ER, then equivalent Mutual Fund ER could be more like 1.05% [=0.30% + 0.75%].

Make sense?

SmallHi
Posts: 1718
Joined: Wed Feb 21, 2007 6:11 pm

Post by SmallHi » Mon Mar 26, 2007 5:31 pm

Brian--

Try this...Since 81, an all TSM portfolio compounded at 12.6% with a SD of 16.7. Add 50% SV to TSM, and risk increases (SD of 17.2), but so does return (15.9%). Adding US SV increases risk adjusted returns (by increasing returns by MORE than risk).

If you add 30% Int'l SV to 35% TSM, 35% US SV, you decrease risk (SD of 16.0), while still increasing returns (to 17% annually)

So, adding ISV actually lowers risk, thereby really increasing risk adjusted returns!

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Mon Mar 26, 2007 5:49 pm

Hi,

Again, I don't see why any of this matters. As per the Tobin Separation Theorem, all that really matters with your risky assets is increasing the risk-adjusted return, because you can control risk by adding a risk-free asset.

So, for example, in the first case you could take your 50% TSM and 50% SV portfolio and start adding TBills until you got a SD under 16.7. And in doing so, you would keep your return above 15.9%. Voila--you would get a portfolio with lower risk and higher returns than a 100% TSM portfolio, just like you did using ISV.

And if you take this point to its logical extreme, it will turn out that a 100% SV US portfolio is optimal (once you have adjusted back to your desired volatility with TBills). So, the exact same argument for not holding ILB applies to US LB--it is simply hurting your risk-adjusted returns.

If this concept is not familiar to you, I really urge you to read up on the Tobin Separation Theorem. And as far as I am concerned, it is a perfectly valid theorem in a world where the only risk is volatility (when you add different risks, however, it is no longer valid).

larryswedroe
Posts: 15711
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Post by larryswedroe » Mon Mar 26, 2007 5:50 pm

Keep in mind that loading factors are not only explanatory factors in returns. If they were then DFA funds would not have been able to add value, outperforming their own benchmarks. DFA has been adding signficant value via screens and block trading. That cannot be capture by having higher allocation to the small and value funds of Vanguard.

And the new core funds add further value by reducing transactions costs and improving tax efficiency

SmallHi
Posts: 1718
Joined: Wed Feb 21, 2007 6:11 pm

Post by SmallHi » Mon Mar 26, 2007 9:13 pm

Brian,

I am up on James Tobin's work. From the asset allocation blog:
In essence, the Theorem postulates that an investor can control the risk of a basket of risky investments by either borrowing at the risk free rate and leveraging the portfolio (and its risk), or alternately, lending at the risk free rate and tempering risk. Since most investors are risk averse, the clear preference of most investors is to combine the risky basket of securities with risk free bonds, and thereby lower the downside risk of the portfolio.
I guess where we are missing eachother is, you are saying:

you are not impressed with the returns of the 50/50 TSM/SV portfolio, because, theoretically, you could simply borrow at the risk free rate to buy more of your portfolio and achieve the same results (agreeing that borrowing would increase risk, but also risk adjusted returns)

you are also saying you are not impressed with the risk of my 35/35/30 example because you could simply loan out part of your portfolio at the risk free rate and lower your portfolio's volatility to the same level.

My point was, when borrowing/loaning at the risk free rate, you must decide between higher returns/risk or lower returns/risk. What my example showed was higher returns AND lower risk than the control portfolio that was 100% US Stocks. There is no way to achieve the risk/return quotient of my 35/35/30 portfolio with any combo of US stocks alone and the risk free rate.

I dunno, I may just not be reading you well enough...

larryswedroe
Posts: 15711
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Post by larryswedroe » Mon Mar 26, 2007 10:07 pm

another problem btw of course is that only the govt can borrow at the risk free rate

yobria
Posts: 5978
Joined: Mon Feb 19, 2007 11:58 pm
Location: SF CA USA

Post by yobria » Mon Mar 26, 2007 10:35 pm

Andy,

I wouldn't bother paying an extra .5% for DFA access. I posted a thread on the other board recently showing how DFA funds had underperformed their ETF equivalents in many stock asset classes so far.

The more new money DFA accepts, the harder it's going to be for them to keep up the niche class (eg EM value) performance. And one thing's for sure- DFA has been flooded with cash over the past couple of years.

My guess is in the near future most of the remaining DFA niche classes will have (tax friendly) ETFs. I'd probably own a couple of funds in an IRA if I could buy them with no additional fees. Otherwise no.

Nick

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Mon Mar 26, 2007 10:42 pm

Hi,

First, to get on the same page with the theory: the Tobin Separation Theorem is a "[r]esult in modern portfolio theory, that the problem of finding an optimal portfolio for a given level of risk tolerance can be separated into two easier problems: first finding an optimal mix of market securities that doesn't vary with risk tolerance, and then combining it with an appropriate amount of cash."

http://www.moneychimp.com/glossary/tobi ... heorem.htm

In application, what you do is first find the mix of risky assets with the highest risk-adjusted return, and then combine that mix with cash (or leverage, which is somewhat trickier for the reason Larry notes, although deductible home equity loans often allow individuals to come close to borrowing at the risk-free rate).

So, it doesn't matter if the mix with the highest volatility-adjusted return happens to have relatively high volatility. As long as it in fact is the mix with the highest volatility-adjusted return, you can construct a portfolio with that mix and cash that has the highest possible returns at any given volatility level.

OK, now I wasn't saying that your portfolio adding ISV did not improve the volatility-adjusted return of your mix. My point was that increasing the volatility-adjusted return is the only thing that matters, regardless of what that does to gross volatility, if volatility is your only risk factor.

That is relevant because my point is that your argument against holding no ILB applies equally well to US LB. To make this clear, you need to start first with a 100% SV portfolio (US SV only or a mix of US SV and ISV, it doesn't matter for the purposes of this conversation). Adding any US LB to this portfolio will (according to historic data) lower the volatility-adjusted return of the portfolio. Hence, if volatility is your only risk factor, you shouldn't hold any US LB at all.

Now, as far as I can tell, your attempt to distinguish your argument against holding ILB from my parallel argument against holding US LB is that unlike by adding ILB, adding US LB might lower your portfolio's volatility. But again, if US LB also lowers your portfolio's volatility-adjusted return, you shouldn't seek to lower volatility with US LB. Rather, you should seek to lower volatility with cash (AKA TBills).

I hope that is now clear. The basic point is that if volatility is your only concern, you should only hold SV (maybe both US and ISV), and no LB at all (neither US nor ILB). And that was my point--that your argument was not in fact limited to ILB, but applied equally well to US LB once you understand the Tobin Separation Theorem.

Edit: And just to emphasize something one more time, I wasn't taking a position on whether you should only hold US SV, or only ISV, or both. I was just saying that using your logic, you shouldn't hold US LB.
Last edited by BrianTH on Mon Mar 26, 2007 11:01 pm, edited 1 time in total.

Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Post by Wagnerjb » Mon Mar 26, 2007 10:48 pm

BrianTH wrote:Andy,

If that is more or less correct, then it shouldn't matter much how you get to any particular overall factor loading for your portfolio. In other words, suppose 75% of Fund X and 25% of Fund Y got you the same weighted average market cap and P/B as 50% of Fund X and 50% of Fund Z. As I understand it, these portfolio (75X/25Y and 50X/50Z) should have about the same expected return. And that is what I am suggesting you might be able to do with Vanguard funds: if, for example, Fund X was SP500 (or your custom portfolio), Fund Y was DFA SV, and Fund Z was Vanguard SV, and 50X/50Z was cheaper to hold than 75X/25Y, then you could go ahead with 50X/50Z.
Sorry to post and leave you guys to debate my issue alone, but I just flew back from Virginia to Houston this afternoon.

Brian - I see several concerns with your suggestion.

1) The "linearity" may not be true. Over the past 5 years, EAFE has returned 14.98% and EAFE value has returned 17.65%. With DFA Int'l value returning 22.3% over this period, I don't see any combination of the two EAFE funds that will produce the same return as DFA + EAFE (since DFA + EAFE in 50/50 proportions is 18.6% which is more than 100% EAFE value gets you!). I don't have any other data on this...I was looking at int'l value and noticed this, but I am sure Larry or others can provide more evidence in other areas.

2) It is inefficient and expensive. Using domestic stocks as an example, say I hold 70% LC blend (at zero ER with indiv. stocks or very low ER for Admiral) and 30% DFA LC value. You might be able to get the same factor loadings, but you need to hold 70% value at an ER of 0.21%. You need to hold more of the higher-ER funds than I do. Of course, the added costs for you do not outweigh my higher advisor fee, but it does reduce the cost advantage you have over DFA.

3) It is tax inefficient. If I can hold LC blend in taxable and only hold say 30% value (in tax deferred), you need to use up more of your tax deferred space to hold the higher percentage of value. If we are both doing this in taxable, you suffer a higher tax drag due to dividends and capital gains.

Even if the factor effects are almost linear, issues #2 and #3 make the decision a little closer.

Best wishes.
Andy

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Mon Mar 26, 2007 10:55 pm

Andy,

Right, I was just saying you need to run all those numbers. In fact, I already raised a version of your point #1 ("Of course, at some point you run out of your ability to use this strategy (eg, it might be impossible to duplicate 25X/75Y with any combination of just X and Z if 25X/75Y actually had a lower weighted average market cap and/or P/B than 100% Z)."). As I also noted, however, a mix of all three funds might be most efficient. ("Still, then you might be better off using all three funds, only adding enough of Y to make up the difference."). Of course, all this is assuming you are just going to blend your V or SV back with LB or TSM.

As for your points #2 and #3, again I agree those are important factors, and all I was saying is you needed to run the numbers and figure out which approach costs less.

Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Re: My Fifty Cents

Post by Wagnerjb » Mon Mar 26, 2007 11:00 pm

Vegomatic wrote:My Fifty Cents

Cheaper is always better than NOT, but ...

Believe that you're aware that a 0.50% Advisor Fee (paid to DFA Advisor or anyone, for that matter) is NOT equivalent to an increase in the expense ratio of a mutual fund by 0.50%; say from 0.30% to 0.80%.

As I've posted on the "other" board, since you're taxed on the NET return of your mutual fund, as opposed to the GROSS, when you invest in a mutual fund, you pay the expense ratio with dollars of pre-tax returns.

When you pay an advisor a fee (unless you can deduct the fee on your tax return), you are paying the fee with AFTER TAX money.

So... a 0.50% Advisor Fee is therefore similar to investing in a mutual fund with an expense ratio that is 0.75% HIGHER than it otherwise would be. For example, IF mutual fund had a 0.30% ER, then equivalent Mutual Fund ER could be more like 1.05% [=0.30% + 0.75%].

Make sense?
I think your comments make sense in a taxable account. However, I am not going to consider DFA for my taxable account. I will use DFA in my IRA only, so I think the DFA fee will be a pre-tax cost. The fee will lower the balance in my IRA and I will lower the withdrawals in retirement.

Best wishes.
Andy

Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Post by Wagnerjb » Mon Mar 26, 2007 11:08 pm

yobria wrote:Andy,

I wouldn't bother paying an extra .5% for DFA access. I posted a thread on the other board recently showing how DFA funds had underperformed their ETF equivalents in many stock asset classes so far.

The more new money DFA accepts, the harder it's going to be for them to keep up the niche class (eg EM value) performance. And one thing's for sure- DFA has been flooded with cash over the past couple of years.

My guess is in the near future most of the remaining DFA niche classes will have (tax friendly) ETFs. I'd probably own a couple of funds in an IRA if I could buy them with no additional fees. Otherwise no.

Nick
Nick - I will review your posting tomorrow. But you are referring to head-to-head competition, while I am primarily looking at the niche asset classes that are not available at Vanguard or in any other passive low cost form. If I just stick to the asset classes that I cannot get at Vanguard, why isn't it worth a little extra? If I can add a high returning asset class, I might be willing to pay over 1% in ER.

Best wishes.
Andy

SmallHi
Posts: 1718
Joined: Wed Feb 21, 2007 6:11 pm

Post by SmallHi » Tue Mar 27, 2007 12:01 am

brian, we are on the same page. I did not mention, US LB has the benefit of lowering portfolio tracking error to the widely recognized "market", which hasn't been a big deal lately, but certainly is from time to time. (a risk outside of SD)

It matters so much in DFAs eyes, they came out with a whole suite of small/value tilted total market funds that achieve a certain degree of factor exposure with the least amount of tracking error possible.
____________________________________________________________

DFA has taken on a lot of cash in the last few years, but they have a ton of asset class and Core (where much of the new $ is going) portfolios that own thousands and thousands of stocks where this $ is going. Its no where near the issue that a Dodge and Cox or Longleaf Partners(lets say) runs into with 50 stock portfolios. They could probably be 10X the size and not skip a beat (except maybe their Micro Cap or SV portfolios). Worse comes to worse, they just stop excepting new advisors or new clients in general.

As for the substitution of ETFs for DFA funds (based on a combo of 1-2 years of live data and a bunch of simulated #s)...everyone is gonna fall differently here. Ultimately, you will have to ask yourself how much you'd kick yourself if:

a) DFA continues to outperform ever other reasonable option out there and you didn't plunk down the 0.5% extra for what you probably knew you should have, OR

b) they don't provide the same level of outperformance (or even underperform), and you are out the 0.5% + possibly some underperformance

Ultimately, DFA does and should continue to do a find job of capturing asset class returns, and advisors like Larry do a good job of setting up strategies that work for investors -- I am sure your advisor would do the same. I don't see 0.5% being a real deal breaker for the ability to capture asset class returns all around the globe. You may be able to find a way to do so w/o DFA, but you'd have to have some pretty strong convictions about simulated histories and be able to put a lot of faith in a year or two or real results.

SmallHi
Posts: 1718
Joined: Wed Feb 21, 2007 6:11 pm

Post by SmallHi » Tue Mar 27, 2007 12:15 am

The other thing that gets lost in this discussion is ones ability to even hold these funds for a whole market cycle (obviously some are ready to bail at the first sign of a better option)

Lets face it, there is a reason no one has come out with an EM small or Value fund, or an International Small Value fund...they probably doubt ones ability to even hold the thing the first time things get rough.

Imagine this:

You put money in a LV fund that winds up in the top 1% of its category over the last 12 years...yet you had to sit through 6 straight years of underperforming the Index benchmark (1994-1999)

You put money into an EM Value fund at its inception based on some flashy analysis by Fama and French, only to find out 6 months later you don't even have 60 cents left on the dollar! And, just as you are finally earning that money back 2 years later, your portfolio proceeds to decline again for 21 months, and you lose a total of 48% (1998; 2000-2001)

You put money into an Int'l SV fund, and it takes you 7 years to break even! (1995-2001)

Yeah, the long term returns look great, but there is a great deal of discipline required to get these returns. You might find the periodic council of your advisor helpful from time to time I'm guessing. We all think we are disciplined...until we aren't.

hi

Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Post by Wagnerjb » Tue Mar 27, 2007 7:58 am

yobria wrote:Andy,

I wouldn't bother paying an extra .5% for DFA access. I posted a thread on the other board recently showing how DFA funds had underperformed their ETF equivalents in many stock asset classes so far.

The more new money DFA accepts, the harder it's going to be for them to keep up the niche class (eg EM value) performance. And one thing's for sure- DFA has been flooded with cash over the past couple of years.

My guess is in the near future most of the remaining DFA niche classes will have (tax friendly) ETFs. I'd probably own a couple of funds in an IRA if I could buy them with no additional fees. Otherwise no.

Nick
Nick: I just glanced at the thread at the M* site, but I couldn't find any statistics - just your comments that you did the analysis. I can't speak for the other asset classes, but I certainly did see a significant benefit in DFIVX vs. EFV. I am a little confused, because you say you compared these two and found no outperformance.

EFV only has one full year (2006), and DFIVX hammered EFV by almost 4% in 2006. Go to the i-shares website and the page for EFV will show a 5 year history for the EAFE value index (benchmark for EFV). DFIVX has also hammered this EAFE value benchmark over the past five years.

As I mentioned in the original post, I am not convinced DFA does the Large Blends or fixed income much better, but I am open minded about value and size. And it certainly appears they have done Int'l value very well recently.

Do you see Int'l value differently?

Best wishes.
Andy

User avatar
alvinsch
Posts: 1608
Joined: Mon Feb 19, 2007 10:16 pm
Location: Northwest

DFIVX vs EFV

Post by alvinsch » Tue Mar 27, 2007 10:27 am

While I don't believe the market is always efficient, I do like to consider these decisions in light of a theoritically efficient market. If the market were perfectly efficient and all size and value premiums were completely due to additional risk, then wouldn't you be losing 0.54% in DFIVX on a risk adjusted basis (DFIVX load = 0.5) + (DFIVX ER = .44) - (EFV ER = .40) = 0.54%.

Isn't the flipside of this that you believe the higher small loading factor of DFIVX must represent at least 0.54% of a free lunch? According to M* DFIVX has a $21.8B median market cap versus $41B of EFV.

Also wouldn't the wider market cap gap between an intl SV and EFV result in less correlation than between an intl SV and DFIVX if you were going to split out intl SV?

Also would it matter to you (either positively or negatively), that DFIVX is a bit more concentrated in just Europe and farther from the global index weightings?

Code: Select all

DFIVX  EFV   Region
74.5% 67.1%  Europe
14.6% 24.4%  Japan
 7.5%  8.6%  Asia, ex-Japan
Just some random thoughts.
- Al

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Tue Mar 27, 2007 10:37 am

Al,

As always, though, you can assume the cross-section of stock returns is a risk story, but also conclude you have a higher tolerance for the relevant risks than the weighted average investor in those stocks. That can make investing in riskier stocks worthwhile for you as an individual without that meaning there is any "free lunch" to be had.

And as I noted before, it is quite plausible that an investor who works and lives in one country has a higher tolerance for the risks associated with SV stocks in a second country than investors who work and live in that second country.

User avatar
Vegomatic
Posts: 221
Joined: Tue Feb 27, 2007 11:16 pm

Post by Vegomatic » Tue Mar 27, 2007 11:15 am

Andy/Wagnerjb wrote:
I think your comments make sense in a taxable account. However, I am not going to consider DFA for my taxable account. I will use DFA in my IRA only, so I think the DFA fee will be a pre-tax cost. The fee will lower the balance in my IRA and I will lower the withdrawals in retirement.
Qns -

How exactly does the fee get deducted from your retirement account?

(Before I noted that if you are presented with, and then pay a bill, and don't itemize and deduct the fee, then believe you are paying with after tax money, so - 0.50% advisory fee is more like a mutual fund ER of 0.75%.)

User avatar
alvinsch
Posts: 1608
Joined: Mon Feb 19, 2007 10:16 pm
Location: Northwest

Post by alvinsch » Tue Mar 27, 2007 11:20 am

BrianTH wrote:Al,

As always, though, you can assume the cross-section of stock returns is a risk story, but also conclude you have a higher tolerance for the relevant risks than the weighted average investor in those stocks. That can make investing in riskier stocks worthwhile for you as an individual without that meaning there is any "free lunch" to be had.

And as I noted before, it is quite plausible that an investor who works and lives in one country has a higher tolerance for the risks associated with SV stocks in a second country than investors who work and live in that second country.
Right but in this case one would be taking a greater small risk with DFIVX so assuming one wants that level of small risk, isn't it better to take is as a mix of LV and SV rather than a single holding like DFIVX that tends toward midcap?

- Al

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Tue Mar 27, 2007 12:04 pm

Al,

On my assumption than the size and value premia are linear, it doesn't actually matter how you structure your funds as long as the overall factor-loading ends up the same. But my assumption may or may not be accurate, so take it with a grain of salt.

Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Post by Wagnerjb » Tue Mar 27, 2007 12:07 pm

While it is interesting to evaluate whether the Large Value outperformance of DFA is a risk story, to me the "low hanging fruit" are the asset classes that Vanguard doesn't offer.

I can either use 100% Vanguard EM or I can split my EM among Vanguard, EM small and EM value:

Vanguard EM has returned 25.5% over 5 years and 9.21% over 10 years. DFA EM Small has returned 30.9% over 5 years and 18.4% over 10 years. DFA EM value has returned 34.3% over 5 years and 18.9% over 10 years.

This should be a no-brainer. Will EM Small and EM Value continue to have massive outperformance vs. EM Large Blend? Maybe not. Will the outperformance cover the additional 0.5% fee? I think that is a good bet. I agree with SmallHi that discipline is necessary in these asset classes, but I have been in international since the early 1980's and the underperformance (vs. domestics) in the 1990's did not knock me from my AA.

I noted that I couldn't justify DFA for Large Blend in domestic and EAFE, and I see the same in EM. Vanguard EM returned 25.5% over 5 years and 9.21% over 10 years, while DFA EM returned 25.9% and 10.2% respectively.

So at this point I am of the mind that Large Blend does not pay, and the "missing asset classes" DO pay. I view the missing asset classes as offering the ability to take more risk and get a higher return. Just like being able to add stocks to bonds....I would certainly pay 1% to be able to invest in stocks (if I had no other way) since I can handle the risks. Whether value and small are better than Vanguard or ETF's is an interesting issue, but I really only have room for the "missing asset classes" so I can watch from the sidelines on that aspect of the debate.

Best wishes.
Andy

User avatar
alvinsch
Posts: 1608
Joined: Mon Feb 19, 2007 10:16 pm
Location: Northwest

Post by alvinsch » Tue Mar 27, 2007 12:13 pm

BrianTH wrote:Al,

On my assumption than the size and value premia are linear, it doesn't actually matter how you structure your funds as long as the overall factor-loading ends up the same. But my assumption may or may not be accurate, so take it with a grain of salt.
So you are saying that it doesn't matter if one uses say TSM or slices and dices with a LB and a SB fund with the same weightings in a nontaxable account?

To me that is akin to saying there is no rebalancing bonus, there is no momentum or RTM and the markets are near perfectly efficient. Do you believe all or any of those or do you disagree with my premise?

Regards,
- Al

BrianTH
Posts: 1340
Joined: Tue Feb 20, 2007 6:10 pm

Post by BrianTH » Tue Mar 27, 2007 1:11 pm

Andy,

Again, your logic on the international classes Vanguard simply does not offer (and, incidentally, for which there are not great ETFs) seems straightforward to me. I might even suggest you go farther and dump EM Blend if at all possible. I have a strong suspicion that EM has becoming a playing ground for risk-seeking investors (AKA gamblers), and I personally would want to be value-only in EM.

Al,

Yep, I pretty much think there is no significant rebalancing bonus available when using subclasses of a single country's common stocks (with the possible exception of REITs, which I do not view as part of the same asset class as common stocks). I am even somewhat skeptical about rebalancing bonuses between different country's common stocks, but I do think fixed allocations by country/region/level-of-development can make sense simply for risk management purposes.

Wagnerjb
Posts: 7203
Joined: Mon Feb 19, 2007 8:44 pm
Location: Houston, Texas

Post by Wagnerjb » Tue Mar 27, 2007 10:56 pm

SmallHi wrote:Wagner,

It may help if you posted your target asset allocation, current holdings, and what money is up for DFA (and in what accounts). Some of your thoughts are accurate, others, in my opinion, are a bit off base.

hi
Here is a very high level view of my portfolio. I have excluded amounts in college funds, restricted stock in my employer and employer stock options. Funds are Vanguard unless otherwise noted.

401k:
US Small Value 9%
Total International 18%
Total Bond Mkt. 6%
TIPs 14%

IRAs:
ST Bond fund 5%
TIPs 5%
REIT 4%
ILV (EFV) 4%

Deferred Comp Plan:
VINEX 5%

Taxable:
Large Cap Indiv. stocks 20%
Mid Cap Indiv. stocks 5%
Long Term TE bond fund 5% (untouchable fund for handicapped relative)


Overall, I have the following allocations:
a) 65% stocks vs. 35% bonds
b) 60% domestic vs. 40% int'l
c) 50/50 fixed income between regular and TIPs
d) Slight Small tilt in US, less in Int'l
e) Value tilt in US Small and Int'l Large

This is a little more conservative than my desired AA. However, when the restricted stock and options are added in, I get over my AA in equities. I don't know the right answer, but this feels appropriate.

What I am "playing with" is the 4% in EFV. I can also shift REIT into deferred comp and use DFA in my IRA to replace the VINEX exposure. So I have a max of around 9% that I am willing to work with.

One possibility would be to replace the 9% with:
4% ILV
3% ISV
1% EM Small
1% EM Value

This would broaden my small and value tilt in Int'l Large, and give me a small and value tilt in EM - without changing the international AA at all.

Best wishes.
Andy

chaz
Posts: 13601
Joined: Tue Feb 27, 2007 2:44 pm

Post by chaz » Wed Mar 28, 2007 3:05 pm

WagnerJB, why doesn't your mother eliminate the fee advisor and just use Vanguard target retirement funds?
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

letsgobobby
Posts: 11647
Joined: Fri Sep 18, 2009 1:10 am

Re: The best of both Vanguard and DFA

Post by letsgobobby » Tue Jun 18, 2013 11:56 pm

Bumping this because Utah UESP 529 now offers DFIVX DFA international value at 45 basis points, no advisor needed. Is this considered a better, ie more efficient, way to gain exposure to international value than VTRIX (available in other 529 plans)?

caklim00
Posts: 1727
Joined: Mon May 26, 2008 10:09 am

Re: The best of both Vanguard and DFA

Post by caklim00 » Wed Jun 19, 2013 2:32 pm

letsgobobby wrote:Bumping this because Utah UESP 529 now offers DFIVX DFA international value at 45 basis points, no advisor needed. Is this considered a better, ie more efficient, way to gain exposure to international value than VTRIX (available in other 529 plans)?
Where are you seeing this? I just see the following options:

•Vanguard Total Stock Market Index Fund
•Vanguard Institutional Index Fund
•Vanguard Mid-Cap Index Fund
•Vanguard Small-Cap Index Fund
•Vanguard Total International Stock Index Fund
•Vanguard Developed Markets Index Fund
•Vanguard Total Bond Market Index Fund
•Vanguard Short-Term Investment Grade Fund
•FDIC-Insured Savings Account

Iorek
Posts: 961
Joined: Fri Mar 08, 2013 9:38 am

Re: The best of both Vanguard and DFA

Post by Iorek » Wed Jun 19, 2013 2:41 pm

caklim00 wrote:
letsgobobby wrote:Bumping this because Utah UESP 529 now offers DFIVX DFA international value at 45 basis points, no advisor needed. Is this considered a better, ie more efficient, way to gain exposure to international value than VTRIX (available in other 529 plans)?
Where are you seeing this? I just see the following options:

•Vanguard Total Stock Market Index Fund
•Vanguard Institutional Index Fund
•Vanguard Mid-Cap Index Fund
•Vanguard Small-Cap Index Fund
•Vanguard Total International Stock Index Fund
•Vanguard Developed Markets Index Fund
•Vanguard Total Bond Market Index Fund
•Vanguard Short-Term Investment Grade Fund
•FDIC-Insured Savings Account
They recently emailed current owners with news of lower fees and new investment options, including several DFA funds.

caklim00
Posts: 1727
Joined: Mon May 26, 2008 10:09 am

Re: The best of both Vanguard and DFA

Post by caklim00 » Wed Jun 19, 2013 2:46 pm

Iorek wrote:
caklim00 wrote:
letsgobobby wrote:Bumping this because Utah UESP 529 now offers DFIVX DFA international value at 45 basis points, no advisor needed. Is this considered a better, ie more efficient, way to gain exposure to international value than VTRIX (available in other 529 plans)?
Where are you seeing this? I just see the following options:

•Vanguard Total Stock Market Index Fund
•Vanguard Institutional Index Fund
•Vanguard Mid-Cap Index Fund
•Vanguard Small-Cap Index Fund
•Vanguard Total International Stock Index Fund
•Vanguard Developed Markets Index Fund
•Vanguard Total Bond Market Index Fund
•Vanguard Short-Term Investment Grade Fund
•FDIC-Insured Savings Account
They recently emailed current owners with news of lower fees and new investment options, including several DFA funds.
I'd love to see what those options are. I'm currently sitting in All Equity with WVa, which consists of a combination of US Core 2, Intl Core, and EM Core. With undelying mutual fund fees and administration fees it comes to .78%. If they are offering Core/Vector that might be a good reason for me to jump ship.

Chart Option
Name Program
Manager
Fee Investment
Management
Related Expense1 State
(WV) Fee Total Annual
Asset-Based
Fees
All-Equity 0.42% 0.31% 0.05% 0.78%

letsgobobby
Posts: 11647
Joined: Fri Sep 18, 2009 1:10 am

Re: The best of both Vanguard and DFA

Post by letsgobobby » Wed Jun 19, 2013 2:48 pm

here is the email, sorry about the formatting.

Several of UESP’s investment options will be reallocated, including changes to the underlying funds, and given new names to more accurately reflect their investment objectives. The name changes are shown in the table below. (The names of the customized investment options did not change.) See complete details in the June 21, 2013, UESP Program Description.

Fee Reductions

UESP Administrative Asset Fee

UESP will reduce its annual Administrative Asset Fee on all four age-based and five of the six static investment options by an average of 10 percent. The fee for two new static investment options will also fall within the reduced fee range. As always, this fee is waived for all accounts invested in the Public Treasurers’ Investment Fund owned by Utah residents. New Administrative Asset Fees are shown in the table below.

Asset-Based Fee

This fee, which includes UESP’s Administrative Asset Fee and each fund’s underlying expense ratio, will also be reduced for age-based and static investment options. New fees and fee ranges are shown in the table below.

Investment Option Name Administrative Asset Fee Asset Based Fee Range
New Previous New Previous New Previous
Age-Based Aggressive Global Age-Based Aggressive Growth 0.18% 0.20% 0.198%-0.223% 0.200%-0.250%
Age-Based Aggressive Domestic Age-Based Growth 0.18% 0.20% 0.198%-0.218% 0.200%-0.235%
Age-Based Moderate Age-Based Moderate 0.18% 0.20% 0.192%-0.223% 0.200%-0.257%
Age-Based Conservative Age-Based Conservative 0.18% 0.20% 0.180%-0.223% 0.200%-0.252%
Equity—100% Domestic Institutional Index Fund 0.18% 0.18% 0.200% 0.200%
Equity—30% International Equities—30% Developed International 0.18% 0.20% 0.212% 0.238%
Equity—10% International Equities—10% Total International 0.18% 0.20% 0.224% 0.244%
70% Equity/30% Fixed Income1 N/A 0.18% N/A 0.216% N/A
20% Equity/80% Fixed Income1 N/A 0.18% N/A 0.221% N/A
Fixed Income Total Bond Market Index Fund 0.14% 0.15% 0.194% 0.200%
Public Treasurers' Investment Fund
(Utah residents) Public Treasurers' Investment Fund
(Utah residents) 0.00% 0.00% 0.000% 0.000%
Public Treasurers' Investment Fund
(non-Utah residents) Public Treasurers' Investment Fund
(non-Utah residents) 0.16% 0.20% 0.160% 0.200%
FDIC-Insured Savings FDIC-Insured Savings 0.16% 0.18% 0.160% 0.180%
Overall Fee Range2 0.14%-0.18% 0.15%-0.20% 0.160%-0.224% 0.180%-0.257%

1New investment option. Details below. 2Does not include the UESP Administrative Asset Fee for accounts invested in the Public Treasurers’ Investment Fund owned by Utah residents, which is 0.00%.

New Funds in the Customized Investment Options

Twelve new underlying funds will give you added choices in creating a diversified portfolio to meet your needs.

Vanguard Funds

Six new Vanguard index funds in emerging markets, large-cap and small-cap value and growth, and short-term bonds will be incorporated into UESP’s customized investment options.

Dimensional Funds

Underlying investments within the customized investment options will expand to include six funds from Dimensional, a global asset-management firm offering unique investment strategies. The new funds provide exposure to the domestic and international equity and short-term fixed-income asset classes. Dimensional funds complement the customized investment options’ underlying investment portfolio of Vanguard funds and an FDIC-insured savings account.

Investments Offered in the Customized Investment Options
  • Underlying Investment Ticker
    Global Equity
    DFA Global Equity Portfolio DGEIX
    Vanguard Total International Stock Index Fund VTPSX
    Vanguard Developed Markets Index Fund2 VDMPX
    Vanguard Institutional Total Stock Market Index Fund VITPX
    DFA International Value Portfolio1 DFIVX
    Vanguard Institutional Index Fund VIIIX
    Vanguard International Growth Fund1, 3 VWILX
    Vanguard Value Index Fund VIVIX
    Vanguard Emerging Markets Stock Index Fund1 VEMRX
    DFA U.S. Large Cap Value Portfolio DFLVX
    Vanguard Growth Index Fund VIGIX
    Vanguard Total Bond Market Index Fund VBMPX
    Vanguard Mid-Cap Index Fund VMCPX
    Vanguard Short-Term Investment-Grade Fund VFSIX
    Vanguard Small-Cap Index Fund VSCPX
    Vanguard Short-Term Bond Index Fund VBIPX
    Vanguard Small-Cap Value Index Fund1 VSIIX
    DFA One-Year Fixed Income Portfolio DFIHX
    DFA U.S. Small-Cap Value Portfolio1 DFSVX
    Vanguard Small-Cap Growth Index Fund1 VSGIX
    FDIC-Insured Savings Account N/A
    DFA Real Estate Securities Portfolio1 DFREX


1An investment allocation to this fund may not exceed 25 percent in the account. 2UESP will convert to a lower-cost share class of this fund. 3Fund will reopen to investments in the customized investment options.

New Investment Options

Two new static investment options composed of Vanguard underlying funds will be introduced. Each balances domestic and international equity with fixed income—one more heavily weighted in equities (named the 70% Equity/30% Fixed Income investment option) and the other more heavily weighted in fixed income (named the 20% Equity/80% Fixed Income investment option).

Please note that none of these changes will count as your one permitted investment option change per year.

Thank you for saving for your future higher education expenses with UESP. If you have questions about these changes, please visit uesp.org, call toll-free at 800.418.2551, or e-mail info@uesp.org.

Sincerely,

caklim00
Posts: 1727
Joined: Mon May 26, 2008 10:09 am

Re: The best of both Vanguard and DFA

Post by caklim00 » Wed Jun 19, 2013 3:28 pm

Cool...

DGEIX looks very similar to the WVa all Equity Option. Maybe slighly less of a tilt since it has a little US Core 1 added and maybe slighly more Intl Exposure. Guess I need to look into how to do a rollover of a 529 plan :)

Too bad there is no EMV or ISV as I see they are actually going to offer DFSVX (US SCV).

It looks like DFIVX (Intl Value) and DFSVX (US SCV) have a 25% allocation limit on each. Guess a decent option could be
50% DGEIX
25% DFSVX
25% DFIVX

or just 100% DGEIX for equity.

Post Reply