"DFA to Offer Investment Strategies via Brokers"

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"DFA to Offer Investment Strategies via Brokers"

Post by baw703916 » Thu Jan 21, 2010 11:52 am

I happened to stumble across the following article:

http://www.investmentadvisor.com/News/2 ... okers.aspx
DFA hired John Blood, “to develop strategic relationships,” with independent B/Ds. Michael Lane, VP and head of DFA’s broker/dealer, bank trust and TAMP (third party asset management provider) programs, said in the January 6 announcement, “We are establishing selling agreements with select independent broker/dealers that will allow their fee-based advisors to provide clients with Dimensional strategies.”
(highlighting mine)

My understanding is that "fee-based" is a very different thing in the RIA world than "fee-only". The latter only receives compensation directly from the client, while the former can receive commissions as well, with the attendant possibility of conflicts of interest. I'm pretty sure that all advisory firms who have handled DFA funds up to now have been Fee-only.

Is this as big a change in DFA's marketing strategy as I think it is?

Brad
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Post by Raabe34 » Thu Jan 21, 2010 11:33 pm

I am not a fan of this at all and am quite surprised. They have added alot of assets recently and didn't think they would be trying to add so much to the network.

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Post by baw703916 » Thu Jan 21, 2010 11:57 pm

Here's another article that gives a little more info:

http://www.mutualfundwire.com/article.a ... cle&bhcp=1

They claim that they're "not moving away from what got us here" Hopefully that's true.

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Post by asset_chaos » Fri Jan 22, 2010 3:02 am

From a selfish point of view I hope they asset forage enough to create some ETFs. DFA through broker/dealers and bank trust departments might or might not be an improvement for the typical customer of such entities, but a DFA global small value ETF would be great for the do-it-yourself investor who wants global small-value factor exposure.
Regards, | | Guy

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Post by livesoft » Fri Jan 22, 2010 8:43 am

I love the word "fee-based" because despite any semblance of uniformity in what it means, it doesn't mean anything other than somebody charges a fee. So all forms of compensation are fee-based: commissions, under-the-table kickbacks, AUM fees, direct fees, 12b-1 fees, any and all fees.

Indeed, even Vanguard no-load, no-commission funds are fee-based as are American fund front-end load, 12b-1, salesrep-sold funds.

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Post by RaleighStClaire » Fri Jan 22, 2010 9:22 am

We need more info.

Can anyone in the DFA-know shed some light on this topic?
Where's that red one gonna go?

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Post by Rick Ferri » Fri Jan 22, 2010 9:46 am

Most independent BDs have wrap fee programs that cover ETFs and mutual funds that do not have 12b-1 fees. DFA is getting into that market.

What surprised me was the comment by a DFA representative is that the firm now has 1,700 advisors who are authorized to use their funds. That is a significant boost from a few years ago. I believe there was only about 1,000 in 2005. It is possible that with the addition of a BD program, the number of advisors/brokers with access could reach 3,000 over the next few years.

All in all, this should be a "so-what" move for fee-only advisors. Unless, of course, an advisor relies on exclusive access to DFA funds as their primary source of new clients. Those advisors have a real problem.

There are advantages and disadvantages to having BDs in DFA funds; neither has a significant advantage or disadvantage to advisor only clients. The advantage is that it helps DFA pay for the two beautiful new headquarters buildings in Austin. Another advantage is that a greater number of assets in each fund could reduce overall expenses. That said, one disadvantage is the BD money has historically been higher turnover money, and that could add more turnover in the funds, which makes them less tax efficient. Also, more money means less opportunities in the small cap value area.

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Post by eurowizard » Fri Jan 22, 2010 11:09 am

If DFA wasn't so exclusive then no one would want it. They can't open up an ETF.

Advisors getting money from clients for access to "exclusive" DFA funds don't want them opened up.

Once the end home user can buy something, they don't want it anymore. People want what they cant have. How many people screaming online about the upcoming Apple Tablet that hasnt even been announced yet - are actually going to buy one when it does come out?

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Post by the fixer » Fri Jan 22, 2010 11:29 am

Raleigh,

Here are the basics: regardless of the number of "advisors" with access to DFA, they still keep a pretty tight reign on things as far as asset flows are concerned. As a matter of fact, they are even more consistent and predictable than they were even a few years ago!

Consider this, in 2008, DFA took in a net $6.1B, split 60/40 domestic/foreign, and 65/35 stock bond. In 2009, that figure was $6.5B, with the idential regional stock as well as equity/fixed ratio.

Another view is to measure the turnover of the Core or Vector funds to see how consisently the process is being implimented. In '08, US Vector had 11% turnover, in 2009...11%. Last year, Int'l Vector only had 8% turnover. You couldn't ask for anything more, really.

Finally, DFA conducted an allocation study last year to guage the average tilts of some of their largest advisors. The results were almost identical to the findings from 2007 (0.25 SmB, 0.30 HmL).

If this changes, DFA will take action as they keep a close eye on advisor behavior.

What has changed is the "purity" of some of the advisors with access to DFA. But what that really means is there is more responsibility on the investor to find the right advisor for them, not just one with "DFA access". And, for those who have remained pure, the competition continues to weaken.

Rick is correct, those who operate firms simply to offer DFA funds will not like the move. For those who run real advisory businesses with a strict adherence to prudence, consistency, and a structured multifactor investment philosophy, its just noise.

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Post by the fixer » Fri Jan 22, 2010 11:42 am

eurowizard wrote:If DFA wasn't so exclusive then no one would want it. They can't open up an ETF.

Advisors getting money from clients for access to "exclusive" DFA funds don't want them opened up.

Once the end home user can buy something, they don't want it anymore. People want what they cant have. How many people screaming online about the upcoming Apple Tablet that hasnt even been announced yet - are actually going to buy one when it does come out?
That is your opinion, and one without much merit, IMO. If you wish to adopt a multifactor portfolio structure, there are many good options, but none are better than DFA, with or without B/Ds in the mix.

To the extent that a B/D member runs a legit practice focused on long term investing and rational ongoing advice, they are more beneficial than these "lowest common denominator" advisors who plug someone into one of 3 or 4 models and never speak with the client again.

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Post by Rick Ferri » Fri Jan 22, 2010 12:10 pm

I spent more than 10 years in the BD world, and it is all about the Alpha. What I can see happening is the BD world is the reps selling small and value premiums as Alpha rather than what they are, risk premiums. This will be DFAs biggest challenge in that space.

"Mr. Smith, just Look at DFA's returns. The Dow didn't come close to this! You're missing out if you don't get in on this exclusive offering. I have special training that allows me to use DFA funds. I went through this rigorous day-long training because you are a special client."

Rick Ferri

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Post by dbonnett » Fri Jan 22, 2010 7:09 pm

Rick: That type of selling will encourage a lot a short term holding. Is DFA going for growth at all costs? Pump it up and go public or be acquired for one big payday?

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Post by jeffyscott » Sat Jan 23, 2010 8:10 am

Rick Ferri wrote:...more money means less opportunities in the small cap value area.
There should initially be high returns as money pours in, followed by lower returns from afterward, right? ...or have we already seen the high returns?
Time is your friend; impulse is your enemy. - John C. Bogle

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Post by peter71 » Sat Jan 23, 2010 10:07 am

Rick Ferri wrote: What I can see happening is the BD world is the reps selling small and value premiums as Alpha rather than what they are, risk premiums. This will be DFAs biggest challenge in that space.
To me this is ultimately an empirical question. Fama and French published an article back in the day that suggested you can make alpha (i.e., the intercept term in an OLS regression equation) mostly go away by adding in the SmB and HmL terms (and also provided a theory at least partly about risk -- also partly about "taste" for why the two extra terms mattered) but often when people post regression results on here for some Small Value fund the Alpha term is pretty substantial and the coefficients for SmB and HmL are surprising . . .

All best,
Pete

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Post by Rick Ferri » Sat Jan 23, 2010 10:10 am

dbonnett wrote:Rick: That type of selling will encourage a lot a short term holding. Is DFA going for growth at all costs? Pump it up and go public or be acquired for one big payday?
The way any investment management firm grows revenue is by expanding assets under management. There is fertile ground in the BD space. Thousands of brokers would like access to DFA funds because they are losing clients to fee-only investment advisors (RIAs) who do have access. As more RIAs offer DFA funds, more money moves out of the BDs.

Also, for clients that stay with BDs, ETFs firms are making a huge push into BDs. Those assets are not moving to RIAs. Accordingly, it only makes good business sense for DFA to compete head-on-head with ETFs in the BD space.

DFA is a privately held company with several shareholders who may be wondering about an exit strategy. The plan could be to sell, but I really have no idea.

Perhaps the next move will be DFA ETFs? DFA does have indexes now, and they could easily license those indexes to an ETF company such as InvestoPowershares. That would be big. This is pure speculation on my part. I have no information.

Rick Ferri

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Post by richard » Sat Jan 23, 2010 10:50 am

Rick Ferri wrote:Perhaps the next move will be DFA ETFs? DFA does have indexes now, and they could easily license those indexes to an ETF company such as InvestoPowershares. That would be big. This is pure speculation on my part. I have no information.
DFA's distribution strategy seems to be direct sales to institutions plus a network of RIAs who can essentially say "DFA is great and the only way to buy it is through me." Expanding to select BDs wouldn't change this by much, but readily available ETFs would do a lot to undercut the exclusivity argument.

In addition, part of DFA's pitch has been its execution, its opportunistic trading. Can an ETF company replicate that?

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Huh?

Post by shawcroft » Sat Jan 23, 2010 11:20 am

A brief question from slightly dense me: What does SmB and HmL mean?I've been reading a number of the recommended Boglehead books and perhaps I overlooked the terms.
Thanks

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Re: Huh?

Post by caklim00 » Sat Jan 23, 2010 11:41 am

shawcroft wrote:A brief question from slightly dense me: What does SmB and HmL mean?I've been reading a number of the recommended Boglehead books and perhaps I overlooked the terms.
Thanks
I wondered the same thing when joining a couple years ago:

SmB = Small minus Big
HmL - High (Book to Market) minus Low (Book to Market)

Think of Book to Market as the inverse of P/B.

Image

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Post by the fixer » Sat Jan 23, 2010 4:18 pm

I agree with a few things Rick said above:
I really have no idea
and
This is pure speculation on my part. I have no information
Hopefully anyone reading Rick's opinions on DFA took those comments as or more seriously than anything else he has offered.

The reality is actually quite simple. Historically, DFA funds were only offered to advisors who use a few custodians: Schwab, Fidelity, TD Ameritrade. Some of these advisors (including I believe the largest advisor who uses DFA funds) also maintained a seperate independent B/D relationship with the likes of Cambridge Associates, allowing them (and their staff) to maintain securities and insurance liscences, and in some cases use them (for providing in-house long term care services, for example). These B/Ds also provide administrative and compliance services as well, for firms who don't wish to perform those duties in-house.

Now, there are some of these advisors who choose not to custody assets at one of the traditional independent B/Ds, and until now, had no access to DFA funds. Even if they were 100% passive, they were restricted to Vanguard and ETFs.

All that has changed is that DFA is now willing to make their funds available to a small number of these advisors via the independent B/D platforms. No Merrill Lynch, no Smith Barney, no Wachovia, etc. They still must meet and maintain the same standards that an RIA who has no B/D affiliation is required to do. If you are caught violating DFAs restrictions on short term trading (which covers a wide variety of different issues), you will first be warned, and then "fired" from having DFA access.

These independent firms are a long way from the "wirehouse B/D" world that Rick used to work for, and the likelyhood that DFA will be marketed any different than it is today is very small, and if so, won't last long.

As I mentioned before, cashflows have been (increasingly) and remarkably stable, about all one could ask for who employs DFAs strategies I would have to imagine.

[personal attack removed]

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Post by the fixer » Sat Jan 23, 2010 4:35 pm

dbonnett wrote:Rick: That type of selling will encourage a lot a short term holding. Is DFA going for growth at all costs? Pump it up and go public or be acquired for one big payday?
As I mentioned, it is unlikely that any of that type of "selling" will take place. If DFA was going for growth at all costs, they would simply offer ETF strategies or be directly available to the public like Vangaurd. Clearly that has never been, and will never be the case.
Rick Ferri wrote:
...more money means less opportunities in the small cap value area.


There should initially be high returns as money pours in, followed by lower returns from afterward, right? ...or have we already seen the high returns?
That means nothing of the sort. It may mean that these advisors will be moving assets from inferior strategies like Russell 2000 Value or S&P 600 Value ETFs to the DFA Targeted Value or Vector strategies, but that is a zero sum transfer. DFA is simply able to target these dimensions more consistently and efficiently than other options, and that won't change. If anything, an even further improvement in the consistency of cash flows will improve the strategies.

US Targeted Value could easily hold 15X the assets it does today, and US Vector could probably reach $100B without a problem. That is many, many decades from now. US Small Value (for those who can still use it :wink: ) is also quite lean and has plenty of room to grow.

Finally, there is simply no evidence that SV has experienced a disproportionate run-up since becoming "investable":

Dimensional US Small Value Index 6/27 - 3/93 Annualized return prior to release of DFSVX = +13.0%
DFSVX since inception = +11.3%

And the "SV premium" relative to TSM since DFSVX inception has been almost exactly the size of the Dimensional SV Index premium above CRSP 1-10 going back to 1927, about 3.5% per year. No doubt, this must agitate those investors and advisors who have overweighted TSM based strategies or undereducated their clients on the benefits of meaningful 3F diversification.
DFA is a privately held company with several shareholders who may be wondering about an exit strategy. The plan could be to sell, but I really have no idea.
Anyone who knows (almost) anything about DFA knows that they have a strong succession plan in place and their current corporate structure will remain unchanged as the next generation steps forward.
Perhaps the next move will be DFA ETFs? DFA does have indexes now, and they could easily license those indexes to an ETF company such as InvestoPowershares.
DFA has absolutely 0 plans to offer ETFs. Those advisors who want to use pure index ETF strategies have plenty to choose from, iShares and Vanguard the two biggest of course.

DFAs management approach: daily rebalancing with cashflows, momentum considerations and overall patient trading, and block purchase/sale efforts have no place in the mindless world of ETF arbitrary reconstitution.

DFAs indexes were simply developed to provide useful historical simulated results and longer term benchmarking purposes for DFAs funds. Unlike the FF indexes that were used for academic study and ease of calculation/reporting purposes, DFAs indexes are designed to have a more uniform set of calcuation and rebalancing rules that more closely align themselves to the actual funds (its still not perfect, as DFAs real worl management cannot be duplicated in true index form).

That was made perfectly clear when they were rolled out almost 3 years ago. Of course that hasn't prevented those who wish to read much more into it than they should from doing so.

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Post by the fixer » Sat Jan 23, 2010 4:44 pm

Rick Ferri wrote:
Perhaps the next move will be DFA ETFs? DFA does have indexes now, and they could easily license those indexes to an ETF company such as InvestoPowershares. That would be big. This is pure speculation on my part. I have no information.

DFA's distribution strategy seems to be direct sales to institutions plus a network of RIAs who can essentially say "DFA is great and the only way to buy it is through me." Expanding to select BDs wouldn't change this by much, but readily available ETFs would do a lot to undercut the exclusivity argument.
It is true, some extremely low fee or fixed fee "advisors" make more of access to DFA than they should. But in a free and competitive market, they are free to do so as they please. DFA certainly isn't going to regulate every marketing practice of every firm they work with. DFA has, however, repeated to every advisor they work with: "do not market your access to DFA or any product, as product v advice is what seperates advisors from brokers".

For the most part, however, freedom has produced fairness. And the "cost above all else" mentality has resulted in these firms attracting only the clients who are unable to see a difference between "price" and "value". Higher fee, and higher service advisors are intentially set up to dissuade these clients from considering their firms.

But, in an effort for full disclosure, an advisor (fixed fee or otherwise)should educate their clients on the trading restrictions on DFA funds given their unique status (ie. "the only way to place buy orders is when you have an in-force agreement with a financial advisor authorized to use DFA). And there is certainly nothing wrong with being pleased or educating investors on the process DFA employs or the results that have been delievered, or confidence in the ongoing refinement of this process and continuation of these results. If this comes across, or this message is perceived as "DFA is great", then so be it.

You cannot please all of the people all of the time!

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Post by azbryanw » Sat Jan 23, 2010 6:08 pm

DFA has for years offered their funds through "independent" broker-dealers. The caveat has always been that the funds be within an asset allocation platform managed and controlled by the RIA side of the b/d. The brokers themselves couldn't just buy and sell DFA stuff as they wished. This is pretty similar to where you would find DFA within various annuities and 529s.

Unless they are truly "opening it up" for public consumption I don't think this is something new.

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Post by azbryanw » Sat Jan 23, 2010 6:10 pm

Rick Ferri wrote:DFA is a privately held company with several shareholders who may be wondering about an exit strategy. The plan could be to sell, but I really have no idea.
They don't have several shareholders/owners ...they have hundreds. Heck, Arnold Schwarzennager is a shareholder in the company.

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Post by Rick Ferri » Sat Jan 23, 2010 9:58 pm

the fixer wrote:For those who have animosity towards DFA for one reason or another, or who have irreversably hitched their wagon to the ETF story, it offers an opportunity to spin the truth. I would submit, however, those folks/firms are not a trustworthy source of insight into DFA or their management/approach/validity.
This is a direct slam at me personally. Your comments are terribly inaccurate and I find them insulting. Next time, please do just 30 seconds of research.

The fact is that I use a variety of products in client portfolios including ETFs, DFA funds, and Vanguard funds . Unlike many advisors, I put no limits where I look for the best funds. I would never fall into the trap of thinking that one fund company is all things to all people in all asset classes.

Many advisors do take this unprofessional short-cut. I call them the 'one dimensional' advisors because they don't think they have to think. These people are not advisors in my book. They are are simply wholesalers for a fund company. That is not how I run my investment management business. Thankyouverymuch.

Rick Ferri

BTW, I have been much more critical of the ETF community and Vanguard than I have of DFA over the years. If you spent any time looking at any of my past DFA posts, you will see that I am most critical of the 'one dimensional' advisors who blindly promote DFA, not DFA itself.

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Post by baw703916 » Sat Jan 23, 2010 11:24 pm

And I was worried that this thread wasn't going to attract any attention...lol!

For the record, I don't have any DFA funds or any type of advisor (except this board). I do generally try to replicate a DFA style investing approach as closely as possible with ETFs. I probably would use DFA if I had access, but when I first heard about them I didn't have enough in investments to be worth any advisor's while, and now I don't feel that having an advisor just for DFA access makes sense. But I think that DFA is definitely one of the "good guys" along with Vanguard and a few ETF providers, and many Bogleheads use their funds--so I would like to see them continue to serve their investors well, even though I don't have any personal stake in the outcome.

What caught my attention in the original story was the "fee-based" terminology--I thought it was an error in the story until I found the same thing written in a couple other places. I'd learned on this board that "fee-based" can be a red flag, so I was a little shocked that DFA was going in that direction.

The article that goes into more detail, which says that DFA is only dealing with five broker-dealers that they have decided meet their approval, makes things sound a lot less bad than I had feared. If the new outlets are using DFA for a long-term passive AA strategy, rather than performance chasing ("Look at how this Emerging Markets Small Cap fund has done compared to the S&P--and we're one of only a handful of places that can get you into it!")--then that's not so bad.

So are all broker-dealers "fee based" by definition?

Brad
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Post by Rick Ferri » Sun Jan 24, 2010 12:01 am

IMO, advisors have no business complaining about DFA going into the BD market. DFA has made some of these advisors filthy rich. The advisors go around with their pompous attitudes telling people about the benefits of low-cost passive investing, and then charge 1 to 2 percent per year for a portfolio. They are hypocrites.

I wish DFA would launch some ETFs like Vanguard has so that everyone has access to DFA funds and the open-end fund shares become more tax-efficient. Screw the advisors who rely on DFA access for business. They are leaches.

Rick Ferri

PS. Would you like me to tell you how I really feel?

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Post by Robert T » Sun Jan 24, 2010 10:24 am

.
What’s absent from many of these discussions is the impact of advisor fees and taxes:
Finally, DFA conducted an allocation study last year to guage the average tilts of some of their largest advisors. The results were almost identical to the findings from 2007 (0.25 SmB, 0.30 HmL).
  • That’s about a 1.7% expected return (before tax) above the equity market, of which a 1% advisor fee would take about 60%.
As for the “inferior strategies like Russell 2000 Value or S&P 600 Value ETFs” relative to DFA Targeted Value and DFA US Small Value for which we have close to a 10 yr record.
  • From the DFA Prospectus: 10 yr annualized returns to December 2008, and putting aside differences in factor loads.

    DFA US Small Value
    Before tax returns = 7.32%
    After tax returns = 5.48%
    Less 1% advisor fee = 4.48%

    Tax-Managed US Targeted Value
    Before tax returns = 5.67%
    After tax returns = 5.23%
    Less 1% advisor fee = 4.23%

    US Targeted Value since inception 2/23/00
    Before tax returns = 8.22
    After tax returns = 6.25
    Less 1% advisor fee = 5.25%

    Russell 2000 Value
    10 yr annualized = 6.10%
    Less 0.75%* = 5.35%

    Since 2/23/00 = 7.15%
    Less 0.75%* = 6.50%

    S&P600 Value (from S&P website)
    10 yr annualized = 5.35%
    Less 0.55%** = 4.80%

    * The difference between the Russell 2000 Value index and the iShares Russell 2000 value after-tax returns since inception on 7/24/2000 (from iShares website).
    ** The difference between the underlying index returns and the ishares S&P 600 value after-tax returns since inception on 7/24/2000 (from iShares website).

    Inferior?
Its often not easy for individual investors (myself included) to sift through the extent of “agency issues” associated with all advisor posts (some of what's being debated in this thread). IMO this just amplifies the need to do our own analysis (to check/test/screen etc. what's being said/claimed), then make our own decisions.

Robert
.

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Post by dbonnett » Sun Jan 24, 2010 10:50 am

Robert aren't these returns somewhat time dependent? The 2008 collapse hit the value end very hard as opposed to the 2000 dive.

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Post by Robert T » Sun Jan 24, 2010 11:00 am

dbonnett wrote:Robert aren't these returns somewhat time dependent? The 2008 collapse hit the value end very hard as opposed to the 2000 dive.
All returns are time dependent. The average value premium over the 10 years to December 2008 was 6.2%, the annualized premium was 4.4%. So value stocks did okay over this period (SV signficantly outperformed S&P500 returns).

Robert
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Post by bhzmark » Sun Jan 24, 2010 12:01 pm

dbonnett wrote:Is DFA going for growth at all costs?
Because DFA is a for-profit company, the mgt and directors will typically interpret their duties to the company to require that they have the single minded goal of maximizing value for DFA's shareholders -- customers be damned.

Vanguard, on the other hand, as a true mutual company, owned by its customers, has the single minded objective of maximizing value for its customers/shareholders (the same people).
the fixer wrote:
DFA is a privately held company with several shareholders who may be wondering about an exit strategy. The plan could be to sell, but I really have no idea.
Anyone who knows (almost) anything about DFA knows that they have a strong succession plan in place and their current corporate structure will remain unchanged as the next generation steps forward.
Mgt succession is a different issue from shareholders looking for an exit.

The Managers provide services in exchange for a salary. When the top managers leave they need replacement service providers.

When shareholders want to sell, those shareholders may or may not also be managers. But shareholders qua shareholders don't need to have "a succession plan".

I wish the exit plan for shareholders would be to mutualize: have each of the DFA funds buy the pro rata portion of the stock of the DFA entity; and any dividends paid on the stock are used to offset expenses. That is, roughly, I believe, the Vanguard model.

But fat chance of that.

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Post by the fixer » Wed Jan 27, 2010 10:32 pm

Robert T wrote:.
What’s absent from many of these discussions is the impact of advisor fees and taxes:
Finally, DFA conducted an allocation study last year to guage the average tilts of some of their largest advisors. The results were almost identical to the findings from 2007 (0.25 SmB, 0.30 HmL).
  • That’s about a 1.7% expected return (before tax) above the equity market, of which a 1% advisor fee would take about 60%.
As for the “inferior strategies like Russell 2000 Value or S&P 600 Value ETFs” relative to DFA Targeted Value and DFA US Small Value for which we have close to a 10 yr record.
  • From the DFA Prospectus: 10 yr annualized returns to December 2008, and putting aside differences in factor loads.

    DFA US Small Value
    Before tax returns = 7.32%
    After tax returns = 5.48%
    Less 1% advisor fee = 4.48%

    Tax-Managed US Targeted Value
    Before tax returns = 5.67%
    After tax returns = 5.23%
    Less 1% advisor fee = 4.23%

    US Targeted Value since inception 2/23/00
    Before tax returns = 8.22
    After tax returns = 6.25
    Less 1% advisor fee = 5.25%

    Russell 2000 Value
    10 yr annualized = 6.10%
    Less 0.75%* = 5.35%

    Since 2/23/00 = 7.15%
    Less 0.75%* = 6.50%

    S&P600 Value (from S&P website)
    10 yr annualized = 5.35%
    Less 0.55%** = 4.80%

    * The difference between the Russell 2000 Value index and the iShares Russell 2000 value after-tax returns since inception on 7/24/2000 (from iShares website).
    ** The difference between the underlying index returns and the ishares S&P 600 value after-tax returns since inception on 7/24/2000 (from iShares website).

    Inferior?
Its often not easy for individual investors (myself included) to sift through the extent of “agency issues” associated with all advisor posts (some of what's being debated in this thread). IMO this just amplifies the need to do our own analysis (to check/test/screen etc. what's being said/claimed), then make our own decisions.

Robert
.
Not all money is taxable (far from it), and only looking at after tax returns based on highest tax brackets with no loss carry forwards and no benefit from being able to rebalance with money you've already payed taxes on are just a few of the considerations that I hope individuals doing their own analysis are not overlooking. Furthermore, the assumption that an advisory fee is simply a cost with no benefit is incorrect.

To extend this period suggested above another year through '09:

99-09

DFSVX = +9.5%
Russell 2000 Value = +7.3%
S&P 600 Value = +6.8%

There's that 2-3% again (without adjusting for the all important factor loads and before advisor fees and value). How much of the taxes that standardized after-tax tables assume were actually paid by real world DFSVX investors?...far less than assumed I would imagine -- and 0 for a long time to come thanks to '08 harvesting.

the fixer
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Post by the fixer » Wed Jan 27, 2010 10:54 pm

Rick Ferri wrote:
the fixer wrote:For those who have animosity towards DFA for one reason or another, or who have irreversably hitched their wagon to the ETF story, it offers an opportunity to spin the truth. I would submit, however, those folks/firms are not a trustworthy source of insight into DFA or their management/approach/validity.
This is a direct slam at me personally. Your comments are terribly inaccurate and I find them insulting. Next time, please do just 30 seconds of research.

The fact is that I use a variety of products in client portfolios including ETFs, DFA funds, and Vanguard funds . Unlike many advisors, I put no limits where I look for the best funds. I would never fall into the trap of thinking that one fund company is all things to all people in all asset classes.

Many advisors do take this unprofessional short-cut. I call them the 'one dimensional' advisors because they don't think they have to think. These people are not advisors in my book. They are are simply wholesalers for a fund company. That is not how I run my investment management business. Thankyouverymuch.

Rick Ferri

BTW, I have been much more critical of the ETF community and Vanguard than I have of DFA over the years. If you spent any time looking at any of my past DFA posts, you will see that I am most critical of the 'one dimensional' advisors who blindly promote DFA, not DFA itself.
Rick,

You have been far from critical of Vanguard. Lets be honest. [personal attack removed] As a matter of fact, I cannot remember the last good thing you had to say about the company.

Then, to top it off, you criticize anyone who would step forward in an effort to set the record straight.

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stratton
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Post by stratton » Wed Jan 27, 2010 11:03 pm

the fixer wrote:
Rick Ferri wrote:
the fixer wrote:For those who have animosity towards DFA for one reason or another, or who have irreversably hitched their wagon to the ETF story, it offers an opportunity to spin the truth. I would submit, however, those folks/firms are not a trustworthy source of insight into DFA or their management/approach/validity.
This is a direct slam at me personally. Your comments are terribly inaccurate and I find them insulting. Next time, please do just 30 seconds of research.

The fact is that I use a variety of products in client portfolios including ETFs, DFA funds, and Vanguard funds . Unlike many advisors, I put no limits where I look for the best funds. I would never fall into the trap of thinking that one fund company is all things to all people in all asset classes.

Many advisors do take this unprofessional short-cut. I call them the 'one dimensional' advisors because they don't think they have to think. These people are not advisors in my book. They are are simply wholesalers for a fund company. That is not how I run my investment management business. Thankyouverymuch.

Rick Ferri

BTW, I have been much more critical of the ETF community and Vanguard than I have of DFA over the years. If you spent any time looking at any of my past DFA posts, you will see that I am most critical of the 'one dimensional' advisors who blindly promote DFA, not DFA itself.
Rick,

You have been far from critical of Vanguard. Lets be honest. You take (largely) uninformed and unwarranted shots at DFA every chance you get, and then hide behind the "just my opinion" comments. As a matter of fact, I cannot remember the last good thing you had to say about the company.

Then, to top it off, you criticize anyone who would step forward in an effort to set the record straight.
Sorry Fixer. You're wrong. Rick is much more correct than you. He most certainly has taken Vanguard to task for such things as not explaining the workings of the junk bond fund.

Paul

PS Not a customer of Rick's company or any RIA. Not a DFA investor.

the fixer
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Post by the fixer » Wed Jan 27, 2010 11:51 pm

stratton wrote:
the fixer wrote:
Rick Ferri wrote:
the fixer wrote:For those who have animosity towards DFA for one reason or another, or who have irreversably hitched their wagon to the ETF story, it offers an opportunity to spin the truth. I would submit, however, those folks/firms are not a trustworthy source of insight into DFA or their management/approach/validity.
This is a direct slam at me personally. Your comments are terribly inaccurate and I find them insulting. Next time, please do just 30 seconds of research.

The fact is that I use a variety of products in client portfolios including ETFs, DFA funds, and Vanguard funds . Unlike many advisors, I put no limits where I look for the best funds. I would never fall into the trap of thinking that one fund company is all things to all people in all asset classes.

Many advisors do take this unprofessional short-cut. I call them the 'one dimensional' advisors because they don't think they have to think. These people are not advisors in my book. They are are simply wholesalers for a fund company. That is not how I run my investment management business. Thankyouverymuch.

Rick Ferri

BTW, I have been much more critical of the ETF community and Vanguard than I have of DFA over the years. If you spent any time looking at any of my past DFA posts, you will see that I am most critical of the 'one dimensional' advisors who blindly promote DFA, not DFA itself.
Rick,

You have been far from critical of Vanguard. Lets be honest. You take (largely) uninformed and unwarranted shots at DFA every chance you get, and then hide behind the "just my opinion" comments. As a matter of fact, I cannot remember the last good thing you had to say about the company.

Then, to top it off, you criticize anyone who would step forward in an effort to set the record straight.
Sorry Fixer. You're wrong. Rick is much more correct than you. He most certainly has taken Vanguard to task for such things as not explaining the workings of the junk bond fund.

Paul

PS Not a customer of Rick's company or any RIA. Not a DFA investor.
No Paul,

I am afraid it is you who is wrong. I don't consider one isolated comment about active manager underperformance in an asset class that most serious passive, multifactor investors totally dismiss to be much more than a footnote.

No, it is Rick who has said he as been "much more critical of Vanguard than DFA". So I would like to see as many as a dozen different examples to verify this claim.

The reality, I'm afraid, is "un-dimensional" advisors (ie. those who recommend mostly TSM based allocations) have nothing but venom for DFA and prentend as though Vanguard can do no wrong.

The reality is that both are good fund companies who have their strengths and drawbacks. I'd like to see a more even handed discussion of that reality once in a while.

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Robert T
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Post by Robert T » Thu Jan 28, 2010 12:25 am

the fixer wrote:There's that 2-3% again...
I just refer back to the 10 yr return list in my earlier post in this thread. You may see the 2-3% DFA investor out-performance beyond factor exposure that investors actually achieved (after taxes/fees and adjustments you mention, many of which also apply to ETFs), I personally don’t see it in the table (but would be interested to see the tax-adjusted returns for the DFA SV fund since inception). Others can decide for themselves. Time will tell. Obviously no guarantees in any approach.
.

dbonnett
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Post by dbonnett » Thu Jan 28, 2010 9:17 am

When freed from the restrictions of index following, it would appear to be easy to improve results and reduce turnover by selecting "no brainer" alternatives. Coupled with the asset classes being smaller and more value oriented, the 1-3% difference would seem logical.

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ddb
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Post by ddb » Thu Jan 28, 2010 10:21 am

the fixer wrote:The reality is that both are good fund companies who have their strengths and drawbacks. I'd like to see a more even handed discussion of that reality once in a while.
Sorry to jump into this one so late. I think we all agree that both DFA and Vanguard are excellent fund companies. If I may speak for Rick (and he can correct me if I'm misrepresenting him), I sense that Rick's issues are more about the advisors who use DFA as a marketing crutch or offer DFA as a magical potion than about DFA itself. One need not search very hard for advisors who think that DFA access makes them a cut above the rest. Anybody who thinks that a single company can fully meet all investors' needs is probably delusional (including Vanguard).

In other words, I think you are confusing Rick's problems with certain DFA-authorized advisors as Rick's problems with DFA. Two totally different issues.

- DDB
"We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern, and less materialism in young people." - PB

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