Dimensional Fund Advisors (Dimensional). In 2013, these two firms had the most cash inflows of all mutual fund families94. The index portfolios referenced in this book are usually implemented with funds from Dimensional, a highly regarded fund company which provides indexes and funds based on the Fama/French Five-Factor Model, purposefully isolating risk factors to efficiently capture higher expected returns. They have recently added a sixth factor known as Direct Profitability (to be further detailed in future editions of this book). Figure 11-3 illustrates a 15-year comparison between 20 index portfolios implemented with funds from Dimensional and Vanguard, and with the same stock/bond allocations. The time period shown reflects the longest time period for which we have live mutual fund data. All portfolio results are net of fund fees as well as a 0.9% advisor fee. The chart shows that the implementation of the index portfolios utilizing Dimensional funds had a higher annualized return than the portfolios utilizing Vanguard funds. Figure 11-4 is a similar chart that shows a 13-year comparison between the same 20 index portfolios implemented with Dimensional funds and iShares exchange-traded funds (ETFs). The beginning date is two years later (due to the limited availability of live ETF data), but the results are similar. The size of the Dimensional advantage is directly proportional to the risk level of the portfolio. Although several brokerage firms offer a â€œfree-tradesâ€? promotion with select ETFs, investors should proceed cautiously with their trades, staying cognizant of the bid/ask spread, and the possible divergence
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...