The new November Index Investor is available and has a great analysis of Vanguard vs DFA funds, asset category by asset category. Very helpful imho.
I think Index Investor has a $25 annual fee, but I have found many useful articles there. I am pasting in the free email they sent below describing other stuff in this month's issue.
http://indexinvestor.com/Members/2004/November/nov045.php3
Also some useful info on an ETF/ public fund that mimics the long-short hedge fund strategy.
btw, if anyone is put off by DFA advisor fees, my advisor has given me a flat fee (1k per year) for an annual consultation and access to all the funds and institutional low-fee versions of other things like RPIBX, QRAAX (commodities) and foreign bonds. This is much better than the 1% per year that most DFA advisors want. If anyone wants his name PM me. (I have no financial interest in this or Index Investor!)
Info from Index Investor email:
This month's letter to the editor reviews the source of returns on
commodity
index investments. Since these indices are based on investments in
commodity
futures contracts, their returns principally reflect compensation for
bearing
the risk of short-term price fluctuations. Hence, it is possible to
earn a
positive return on a commodity index even when the price of the
underlying
commodity is falling. We note another study by the IMF that finds that
commodity
price volatility steadily increased between 1862 and 1999, even as real
prices
declined by an average of one percent per year. The IMF finds that
this slight
real price decline was completely overwhelmed by the rise in price
volatility.
Hence the need for futures contracts that insure against this
volatility, and
the profitability of investing in them. In our product and strategy
notes, we
relate these points to a discussion about the new gold exchange traded
fund
(ticker GLD) that was recently launched in the United States (similar
products
already exist in Australia, South Africa and the U.K.). The price of
this ETF
is equal to one-tenth the price of a troy ounce of gold. It is also
backed by
an amount of physical gold equal to ten percent of the notional ounces
of gold
represented by the market value of the ETF. We do not find the
structure of
this ETF as attractive as investing in either gold futures or physical
gold coins.
The former have a more reliable source of returns, while the latter are
more
useful as a store of value and medium of exchange under the "worst case
scenario"
that is on many people's minds when they invest in gold. Nevertheless,
the new
gold ETF has quickly attracted over $1 billion in investment since it
was launched
in mid-November. The reason for this may have something to do with our
last
product and strategy note, which reviews the current status of the
economic scenario
indicators we described in our September economic update. We conclude
that the
probability of our recession/deflation scenario developing has
increased.
Our feature article addresses a problem faced by many investors:
whether to
invest in index mutual funds from Dimensional Fund Advisers (DFA), even
though
this can only be done through financial advisers who usually charge a
fee equal
to one percent of the assets they manage. We compare the historical
returns and
risks of DFA and comparable Vanguard index mutual funds in different
asset classes.
In close cases, we perform simulation analysis to assess the impact of
higher DFA
fees on the probability of achieving a target portfolio accumulation or
withdrawal
rate. We conclude that, as is so often the case when all-stars are
compared, there
is no clear winner when it comes to DFA versus Vanguard. The right
answer depends
on the specific asset class or tilt being discussed.
Another product and strategy note looks at the continuing tracking
error problem
at some exchange traded funds. In this case, TIP and AGG have
significantly
underperformed comparable Vanguard index mutual funds so far this year.
At a
reader's suggestion, our last note examines the Hussman Strategic
Growth Fund
(HSGFX). We find that its strategy resembles that of an equity market
neutral
hedge fund, and that it is very reasonably priced. We conclude that,
like the
PIMCO All Asset Fund (PASDX), whose strategy is similar to that used by
global
macro hedge funds, HSGFX is a reasonable option for an investor who
wishes to
mimic the institutional strategy of combining index funds with hedge
funds.
As always, if you have any questions about anything we have written,
please
don't hesitate to email them to us.
[http://www.indexinvestor.com]
I think Index Investor has a $25 annual fee, but I have found many useful articles there. I am pasting in the free email they sent below describing other stuff in this month's issue.
http://indexinvestor.com/Members/2004/November/nov045.php3
Also some useful info on an ETF/ public fund that mimics the long-short hedge fund strategy.
btw, if anyone is put off by DFA advisor fees, my advisor has given me a flat fee (1k per year) for an annual consultation and access to all the funds and institutional low-fee versions of other things like RPIBX, QRAAX (commodities) and foreign bonds. This is much better than the 1% per year that most DFA advisors want. If anyone wants his name PM me. (I have no financial interest in this or Index Investor!)
Info from Index Investor email:
This month's letter to the editor reviews the source of returns on
commodity
index investments. Since these indices are based on investments in
commodity
futures contracts, their returns principally reflect compensation for
bearing
the risk of short-term price fluctuations. Hence, it is possible to
earn a
positive return on a commodity index even when the price of the
underlying
commodity is falling. We note another study by the IMF that finds that
commodity
price volatility steadily increased between 1862 and 1999, even as real
prices
declined by an average of one percent per year. The IMF finds that
this slight
real price decline was completely overwhelmed by the rise in price
volatility.
Hence the need for futures contracts that insure against this
volatility, and
the profitability of investing in them. In our product and strategy
notes, we
relate these points to a discussion about the new gold exchange traded
fund
(ticker GLD) that was recently launched in the United States (similar
products
already exist in Australia, South Africa and the U.K.). The price of
this ETF
is equal to one-tenth the price of a troy ounce of gold. It is also
backed by
an amount of physical gold equal to ten percent of the notional ounces
of gold
represented by the market value of the ETF. We do not find the
structure of
this ETF as attractive as investing in either gold futures or physical
gold coins.
The former have a more reliable source of returns, while the latter are
more
useful as a store of value and medium of exchange under the "worst case
scenario"
that is on many people's minds when they invest in gold. Nevertheless,
the new
gold ETF has quickly attracted over $1 billion in investment since it
was launched
in mid-November. The reason for this may have something to do with our
last
product and strategy note, which reviews the current status of the
economic scenario
indicators we described in our September economic update. We conclude
that the
probability of our recession/deflation scenario developing has
increased.
Our feature article addresses a problem faced by many investors:
whether to
invest in index mutual funds from Dimensional Fund Advisers (DFA), even
though
this can only be done through financial advisers who usually charge a
fee equal
to one percent of the assets they manage. We compare the historical
returns and
risks of DFA and comparable Vanguard index mutual funds in different
asset classes.
In close cases, we perform simulation analysis to assess the impact of
higher DFA
fees on the probability of achieving a target portfolio accumulation or
withdrawal
rate. We conclude that, as is so often the case when all-stars are
compared, there
is no clear winner when it comes to DFA versus Vanguard. The right
answer depends
on the specific asset class or tilt being discussed.
Another product and strategy note looks at the continuing tracking
error problem
at some exchange traded funds. In this case, TIP and AGG have
significantly
underperformed comparable Vanguard index mutual funds so far this year.
At a
reader's suggestion, our last note examines the Hussman Strategic
Growth Fund
(HSGFX). We find that its strategy resembles that of an equity market
neutral
hedge fund, and that it is very reasonably priced. We conclude that,
like the
PIMCO All Asset Fund (PASDX), whose strategy is similar to that used by
global
macro hedge funds, HSGFX is a reasonable option for an investor who
wishes to
mimic the institutional strategy of combining index funds with hedge
funds.
As always, if you have any questions about anything we have written,
please
don't hesitate to email them to us.
[http://www.indexinvestor.com]
