DFA Funds

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Feb 23, 2007 11:57 am

Enlighten me.  What do you know about this fund family?  Do you use them?  What do you like or dislike about them.  Thank you.

Feb 23, 2007 12:25 pm

I believe (not sure?) that they are only available to fee only advisors. Run by a bunch of U of Chicago guys out of Santa Monica, CA. They are not available on my platform and wish they were.


Does anyone know which B/D's have access to them?

Feb 23, 2007 12:55 pm

I use them!


Great firm!


And yes they are fee only!

Feb 24, 2007 5:08 pm
Greenbacks:

I use them!


Great firm!


And yes they are fee only!



More please.  I am a fee based financial planner.


But what do these guys have that others don't.  Can they really have better managers than American Funds or FranklinTempleton?


From what I understand, they have very low expense ratios, they stress asset allocation---- This is basic stuff.


Is there active management?


Here's my take.  They sell it to advisors as being "exclusive" see you can only sell DFA funds after taking a 3 month class.  Blah blah.  It seems like how I prospect clients by teaching seminars.


What makes them so hot?


I heard they pool investors money into omnibus accounts and that is why the major broker dealers don't use them

Feb 25, 2007 3:21 am
vbrainy:

More please.  I am a fee based financial planner.


But what do these guys have that others don't.  Can they really
have better managers than American Funds or FranklinTempleton?


From what I understand, they have very low expense ratios, they stress asset allocation---- This is basic stuff.


Is there active management?


Here's my take.  They sell it to advisors as being "exclusive"
see you can only sell DFA funds after taking a 3 month class. 
Blah blah.  It seems like how I prospect clients by teaching
seminars.


What makes them so hot?


I heard they pool investors money into omnibus accounts and that is why the major broker dealers don't use them





DFA funds are intended as tools for advisors who believe in EMH 100%.



They are designed to provide targeted and gradiated exposure to the
Fama French 3-factor model. So the only decision is relative asset
allocation. It is the antithesis of active managment.



B/c DFA advisors tend to serve sophisticated money, the funds have very low turnover/redemptions.



Personally I execute the DFA model using ETF's, by layering value etf's
over whole market ETFs. So I basicly take the R3K ETF, overlayed with
R3KV, and then put on some extra R2K and R2KV, then add a little
Microcap Exposure (using FDM). The net result being a portfolio with a
smooth value skew.




Feb 25, 2007 5:46 pm
AllREIT:
vbrainy:

More please.  I am a fee based financial planner.


But what do these guys have that others don't.  Can they really have better managers than American Funds or FranklinTempleton?


From what I understand, they have very low expense ratios, they stress asset allocation---- This is basic stuff.


Is there active management?


Here's my take.  They sell it to advisors as being "exclusive" see you can only sell DFA funds after taking a 3 month class.  Blah blah.  It seems like how I prospect clients by teaching seminars.


What makes them so hot?


I heard they pool investors money into omnibus accounts and that is why the major broker dealers don't use them




DFA funds are intended as tools for advisors who believe in EMH 100%.

They are designed to provide targeted and gradiated exposure to the Fama French 3-factor model. So the only decision is relative asset allocation. It is the antithesis of active managment.

B/c DFA advisors tend to serve sophisticated money, the funds have very low turnover/redemptions.

Personally I execute the DFA model using ETF's, by layering value etf's over whole market ETFs. So I basicly take the R3K ETF, overlayed with R3KV, and then put on some extra R2K and R2KV, then add a little Microcap Exposure (using FDM). The net result being a portfolio with a smooth value skew.



Efficient Market Theory.  Yeah I remember that.


My work this weekend has also led me to believe they are closest to ETFs.  Sophisticated money.  Ya mon.  Pass the KFC.


. . . . . I mean after all of your acronyms I just had to stick one in of my own.


Good info.  Thanks.

Feb 25, 2007 10:33 pm

ALLREIT,


You remind me of the nerdy kid in our gifted program in high school who would go in and erase our work on our Apple IIE, and try to talk over everyone else's head. 


It's okay to be smart AND speak common english.

Feb 26, 2007 1:48 am

Ok BankFC, so that even the workers at BAC can understand: (and yes, I was typing too fast I apologize.)



Personally I execute the DFA investing model using ETF's instead
of DFA's funds. It is cheaper, and you can get the exact same effect.



DFA's model is to have a total market portfolio with extra exposure to
small and value stocks. Which are the two "discretionary" Fama-French
factors.



I do this by layering value etf's over total market ETFs. Since the
Russell ETF's are broad based, and the style ETF's are not pure style,
you can get a very smooth style overweight.



So I basicly take the Russell 3000 ETF, overlayed with Russell 3000
Value ETF. Then to add extra small cap, I put on some extra Russell
2000 and Russell 2000 Value.



For clients with greater risk tolerance, I add a little
Microcap Exposure (using the First Trust DJ Select Microcap ETF FDM). The net result being a total market portfolio with a
smooth value and small cap skew.






Feb 26, 2007 11:32 am

No, you don't understand.  I got what you said the first time, it was just evident that you were trying to "sound smart" using all the acronyms and such.


I grew up in a very small town with a freakishly high amount of "super smart" kids in my same grade, including a National Spelling Bee winner, a couple Duke Talent honorees, etc etc.  Not many above us or below us, but my grade was some type of anomoly. 


The one thing I couldn't stand is when someone would try to sound "smarter" than the rest of us on any given subject, just to boost their inner self worth. 


See, the "smartest" (educated and naturally talented) people I have ever met didn't need to validation of "sounding smart."  They just were, and everyone new it.  It's like the guy with the $250,000/yr job that drives a Boxter and has no savings, or the guy worth a few million that drives a F-150 and doesn't care who thinks what.


Obviously by my post this is a real pet peeve of mine, and I almost just erased this whole thing because it sounds a little rambling, but I think you get the message, and your second post was much more appropriate.


Thanks.

Feb 26, 2007 12:07 pm

Bottom line if you do not understand them or they are not on your platform do not worry about it!


If you are with a wirehouse or a bank you will not be able to use them any way!   


Feb 26, 2007 2:18 pm
BankFC:

No, you don't understand.  I got what you said the first time, it was just evident that you were trying to "sound smart" using all the acronyms and such.


I grew up in a very small town with a freakishly high amount of "super smart" kids in my same grade, including a National Spelling Bee winner, a couple Duke Talent honorees, etc etc.  Not many above us or below us, but my grade was some type of anomoly. 


The one thing I couldn't stand is when someone would try to sound "smarter" than the rest of us on any given subject, just to boost their inner self worth. 


See, the "smartest" (educated and naturally talented) people I have ever met didn't need to validation of "sounding smart."  They just were, and everyone new it.  It's like the guy with the $250,000/yr job that drives a Boxter and has no savings, or the guy worth a few million that drives a F-150 and doesn't care who thinks what.


Obviously by my post this is a real pet peeve of mine, and I almost just erased this whole thing because it sounds a little rambling, but I think you get the message, and your second post was much more appropriate.


Thanks.



I totally get it.  I grew up as one of those "smart kids", and when I first got in the business I used to talk like a friggin' encyclopedia.  Most likely out of insecurity and an attempt to make myself look smart to clients and colleagues.

Then I realized what I sounded like, how it came across as terribly pretentious, and as well that it didn't matter how clever I was if folks couldn't understand what I was trying to communicate.......

Feb 26, 2007 2:56 pm
AllREIT:

Ok BankFC, so that even the workers at BAC can understand: (and yes, I was typing too fast I apologize.)

Personally I execute the DFA investing model using ETF's instead of DFA's funds. It is cheaper, and you can get the exact same effect.

DFA's model is to have a total market portfolio with extra exposure to small and value stocks. Which are the two "discretionary" Fama-French factors.

I do this by layering value etf's over total market ETFs. Since the Russell ETF's are broad based, and the style ETF's are not pure style, you can get a very smooth style overweight.

So I basicly take the Russell 3000 ETF, overlayed with Russell 3000 Value ETF. Then to add extra small cap, I put on some extra Russell 2000 and Russell 2000 Value.

For clients with greater risk tolerance, I add a little Microcap Exposure (using the First Trust DJ Select Microcap ETF FDM). The net result being a total market portfolio with a smooth value and small cap skew.




Now that is some dynamite stuff.  Like it.

Feb 26, 2007 2:58 pm
BankFC:

No, you don't understand.  I got what you said the first time, it was just evident that you were trying to "sound smart" using all the acronyms and such.


I grew up in a very small town with a freakishly high amount of "super smart" kids in my same grade, including a National Spelling Bee winner, a couple Duke Talent honorees, etc etc.  Not many above us or below us, but my grade was some type of anomoly. 


The one thing I couldn't stand is when someone would try to sound "smarter" than the rest of us on any given subject, just to boost their inner self worth. 


See, the "smartest" (educated and naturally talented) people I have ever met didn't need to validation of "sounding smart."  They just were, and everyone new it.  It's like the guy with the $250,000/yr job that drives a Boxter and has no savings, or the guy worth a few million that drives a F-150 and doesn't care who thinks what.


Obviously by my post this is a real pet peeve of mine, and I almost just erased this whole thing because it sounds a little rambling, but I think you get the message, and your second post was much more appropriate.


Thanks.



Grow up.  Now you are the judge of what is appropriate? 


Sounds like you have some boo boos left over from your youth that need some attention.


Take a pill, or go see Dr. Phil.


He presented his point extremely well.

Feb 27, 2007 4:03 am
vbrainy:
AllREIT:

Ok BankFC, so that even the workers at BAC can understand: (and yes, I was typing too fast I apologize.)


Now that is some dynamite stuff.  Like it.





I was about to say something to BankFC, (about being insecure in his intelligence) but then thought better of it.



For me the key realisation was how the split style indexes were not
pure style indexes. I.e 50% R1G + 50% R1V == R1. That means that all
these "core/blend/sludge" stocks are split between them depending on
some "value factor"



If you owned both the normal index and the value  index together
you would get a nice total market index with a skew. This helps avoid
the problem of the portfolio trailing the market too much due to
excessive style issues.



Usually I add a little Russel Midcap + Midcap Value as well. Since my
goal is to have a smooth overweighting of the size + value factors.
Recently I've been exploring using the Wisdomtree total market dividend
index (DTD), to add extra exposure to dividend paying stocks.



----



What makes style based indexes a bit confusing is that basicly stocks can be thought of on two axes



Cheap <--> Expensive

Fast Growing <--> Slow growing



Commonly Fast growth is expensive and slow growth cheap. So these
factors are usually thought of as being maybe 20* apart, instead of
being orthogonal.
So then some savy players discover the idea of GARP (growth an
reasonable price) i.e stocks that are growing and cheap. And this
terribly confuses traditional value/growth investors.



----

Continuing with DFA's model.



DFA's holds that in effecient market credit risk is accurately priced
and so there is no excess return from junk bonds. The same thing for
term premium (i.e higher rates on longer bonds). With credit risk being accurately priced, DFA's bond funds are all government bond funds. Since forex is useless noise, DFA's global bond/stock funds are all fully hedged.



DFA's variable bond fund is a little different in that it
actively/passively moves the durration of the portfolio to the sharpe
ratio sweetspot of the yeild curve. But still, DFA's funds are going to
be US/Global, -1year (I.e Cash) 5year and variable intermediate
government (home of passive Y/C walking) .



Effectively all of this is available in iShares. So the ETF revolution claims another victim.



Finally DFA has a REIT fund and a TIPS fund, and an "exotic" portable
alpha fund that uses S&P 500 futures + higher yielding FI portfolio
to general index alpha.



BTW, DFA operates the West Virginia 529 plan



http://www.smart529select.com/


Feb 27, 2007 10:01 am

Again, ALLREIT I'm wit ya, even if you lost the other idiots.


But, please tell me you are not doing all of this analysis yourself.  Is your book built or are you still in the planning stage?


Don't you have a back office of geeks to do this type of stuff?

Feb 28, 2007 4:08 pm

Does DFA encourage you to put ALL of your investor's money with them?


Surely, you would not put all your eggs in one fund family basket.