Fund Spy: Go for the Known with Low Fees

These mutual funds are consistent, efficient, and cheap. Like 0.35% MER cheap!

Michael Dobson 3 March, 2023 | 4:58AM
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Coin stacking

You can’t predict the course of the markets. Nor can you be 100% certain your fund’s process will work or that your money manager will live up to expectations. Expenses are an exception. Study after study has shown, expenses are the single biggest predictor of fund investor success. The less you pay, the more you keep.

That truth sent droves of investors to funds attempting to provide broad, cut-rate asset class exposure as opposed to swashbuckling active management. Those include index funds that passively track benchmarks and strategies that lean into certain characteristics such as company size, valuation, or profitability. Dimensional Fund Advisors offers many funds in the latter camp including some allocation offerings that assemble some of those building blocks in fixed portfolios for investors, including the DFA Global Portfolios.

The series of five DFA funds with equity stakes ranging from 40% to 80% of assets has an option for most risk profiles. The simple portfolio construction, efficient trading, and cheap price tags support a Morningstar Analyst Rating of Silver for its cheapest share classes.

These Staregies Lag in Growth Markets, Lead in Value Markets

DFA’s strategies are based on decades of academic research showing that smaller, cheaper, and more profitable stocks outperform those with the opposite traits. DFA Global’s underlying equity funds systematically emphasize cheaper and smaller stocks than their indexes. DFA Global Allocation 60/40, for instance, has had more exposure to value stocks than the Morningstar Canada Global Neutral Balanced Index.

As a result, the strategies lag in growth-led markets but revive when value stocks take the lead. From when DFA made Global Portfolios available in Canada in the fall of 2011 through the end of December 2020, DFA Global 60/40 lagged the Global Neutral Balanced benchmark by 0.3% annualized. Then from Jan. 1, 2021, to Jan. 31, 2023, DFA Global 60/40 beat the benchmark by about 1.5% annualized. Large growth stocks dominated the former period, while value stocks prevailed in the latter.

DFA Global Portfolios Are Cheaper Than They Look

DFA Global Portfolios charge some of the lowest expense ratios around. Their cheapest share classes charge between 0.34-0.36%, which ranks among the cheapest 5% among their peers.

Dimensional also keeps a lid on hidden costs that aren’t disclosed with fees, though. Each of its underlying funds trade slowly and, when they do, they try to buy their holdings when most others are selling and vice versa. That keeps transaction and impact costs low which accrues to investor’s benefit over the long term and is a big reason why DFA Global Portfolios are some of the best one-stop asset allocation options in Canada.


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Michael Dobson  Michael Dobson is an Associate Manager Research Analyst at Morningstar Canada

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