As you would be well aware, January was one of the more 'difficult' investment months in recent history with strong falls in markets across the world. Some interesting data has been provided to us from the United States about this month that provides an insight into whether an often touted message that active managers perform better in down markets is actually true.
Before getting to the data, I think it is important that I inform new readers and remind previous visitors that we favour a more passive approach to investing using index style funds with a particular focus on capturing small and value premiums in investment returns over the long term. The fund manager that enables us to do this is in Australia is Dimensional Funds Advisors Australia (DFA).
DFA originally started in the USA back in the 1980s. The following data from the US compares funds managed by the USA parent company against category averages for all investment managers (Mutual funds) and the relevant benchmark index:
Dimensional Strategy Return
vs. Lipper Category Average Return
January 2008
|
Dimensional Portfolio |
Return |
Lipper Category |
Return |
DFA minus Lipper |
Benchmark |
Return |
|
US Large Co. |
-6.0% |
Large Cap Core |
-6.5% |
0.5% |
S&P 500 |
-6.0% |
|
US Core Equity 1 |
-5.7% |
Multi-Cap Core |
-6.5% |
0.8% |
Russell 3000 |
-6.1% |
|
US Large Cap Value |
-3.8% |
Large Cap Value |
-4.9% |
1.1% |
Russell 1000 Value |
-4.0% |
|
US Large Cap Value |
-3.8% |
Multi-Cap Value |
-4.7% |
0.9% |
Russell 1000 Value |
-4.0% |
|
US Small Cap |
-6.9% |
Small Cap Core |
-6.8% |
-0.1% |
Russell 2000 |
-6.8% |
|
US Small Cap Value |
-3.9% |
Small Cap Value |
-4.7% |
0.8% |
Russell 2000 Value |
-4.1% |
|
US Targeted Value |
-4.8% |
Small Cap Value |
-4.7% |
-0.1% |
Russell 2000 Value |
-4.1% |
|
Real Estate Sec. |
0.0% |
Real Estate |
-1.3% |
1.3% |
DJ Wilshire REIT |
-0.5% |
|
Large Cap Intl. |
-7.6% |
International |
-8.7% |
1.1% |
MSCI EAFE |
-9.2% |
|
Intl. Core Equity |
-7.5% |
International |
-8.7% |
1.2% |
MSCI World ex US |
-9.0% |
|
Emerging Markets |
-8.7% |
Emerging Markets |
-10.7% |
2.0% |
MSCI Emg. Mkts. |
-12.5% |
|
Emg. Mkts. Core Eq. |
-9.7% |
Emerging Markets |
-10.7% |
1.0% |
MSCI Emg. Mkts. |
-12.5% |
In US dollars. MSCI indices are net of foreign withholding taxes on dividends.
The conclusion that can be drawn from this data is that the active managers, who are the major players in the Lipper category results, have not been able to 'protect' investors against the share market falls and in fact have again been unable to beat the benchmark index in many cases nor Dimensional's buy and hold strategy towards investing. This again provides evidence that active managers do not find extra value for investors, rather they lose value through trading costs and tax implications while at the same time charging higher fees!!
Regards,
Scott Keefer
