Articles (1,134)

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An Interesting Accolade for Dimensional's Emerging Markets Small Cap Fund

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by Jay D. Franklin and Mark Hebner
Monday, July 21, 2014

A recent article in Bloomberg BusinessWeek about Dimensional Fund Advisors (DFA) Emerging Markets Small Cap Fund (DEMSX) caught our attention. The title, “Dimensional Winning in Emerging Markets: Riskless Return”, caused us to do the mother of all double-takes, ...Read More

Archive
1133

Q&A with IFA: Market Timing with Moving Averages

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by Jay D. Franklin and Mark Hebner — Friday, July 18, 2014

Question: Some researchers argue that a market timing strategy based on buy/sell signals generated by a 50- or 200-day moving average offers a more appealing combination of risk and return than a buy-and-hold ...Read More

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Understanding Equity-Indexed Annuities

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by Jay D. Franklin and Mark Hebner — Thursday, July 17, 2014

Recently, a client asked us about potentially buying an equity-indexed annuity (EIA). Not to be confused with a variable annuity, an EIA is not held in a segregated account exclusively for the ...Read More

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IFA's Use of Tax-Managed Funds

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by Jay D. Franklin and Mark Hebner — Wednesday, July 16, 2014

For investors with taxable accounts, IFA has long advised the use of tax-managed funds for the purpose of maximizing after-tax returns. Please note that this is not the same goal as minimizing taxes. The five ...Read More

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The IRS Addresses Longevity Risk in Retirement Plan Accounts

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by Jay D. Franklin and Mark Hebner — Friday, July 11, 2014

In our summary of risks facing retirees, we identified longevity (the potential to outlive one’s assets) as one that has increased through time with medical advances leading to ever-longer ...Read More

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Active vs. Passive in the U.K.—A Follow-up

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by Jay D. Franklin and Mark Hebner — Thursday, July 10, 2014

A few weeks ago, we published this article about the dismal performance of active managers in the U.K. We saw that only 1% of them were found to reliably beat a risk-adjusted benchmark, but even for that 1%, ...Read More

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Transfer on Death and Retirement Account Beneficiaries

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by Jay D. Franklin and Mark Hebner — Wednesday, July 2, 2014

As you are probably aware, if you have an IRA, 401(k), or other type of retirement account, you must have a designated beneficiary(s). Normally, you will have a primary beneficiary as well as a contingent ...Read More

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With the Market at New Highs, How Should You Prepare for the Bear?

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by Jay D. Franklin and Mark Hebner — Wednesday, July 2, 2014

As of today (July 2nd, 2014), the Dow and the S&P 500 Index are flirting with new highs of 17,000 and 2,000, respectively. Both have come a long way from their low points of March 9th, 2009 (6,547 for the ...Read More

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The Second Quarter of 2014 in Review

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by Jay D. Franklin and Mark Hebner — Tuesday, July 1, 2014

In the second quarter of 2014, market risk was rewarded around the world, particularly for emerging markets and real estate. Portfolios tilted towards small cap companies were not rewarded to the same extent ...Read More

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Q&A with IFA: Prediction in Valuations

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by Jay D. Franklin and Mark Hebner — Monday, June 30, 2014

Question: Do valuation measures such as price-to-earnings or price-to-dividend ratios help predict future returns? Are they telling us anything now? Note: The question above was originally addressed in ...Read More

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Q&A with IFA: Front Running and Fair Pricing

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by Jay D. Franklin and Mark Hebner — Monday, June 23, 2014

Question: What is the relation, if any, between the practice of "front running" trades and the efficient market hypothesis? Note: The question above was taken from DFA’s Fama/French Forum. Here is their ...Read More

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Passive vs. Active—the View from Across the Pond

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by Jay D. Franklin and Mark Hebner — Monday, June 23, 2014

While perusing the Daily Telegraph, one of our Wealth Advisors came across this article that highlights the bloody awful results delivered by active managers in the U.K. Reporter Richard Evans cites Professor ...Read More

1122

Lord Abbett Funds: A Deeper Look at Their Performance

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by Jay D. Franklin and Mark Hebner — Friday, June 20, 2014

On a few occasions, we have been asked by prospective clients about Lord Abbett funds. Like American Funds, they have been around since the Great Depression and are fully dedicated to active management. As of ...Read More

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Q&A with IFA: Do Low-Volatility Strategies Produce High Returns

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by Jay D. Franklin and Mark Hebner — Friday, June 20, 2014

Question: Certain researchers have reported1 that low-volatility stocks in the U.S. outperform high-volatility stocks and attribute this apparent anomaly to investor behavioral biases as well as limits to ...Read More

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Is There a Manager Risk Premium?

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by Jay D. Franklin — Friday, June 20, 2014

A risk premium is the return in excess of a reference rate that an investment is expected to provide. At Index Funds Advisors, Inc., we often speak of three different equity-related risk premiums. First, the ...Read More

1119

Tough Times for the Bond King

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by Jay D. Franklin and Mark Hebner — Thursday, June 19, 2014

While patience is a virtue, it appears to be one that is not possessed by many investors in actively managed funds. It is this difficult lesson that PIMCO’s Bill Gross aka “The Bond King” has ...Read More

1118

FINRA Calls Out Merrill Lynch

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by Jay D. Franklin and Mark Hebner — Thursday, June 19, 2014

When reviewing retirement plans for our clients or for retirement plan sponsor clients, we often see the presence of mutual funds with front-end loads (Class A shares). However, we have always made the ...Read More

1117

The Never-Ending Pursuit of Manager Alpha – Updated

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by Jay D. Franklin and Mark Hebner — Wednesday, June 18, 2014

As we have pointed out on many occasions, both stock picking and hiring an active manager to pick stocks on your behalf are mug’s games. While some investors diligently study individual stocks and other ...Read More

1116

Passive vs. Active: Yet another Milestone Is Reached

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by Jay D. Franklin and Mark Hebner — Monday, June 16, 2014

According to this Bloomberg article, Vanguard just passed up Fidelity to become the number one provider of 401(k) assets, thus continuing the long-term trend of migration from passive to active that we have ...Read More

1115

The NACUBO Study

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by Mark Hebner — Thursday, June 12, 2014

You may think that college endowments, with all their access to academic knowledge and brainpower, would regularly hit home runs. You would be ...Read More

1114

A Graphical View of the Mutual Fund Landscape

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by Jay D. Franklin and Mark Hebner — Wednesday, June 11, 2014

Since IFA began operations in 1999, we have published articles detailing how incredibly stacked the odds are against successfully picking a manager who will beat his benchmark (i.e., deliver alpha). See here ...Read More

1113

Tough Times for Alternative Investment Strategies and Hedge Funds

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by Jay D. Franklin and Mark Hebner — Tuesday, June 10, 2014

At Index Fund Advisors, we are always distressed when we read articles such as this one that discusses a state pension plan increasing its exposure to alternative investments (i.e., investments beyond stocks, ...Read More

1112

Q&A with IFA: Dividends—Is Bigger Better?

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by Jay D. Franklin and Mark Hebner — Friday, June 6, 2014

Question: Does an equity strategy focusing on stocks with above-average dividend yield offer an appealing risk/reward tradeoff? Have dividend-paying stocks outperformed non-dividend payers in the U.S.? Note: ...Read More

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Q&A with IFA: Expected Returns and Socially Responsible Investing

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by Jay D. Franklin and Mark Hebner — Wednesday, June 4, 2014

Question: Are expected returns for "socially responsible" strategies lower compared to a conventional approach? Note: The question above was taken from DFA’s Fama/French Forum. Professors Fama and French ...Read More

1110

Q&A with IFA: Cap Weighting or GDP Weighting

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by Jay D. Franklin and Mark Hebner — Wednesday, June 4, 2014

Question: What is the merit, if any, in using a country weighting scheme based on Gross Domestic Product (GDP) rather than market capitalization? Note: The question above was taken from DFA’s Fama/French ...Read More

1109

Q&A with IFA: Seeking the Inefficient Asset Class

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by Jay D. Franklin and Mark Hebner — Tuesday, June 3, 2014

Question: We often hear the claim that some markets are less efficient than others—small company stocks, emerging markets, foreign exchange, and so on. Is there any evidence to support this assertion? ...Read More

1108

Q&A with IFA: Are Stock Returns Normally Distributed?

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by Jay D. Franklin and Mark Hebner — Monday, June 2, 2014

Question: What is the best way to describe the distribution of stock returns—a normal distribution, lognormal, or something else? What should investors do with this information? Note: The question above ...Read More

1107

Vanguard Successfully Debunks Some Myths and Misconceptions about Indexing

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by Jay D. Franklin and Mark Hebner — Tuesday, May 27, 2014

At Index Fund Advisors, we are extremely pleased with the continued success of passive over active. According to a recent Vanguard Research Note1, for the six years ending 12/31/2013, passively managed funds ...Read More

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Dimensional Bond Funds—Doing What They Are Supposed to Do

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by Jay D. Franklin and Mark Hebner — Monday, May 19, 2014

What is the proper role of fixed income in a diversified portfolio? As far as we at Index Fund Advisors are concerned, fixed income performs two vital functions. First, it dampens the volatility of the equity ...Read More

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Fairholme and Sequoia—No Great Performance Here

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by Jay D. Franklin and Mark Hebner — Thursday, May 15, 2014

Recently, we received a question from a client that we will paraphrase as follows: “While I know that the returns I have gotten from index funds have beaten the majority of active managers, would I not ...Read More

1104

Wealth Management with inStream

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by Jay D. Franklin and Mark Hebner — Thursday, May 15, 2014

“A goal without a plan is just a wish” ...Read More

1103

When Reality Confronts Investor Expectations

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by Jay D. Franklin and Mark Hebner — Wednesday, May 14, 2014

A recent survey of 1,050 American investors conducted by Natixis Global Asset Management found that they said they needed average annual returns of 9.8% above inflation to meet their financial needs such as ...Read More

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The American Enterprise Institute Honors Eugene Fama

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by Jay D. Franklin and Mark Hebner — Monday, May 12, 2014

The American Enterprise Institute for Public Policy Research (AEI) is a private not-for-profit think tank whose stated mission is "to defend the principles and improve the institutions of American freedom ...Read More

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Do Active Investors Have a Gambling Problem?

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by Jay D. Franklin and Mark Hebner — Wednesday, May 7, 2014

Index Fund Advisors’ 12-Step Program for Active Investors suggests that active investing is a disease akin to alcoholism, drug addiction, or gambling addiction. While we certainly do not say that all ...Read More

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IFA's Scientific Approach to Investing

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by Jay D. Franklin and Mark Hebner — Tuesday, May 6, 2014

Since its inception, Index Fund Advisors has always strived to take a scientific or academic approach to investing. We follow the evidence (i.e., long-term returns data) to wherever it leads us and we live by ...Read More

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A Summary of "False Discoveries in Mutual Fund Performance: Measuring Luck in Estimating Alphas"

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by Jay D. Franklin and Mark Hebner — Monday, May 5, 2014

The authors of this article1 asked a basic yet fundamentally important question: Given the amount of apparent alpha that we actually observe, how much can be explained by skill (or true alpha) rather than ...Read More

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Manager Picking is a Mug's Game

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by Jay D. Franklin and Mark Hebner — Friday, May 2, 2014

The search for investment managers who will deliver alpha is an activity that accounts for billions of dollars that is spent by foundations, endowments, pension plans, and other institutional investors. To ...Read More

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Risk Aversion vs. Ambiguity Aversion and 401(k) Plans

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by Jay D. Franklin and Mark Hebner — Thursday, May 1, 2014

In a news briefing regarding Saddam Hussein’s weapons of mass destruction before the invasion of Iraq, former Defense Secretary Donald Rumsfeld famously stated: “Reports that say ...Read More

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Jay D. Franklin and Mark Hebner

Small-Cap Face-Off: Russell 2000 vs. S&P 600

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by Jay D. Franklin and Mark Hebner — Thursday, May 1, 2014

Investors who decide to index the small-cap portion of their portfolios face a bewildering array of choices from index mutual funds and exchange-traded funds (ETFs) that track indexes from providers such as ...Read More

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Capturing the Momentum Factor—Simple but Not Easy

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by Jay D. Franklin and Mark Hebner — Tuesday, April 22, 2014

Last year, we wrote this article about momentum, which as the name suggests, is the tendency of securities that have outperformed (or underperformed) the market over a three- to twelve-month period to continue ...Read More

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When a Negative Is Actually a Positive

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by Jay D. Franklin and Mark Hebner — Monday, April 21, 2014

Last week, BlackRock Inc, the world’s largest money manager released its quarterly earnings report for the first quarter of 2014. Normally, we don’t pay much attention to these things, but ...Read More

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Pension-Gate Continues: Some Good Advice for the Hawkeye State

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by Jay D. Franklin and Mark Hebner — Thursday, April 17, 2014

At Index Fund Advisors, we are always gratified to read articles such as this one which give a good airing of the arguments in favor of indexing pension funds for public employees. One fund that would clearly ...Read More

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Connecting the Dots

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by Jim Parker, Dimensional Fund Advisors — Thursday, April 17, 2014

Human beings love stories. But this innate tendency can lead us to imagine connections between events where none really exist. For financial journalists, this is a virtual job requirement. For investors, it ...Read More

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Is a Health Savings Account Right for You?

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by Jay D. Franklin and Mark Hebner — Tuesday, April 15, 2014

A health savings account (HSA) is a tax-advantaged medical savings account for people who are enrolled in a high-deductible health plan (HDHP). For this purpose, an HDHP must have a minimum deductible of ...Read More

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Yet Another Voice Calls Attention to the Problem of High 401(k) Costs

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by Jay D. Franklin and Mark Hebner — Monday, April 14, 2014

In December of 2012, Demos, a liberal think tank, published The Retirement Savings Drain—The Hidden and Excessive Costs of 401(k)s. It caused quite a stir and provided much of the source material for the ...Read More

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Will "Go-Anywhere Funds" Get You to Your Destination?

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by Jay D. Franklin and Mark Hebner — Monday, April 14, 2014

When discussing the issue of style drift with prospective clients, we commonly hear an objection that goes something like, “Why should I care where my fund manager chooses to invest, as long as he is ...Read More

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When Mythology Is Confused with Reality

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by Jay D. Franklin and Mark Hebner — Friday, April 11, 2014

In the investment industry, the term “white paper” carries a lot of currency. As for what distinguishes an ordinary article from a full-fledged white paper, it is usually just a matter of length or ...Read More

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Morningstar Takes a Closer Look at Survivorship Bias

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by Jay D. Franklin and Mark Hebner — Wednesday, April 9, 2014

One of the problems with commonly cited mutual fund returns data is that it ignores the issue of survivorship bias, the tendency for mutual funds with poor performance to be merged into other funds or shut ...Read More

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The Gadfly from Yale Continues to Buzz the 401(k) Industry

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by Jay D. Franklin and Mark Hebner — Tuesday, April 8, 2014

Last year, we wrote about the exploits of Professor Ian Ayres of Yale Law School. You may recall him as the fellow who sent letters to 6,000 plan sponsors whom he identified as having especially high expenses. ...Read More

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Seven Ways to Fool Yourself

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by Jim Parker — Tuesday, April 8, 2014

The philosopher Ludwig Wittgenstein once said that nothing is as difficult for people as not deceiving themselves. But while most self-delusions are relatively costless, those relating to investment can come ...Read More

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