IFA Announces Changes to Implementations of its Index Portfolios
On January 1, 2008, DFA enacted a “soft close” of two of its funds. This meant that existing investors were able to add to their current positions, but new investors were not able to purchase positions in these funds. At that point, IFA stopped using the DFA U.S. Micro Cap Portfolio or the DFA U.S. Small Cap Value Portfolio for new investors (or for new non-taxable accounts added by existing investors).
In place of Micro Cap, the DFA U.S. Small Cap Portfolio (DFSTX) was substituted. DFSTX includes holdings in micro cap companies. In place of Small Cap Value, the DFA U.S. Targeted Value Portfolio (DFFVX) was substituted. DFFVX has a slightly larger range of acceptable company sizes than Small Value. These changes applied to non-taxable accounts only. For taxable accounts, no changes were made.
Since the returns on the website are primarily geared to prospective investors, the historical index portfolio returns shown were changed to reflect these substitutions. At the end of 2010, DFA re-opened these funds to new investors, and while IFA has started using them for both new and existing clients, IFA has opted not to use them in its historical index portfolio returns due to a high likelihood of them being closed again. Below is a table showing returns and standard deviation for the fifty year period ending 12/31/2010.
| January 1961 to December 2010 |
| |
Annualized Return |
Std Deviation |
| P90 w/Small Cap & Targeted Value |
12.36% |
15.26% |
| P90 w/Micro Cap & Small Value |
12.43% |
15.31% |
| |
|
|
| P100 w/Small Cap & Targeted Value |
13.10% |
16.16% |
| P100 w/Micro Cap & Small Value |
13.24% |
16.37% |
Beginning on June 3, 2008, IFA started using the DFA Global Real Estate fund in place of the U.S. Real Estate fund for new clients. Historical returns for the IFA Real Estate Index were not changed. |
1. November 2002: Due to the high similarity of the
1999 versions of index portfolios 95 and 100 to index portfolio 90, the
95 and 100 portfolios were moderately modified in November 2002 to have
higher exposure to small and value equities throughout the world. According
to the extensive research of Eugene Fama, Kenneth French and Jim Davis,
utilizing data from the Center for Research of Security Prices (CRSP)
over a 68 year period from July 1929 to June 1997, this change has higher
risk and return expectations than the previous versions of 95 and 100.
(see Characteristics,
Covariances, and Average Returns: 1929-1997)
2. January 2004: IFA changed the computer program
setting to calculate annual rebalancing on the various indexes in the
index portfolios in January 2004. Previous to that they were rebalanced
monthly. Annual rebalancing is closer to the actual rebalancing of
client accounts, therefore it was adopted as the new method in January
2005.
3. June 2006: The historical monthly returns
of the fifteen IFA indexes and the twenty IFA index portfolios
were reconstructed in June of 2006 to address the following
issues:
- I.) The availability of new and better sources of data for historical
returns.
- II.) The correction of errors in the prior data.
- III.) Changes to the substitution of U.S. index data for international
indexes in years prior to the existence of international data.
The overall impact of these changes to the returns is small. To illustrate,
the 79-year average annualized returns for Portfolios 5, 50, and 100
changed as follows:
Average Annualized Return
from Jan. 1927 to Dec. 2005
| |
Portfolio 5 |
Portfolio 50 |
Portfolio 100 |
Old Return |
5.66% |
9.65% |
12.58% |
New Return |
5.54% |
9.58% |
12.62% |
4. January 2008: The historical monthly returns of
the fifteen IFA indexes and the twenty IFA index portfolios were reconstructed
in January of 2008 to address the following issues:
- I.) The availability of new and better sources of data for historical
returns.
- II.) The substitution of U.S. Small Cap for U.S. Micro Cap.
- III.) The substitution of U.S. Targeted Value for U.S. Small Value.
The overall impact of these changes for 80 years is shown in the table
below:
Average Annualized
Returns from 1/1928 to 12/2007:
| |
Portfolio 5 |
Portfolio 50 |
Portfolio 100 |
Old Return |
5.51% |
9.43% |
12.38% |
New Return |
5.27% |
8.89% |
11.66% |
|
Old Standard Deviation |
4.49% |
15.00% |
26.56% |
New Standard Deviation |
4.18% |
13.01% |
22.66% |
|
Old Reward-to-Risk Ratio |
1.23% |
0.63% |
0.47% |
New Reward-to-Risk Ratio |
1.26% |
0.68% |
0.51% |
The overall impact of these changes for 50 years is shown in the table
below:
Average Annualized
Returns from 1/1957 to 12/2007:
| |
Portfolio 5 |
Portfolio 50 |
Portfolio 100 |
Old Return |
6.99% |
10.97% |
14.68% |
New Return |
6.78% |
10.63% |
14.25% |
|
Old Standard Deviation |
3.22% |
8.71% |
15.32% |
New Standard Deviation |
3.59% |
8.64% |
14.85% |
|
Old Reward-to-Risk Ratio |
2.17% |
1.26% |
0.96% |
New Reward-to-Risk Ratio |
1.89% |
1.23% |
0.96% |
All new tables and charts updated after January 1, 2008 will be based
on the updated data series.
For full disclosure,
see ifabt.com |