Disclosures for the Backtested Performance of Model Index Portfolios and Indexes

  1. Past performance does not guarantee future results. There is a potential for loss in any investment. Index Fund Advisors, Inc. (IFA) does not guarantee any minimum level of investment performance or the success of any index portfolio or investment strategy. All investments involve risk and investment recommendations will not always be profitable. Impacts of federal and state taxes are not included in the results of index portfolio or index returns. Tax liabilities will vary per investor and can result from various activities in taxable and tax-deferred accounts. These activities include, but are not limited to rebalancing of portfolios, any sale of securities, tax loss harvesting, interest, dividends and capital gains distributions from equity funds and individual securities in taxable accounts. There are also tax liabilities associated with distributions from tax-deferred accounts.

  2. Index Fund Advisors, Inc. is an SEC registered Investment Adviser. Information pertaining to IFA’s advisory operations, services, and fees is set forth in IFA’s current Form ADV Part 2 (Brochure) which is available upon request and at www.adviserinfo.sec.gov.

  3. The IFA investment strategy is based on principles generally known as Modern Portfolio Theory and the Fama and French Four Factor Model for Equities and Two Factor Model for Fixed Income. Index portfolios are designed to provide substantial global diversification in order to reduce investment concentration and the resulting potential increased risk caused by the volatility of individual companies, indexes, or asset classes.

  4. IFA defines index funds as funds that follow a set of rules of ownership that are held constant regardless of market conditions. An important characteristic of an index fund is that its rules of ownership are not based on a forecast of short-term events or the mispricing of securities. Therefore, an investment strategy that is limited to the buying and rebalancing of a portfolio of index funds is often referred to as passive investing, as opposed to active investing.

  5. The performance information presented in certain charts or tables represents backtested performance based on a combination of simulated index data and live (or actual) mutual fund results from January 1, 1928 to the period ending date shown, using the strategy of buy and hold and annually rebalancing on the first of each year of the globally diversified portfolios of indexes. Backtested performance is hypothetical and does not reflect trading in actual accounts. It is provided for informational purposes only to indicate historical performance had the index portfolios been available over the relevant time period. IFA did not offer the index portfolios until November 1999. Prior to 1999, IFA did not manage client assets. There are limitations inherent in model results, particularly that model returns do not reflect actual trading and may not reflect the impact that material economic and market factors may have had on the adviser’s decision-making had the adviser actually managed client funds.

  6. Simulated index data is based on the performance of indexes and live mutual funds as described in the IFA Indexes Data Sources page (see www.ifaindexes.com). A review of the IFA Index Data Sources, IFA Indexes Time Series Construction (http://www.ifa.com/disclosures/charts/#timeseries) and several of the Dimensional Indexes (http://www.ifa.com/disclosures/charts/#dfafunds) is an integral part of this disclosure and should be read in conjunction with this explanation of backtested performance information presented.

  7. The index mutual funds used in IFA’s Index Portfolios are IFA’s best estimate of a mutual fund that will come closest to the index data provided in the simulated indexes. Simulated index data is used for the period prior to the inception of the relevant live mutual fund data and a mutual fund expense ratio is deducted from simulated index data. Live (or actual) mutual fund performance is used after the inception date of each mutual fund. The IFA Indexes Times Series Construction goes back to January 1928, with an increasing diversification to international markets, emerging markets and real estate investment trusts as data became available. As of January 1928, there are four equity indexes and two bond indexes; in January 1970 there are a total of 8 indexes, and there are 15 indexes in March 1998 to present. See (https://www.ifa.com/disclosures/charts/#IFA_evolution) to see the analysis of the evolution of these portfolios.

  8. Backtested performance is calculated by using a software program and monthly returns data set that starts with the first day of the given time period and evaluates the returns of simulated indexes minus fund fees and mutual funds returns. In 1999, tax-managed funds became available for many different mutual funds. The tax-managed funds are not used in calculating the backtested performance of the index portfolios, unless specified in the table or chart. Whenever the term IFA Index Portfolio Value Data is used, it is based on a starting value of one at the beginning of stated time period.

  9. Backtested performance does not represent actual performance, trading costs or the impact of taxes and should not be interpreted as an indication of such performance. Actual performance for client accounts may be materially lower than that of the index portfolios. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investment adviser’s decision-making process if the adviser were actually managing client money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios (in this case, IFA’s Index Portfolios) designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable. The next section includes details of changes in the models since inception.

  10. History of Changes to the IFA Indexes: 1992-2000: IFA’s Original Index Portfolios 10, 30, 50, 70 and 90 were suggested by Dimensional Fund Advisors (DFA) in 1992 (ifa.com/pdfs/1992.pdf), as an example of globally diversified asset classes, with moderate modifications in 1995 (ifa.com/pdfs/1995.pdf), to reflect the availability of mutual funds that tracked the emerging markets asset class. Index Portfolios between each of the above listed portfolios were created by IFA in 2000 by interpolating between the above portfolios. Portfolios 5, 95 and 100 were created by IFA in 2000, as a lower and higher extension of the DFA 1992 risk and return line. There are numerous other changes that occurred from 2002 to present and they are all described in on www.ifa.com/disclosures/history/.

  11. Backtested performance results assume the re-investment of dividends and capital gains and annual rebalancing at the beginning of each year. It is important to understand that the assumption of annual rebalancing has an impact on the monthly returns reported for IFA Index Portfolios. If IFA used monthly rebalancing, the monthly return would be calculated with the assumption that the portfolio is perfectly in balance at the beginning of each month. For annual rebalancing, the year-to-date and monthly return is calculated with the assumption that the portfolio is perfectly in balance at the beginning of each year. The latter assumption underlies the returns shown for the IFA Index Portfolios. In actual client portfolios, however, rebalancing occurs at no set time, and such actions are dependent on both market conditions and individual client cash inflows and outflows, along with the cost impact of such transactions on the overall portfolio.

  12. The past performance of all IFA Index Portfolios, but not IFA Indexes, is shown net of IFA’s annual maximum investment management fee of 0.9%, by deducting 0.075% from month end returns, unless stated otherwise. We deduct investment management fees from IFA Index Portfolio returns because the creation, choice, monitoring and rebalancing of index portfolios the services of the investment advisor. Monthly fee deduction is used for backtesting. Actual IFA advisory fees are deducted quarterly, in advance. Depending on the amount of assets under management and other factors, investment management fees may be less. Unless indicated otherwise, data shown for each individual IFA Index is shown without a deduction of the IFA advisory fee. Since IFA accepts no fees from investment product firms, IFA compares funds based on net asset value returns, which are net of the mutual fund company expense ratios only. Although index mutual funds minimize tax liabilities from short and long-term capital gains, any resulting tax liability is not deducted from performance results. Performance results also do not reflect transaction fees and other expenses charged directly by custodians to the clients, which reduce returns.

  13. For all data periods, annualized standard deviation is presented as an approximation by multiplying the monthly standard deviation number by the square root of 12. Please note that the number computed from annual data may differ materially from this estimate. We have chosen this methodology because Morningstar uses the same method. In those charts and tables where the standard deviation of daily returns is shown, it is estimated as the standard deviation of monthly returns divided by the square root of 22.

  14. Performance results for clients that invested in accordance with the IFA Index Portfolio Models will vary from the backtested performance due to the use of funds for implementation that differ from those in the index data, market conditions, investments cash flows, mutual fund allocations, changing index allocations over time, frequency and precision of rebalancing, not following IFA’s advice, retention of previously held securities, tax loss harvesting and glide path strategies, cash balances, lower than 0.9% advisory fees, varying custodian fees, and/or the timing of fee deductions.

  15. Not all IFA clients follow IFA’s recommendations and depending on unique and changing client and market situations, IFA may customize the construction and implementation of the index portfolios for particular clients. IFA provides various index portfolio implementation strategies, such as the use of tax-managed mutual funds, global extended maturity bond funds, municipal bond funds, social or sustainable screens added to funds, diversified portfolios of various index fund providers, use of core funds or global asset allocation funds. These various implementations of IFA Index Portfolios will likely have risks and returns that vary from the IFA Index Portfolio Models. As the result of these and other variances, actual performance for client accounts have been and are likely to be materially different and may be less than from the results shown in the IFA Index Portfolio Models. Clients should consult their account statements for information about how their actual performance compares to that of the index portfolios and ask your IFA Wealth Advisor to explain any differences.

  16. IFA licenses the use of data, in part, from Morningstar Direct, a third-party provider of stock market data. Where data is cited from Morningstar Direct, the following disclosures apply: ©2019 Morningstar, Inc. All rights reserved. The information provided by Morningstar Direct and contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. IFA Index Portfolios, times series, standard deviations, and returns calculations are derived using IFA software. IFA software applies rebalancing rules, monthly fee adjustments and creates time series construction of data. Our source data comes from many places including Dimensional Fund Advisors and Morningstar Direct software.

  17. IFA is not paid any brokerage commissions, sales loads, 12b-1 fees, or any form of compensation from any mutual fund company or broker dealer. The only source of compensation from client investments is obtained from asset-based advisory fees paid by clients. More information about advisory fees, expenses, mutual fund fees, and prospectuses for mutual funds can be found at https://www.ifa.com/fees/.

  18. DISCLAIMER: THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION PROVIDED HEREIN OR ON THE MATERIAL PROVIDED. This document does not constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation or an offer to sell securities or investment advisory services. Any statements regarding market or other financial information is obtained from sources which we and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the user. All investments involve risk, including foreign currency exchange rates, political risks, market risk, different methods of accounting and financial reporting, and foreign taxes. Your use of these and all materials provided by IFA, including www.ifa.com website is your acknowledgement that you have read and understood the full disclaimer as stated above. Updated 3-22-2019. For additional updates please refer to www.ifabt.com.