History of Changes to the IFA Indexes and Portfolios

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)

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.

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:

  • The availability of new and better sources of data for historical returns.
  • The correction of errors in the prior data.
  • 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%

January 2008

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.

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:

  • The availability of new and better sources of data for historical returns.
  • The substitution of U.S. Small Cap for U.S. Micro Cap.
  • 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%
Old 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 1/1928 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%
Old 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.

November 2012

IFA changed the allocations and the historical returns for its socially responsible portfolios to reflect the introduction of the DFA International Social Core Equity Portfolio (DSCLX). Prior to this, the international developed equity asset class was unavailable in a socially responsible implementation. As the table below shows, clients who were invested in the old allocation from the time it became available (January 2008) likely did better than they would have done with the new allocation. The difference is not statistically significant, and it is IFA’s advice that going forward having an exposure to international developed equities will provide a substantial diversification benefit to socially responsible investors.

Monthly Performance: 1/2008 - 10/2012
Data Series Annualized Return (%) Annualized Standard Deviation (%)
IFA Socially Responsible Portfolio 50 (Old) 2.54 13.89
IFA Socially Responsible Portfolio 50 (New) 2.02 13.91
IFA Socially Responsible Portfolio 090 (Old) 0.74 24.16
IFA Socially Responsible Portfolio 090 (New) -0.04 24.19

September 2013

IFA introduced the New IFA Index Portfolios which use the same equity allocation as Index Portfolio 100. Index Portfolio 100 was held the same as it has been since 2000 and became the only 100 percent equity portfolio in the NEW Index Portfolios. The four fixed income indexes (25% each) remain the same as they have been since 2000 and will make up the fixed income allocation of all IFA index portfolios in the allocation equal to 100-New IP#. The name of each portfolio will now equate to the percentage of equities in the portfolio. For example, the new Index Portfolio 60 will be 60% equities and 40% fixed income.

See full disclosure.

June 2015

IFA introduced Profitability into the historical back-tested returns of the equity funds. IFA wanted to incorporate the new research completed by Fama/French that introduced profitability as its fourth factor in their asset pricing model. In June 2013, Fama/French expanded upon the research first published by Robert Novy-Marx. Fama/French define profitability as a ratio of operating profitability minus interest expense to book value.

Profitability = (Operating profit - Interest expenses)/book value

Profitability was back-tested by DFA back to 1975. Below is a comparison of IFA portfolio 100 pre-profitability vs IFA portfolio 100 including profitability. The overall impact of profitability for 39 years and 6 months is shown in the table below

Monthly Performance : 01/1975 - 06/2015
Data Series Annualized Return (%) Annualized Standard Deviation (%)
IFA Index Portfolio 100 with Profitability 14.91 15.87
IFA Index Portfolio 100 without Profitability 14.80 15.86

June 2016

In June 2016, IFA changed the back-testing IFA International value. Previously, IFA International Value was back-tested with longer, US-only data. This US-only data extended to 12/1969. Currently we now back-test Dimensional UK Large Value Index 7/1/1955 - 12/1969, providing us a better representation of international markets during that time period. Also, we changed to Fama/French International value from 1/1/1975 - 2/29/1994 because that is a closer approximation of DFA International Value then the MSCI EAFE Value.

OLD International Value Index Backtest

  • Jan 1928 - Dec 1969: IFA US Large Value Index
  • Jan 1970 - Dec 1974: MSCI EAFE )(net Div) minus 3.58 bp/month
  • Jan 1975 - Jun 1993 = MSCI EAFE Value Gross - 3.58 bp/month
  • Jul 1993 - Feb 1994 = LWAS/DFA Int'l High BtM
  • Mar 1994 - Present = DFA International Value Fund (DFIVX)

NEW International Value Index Backtest

  • Jan 1928 - Jun 1955: IFA US Large Value Index
  • July 1955 - December 1969 Dimensional UK Large Value minus 3.58 bp/month
  • January 1970 - December 1974 MSCI EAFE Index (net Div) minus 3.58 bp/month
  • January 1975 - February 1994 Fama/French International Value minus 3.58 bp/month
  • Mar 1994 - Present = DFA International Value Fund (DFIVX)

Performance : 01/1928 - 05/2016
Data Series Annualized Return (%) Annualized Standard Deviation (%) Growth of $1
OLD International Value Index 9.22 22.77 $2,427.97
NEW International Value Index 10.69 23.26 $7,945.61

Notes: