It’s been 18 months since this blog documented the greater risk, higher fees, and middling performance of DFA funds versus Vanguard, and it’s time to update our results. I’d hoped to do so after one year, but time did not allow. Please read this post to understand DFA’s strategy, and the reason we’re using DFA’s Vector Equity fund for our comparison.
18 Months Later
Below is the total return (price increase plus reinvested dividends) of the DFA Vector Portfolio fund (DFVEX, blue line) versus the Vanguard Total Stock Market fund (VTSAX, orange line), which simply tracks the market as a whole:
Here’s a close-up of the upper left hand corner:
While DFA has underperformed Vanguard for many years, this trend seems to have accelerated recently.
Over the last 10.5 years, Vanguard has outperformed DFA by .9% per year, and that’s before DFA adviser fees and sales commissions.
As well as higher cost and under-performance, it’s important to note the greater risk those who concentrate their stock holdings in small and value stocks assume. Note the sharper loss of the DFA fund versus the Vanguard fund during the crisis of 2008-09.
After an abysmal first 15 years (1981 was a bad year to launch a small stock fund), DFA had a few years of out-performance during the Clinton administration. DFA advisers continue to market this brief period – when DFA was a tiny fund company – as if it persists to this day. The results above, however, tell a very different tale.
DFA captures a slice of less sophisticated customers who believe there really is a free lunch lurking somewhere in “factor” portfolios, though they’re not sure where, or why. In reality, markets behave rationally and move randomly, and cost and diversification should be the focus of investors.