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DFA Vs. Vanguard: Another Take

My MoneyWatch colleague Allan Roth wrote an interesting post last week comparing the two leading investment options for passive investors: Dimensional Fund Advisors (DFA) and Vanguard. I wholeheartedly agree with Allan's conclusion that the far more important decision for investors is whether they should use actively-managed or passively-managed funds. However, there are a few more points regarding the comparison that I feel should be made.

Both companies are deserving of their great reputations for providing quality solutions to passive investors. In fact, my book Wise Investing Made Simple includes an appendix of investment vehicle recommendations that included funds from both fund families. However, once you have decided to be passive, you want the best vehicle available.

To help you decide, the following is a comparison of the returns over the last 10 calendar years for the comparable funds of DFA and Vanguard.

U.S. Large-Cap

  • DFA US Large Company Institutional Index Portfolio (DFUSX) -- -0.96%
  • Vanguard 500 Index Admiral Shares (VFIAX) -- -0.96%
U.S. Large-Cap Value
  • DFA US Large Cap Value Portfolio III (DFUVX) -- 4.53%
  • Vanguard Value Index Admiral Shares (VVIAX) -- 1.31%
U.S. Small-Cap
  • DFA US Micro Cap Portfolio (DFSCX) -- 6.30%
  • DFA US Small Cap Portfolio (DFSTX) -- 5.72%
  • Vanguard Small-Cap Index Admiral Shares (VSMAX) -- 4.46%
U.S. Small-Cap Value
  • DFA US Small Cap Value Portfolio (DFSVX) -- 9.13%
  • Vanguard Small-Cap Value Index (VISVX) -- 7.69%
Emerging Markets
  • DFA Emerging Markets Portfolio (DFEMX) -- 9.50%
  • DFA Emerging Markets Value Portfolio (DFEVX) -- 13.87%
  • DFA Emerging Markets Small-Cap Portfolio (DEMSX) -- 12.31%
  • Vanguard Emerging Markets Stock Index Admiral Shares (VEMAX) -- 9.88%
Real Estate
  • DFA Real Estate Securities Portfolio (DFREX) -- 10.48%
  • Vanguard REIT Index Admiral Shares (VGSLX) -- 10.48%
As Allan mentioned, DFA uses the research of Eugene Fama and Ken French to give its portfolios more of a tilt towards the small-cap and value asset classes. Thus, we should expect that for periods when the value and size premiums are positive, DFA funds should outperform, and vice versa. But those higher expected returns are compensation for incremental risks, not a free lunch.

On Wednesday, we'll look at a few more considerations for the debate, including my take on the study Allan cited in his article.