We are big advocates of index funds and definite belief in the work of Fama - French and others which has shown the outperformance over long periods of small cap and particularly small cap value stocks.
The January 1999 WSJ discussed small cap funds praising their benefits.
The article gave a summary of the reasons why small cap mutual funds should have a place in its portfolio . In a chart called Small Can Make it Big it listed top performance of some small cap and small cap value funds for 2003 -2006 attributing the success to manager skill.
Here is the honor roll along with 3 yr performance
Birmival Oasis 35.8%
Pacific Adviors Small cap 26.1%
Gartmore Small Cap 25.8%
Paradigm Value 23.5%,
Keeley Small Cap Value 22.7%,
Dreman Contrarian Small Cap Value 22.1%,
Royce Value Service 20.1%
Wasatch Micro Cap Value 19.4%
DWS Dreman Small Value 19.4%
Impressive evidence of stock picking skill no doubt, right ?
Well not exactly. Here are the 3 year returns for Dimensional Fund Advisors (DFA) funds in the same categories
DFA Small Cap Fund 19.35%
DFA Small Value Fund 26.5%
DFA XSmall (microcap ) fund : 25.85%
In other words only one of the funds in the above list beat all 3 of the DFA funds, two of the DFA funds out of three DFA funds would place second or third on the list, and all of the DFA index, non actively managed funds woul have made (or missed by.o5%) the list.
So was it really manager stock picking skill and not the asset class that generated the return. I certainly don't think so.
Later on I will check the longer term performance of the funds, their after tax returns and the volatility (riskiness ) of the funds compared to the DFA index funds
No comments:
Post a Comment