The Equius Blog is updated frequently with original content and links to articles and other media from academics, industry partners and other respected sources. Posts will generally be of a financial, economic, or investment nature. Any political inferences, real or perceived, are the sole responsibility of the author and the reader. Opinions expressed are not necessarily those of Equius Partners.
Quarterly Equity Mutual Fund Flows, January 2008 – September 2011
Industry vs. DFA Relative to the S&P 500 Index performance
The asset class mutual funds of Dimensional Fund Advisors (DFA) are available only to investors of approved investment advisors. The discipline and long-term focus of these advisors and their clients are evident in this graphic. Old-school Wall Street continues to promote emotion-based, short-term speculation as long-term investing, and millions of advisors and investors blindly follow its lead like lemmings off a cliff. For the enlightened few, there is a better way.
For illustration purposes only. Industry net new cash flow data for US-domiciled equity funds provided by Investment Company Institute ©2011. Quarterly cash flows are estimates that are adjusted to represent industry totals, based on reporting covering 95% of industry assets. Dimensional's figures are based on net new cash from financial advisors in US-domiciled funds. Industry and Dimensional data reflect investment in US and international equity markets and do not include funds of funds. S&P 500 Index performance is based on monthly returns data. The S&P data are provided by Standard & Poor's Index Services Group. The S&P 500 includes 500 US stocks chosen for market size. Past performance is no guarantee of future results.
The private equity business has taken a pounding in the mainstream press, from both sides of the political spectrum, because of Mitt Romney's history with Bain Capital. The degree of misinformation, biased reporting, and outright ignorance on this topic does not surprise us–most of what we read on economics, finance, and investments in the mainstream press (and now the blogosphere) is shamefully shallow and devoid of facts–so it's nice to come across an article worth a read. Steve Kaplan, the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business, has written such an article in The American this month.
We're not endorsing private equity as an investment due to liquidity, risk, cost, and other factors, and we believe a globally diversified asset class portfolio of public securities is a better choice for long-term investors. In fact, it should be pointed out that Kaplan's statement that "On average, every dollar invested in a private equity fund delivered at least 20 percent more than a dollar invested in the S&P 500" isn't that impressive when one considers that an index of small value stocks* delivered 35% more return than the S&P 500 over the past 84 years.
*DFA US Small Value index, 13.0%; S&P 500 9.6%;1928-11/2011. Source: Dimensional Fund Advisors
This information is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This information contains the opinions of the author but not necessarily Equius Partners and does not represent a recommendation of any particular security, strategy or investment product. Equius Partners is an investment advisor registered with the Securities and Exchange Commission. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that stated results will be replicated.