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Article

Fundamental versus Traditional Indexation for International Mutual Funds: Evaluating DFA, WisdomTree, and RAFI PowerShares

Heehyun Lim and Edward Tower
The Journal of Investing Winter 2014, 23 (4) 85-98; DOI: https://doi.org/10.3905/joi.2014.23.4.085
Heehyun Lim
is a business consultant in the Republic of Korea.
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  • For correspondence: heeh.lim@gmail.com
Edward Tower
is a professor of economics at Duke University in Durham, North Carolina, and a long-term visiting professor at Chulalongkorn University in Bangkok, Thailand.
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  • For correspondence: tower@econ.duke.edu
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Abstract

Do fundamental index funds beat traditional ones? The major companies that offer the new fundamentally indexed international mutual funds are Dimensional Fund Advisors (DFA), Research Affiliates, and WisdomTree. A major provider of traditional international index funds is DFA. We compare various fundamental international index fund portfolios from these providers with individualized benchmark portfolios composed of DFA traditional international funds. For each fund family, we provide 16 measures of how much an aggregate of its fundamental indexes out-returned its corresponding DFA traditional benchmark portfolio through June 2014. Taking averages, (1) the Research Affiliates PowerShare portfolio out-returned its corresponding DFA traditional benchmark portfolio by 1.08%/year, (2) the average DFA fundamental portfolio under-returned by 0.30%/year, and (3) the WisdomTree portfolio under-returned by 0.74%/year. One cheer for fundamental international indexation and two for traditional indexation.

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The Journal of Investing: 23 (4)
The Journal of Investing
Vol. 23, Issue 4
Winter 2014
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Fundamental versus Traditional Indexation for International Mutual Funds: Evaluating DFA, WisdomTree, and RAFI PowerShares
Heehyun Lim, Edward Tower
The Journal of Investing Nov 2014, 23 (4) 85-98; DOI: 10.3905/joi.2014.23.4.085

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Fundamental versus Traditional Indexation for International Mutual Funds: Evaluating DFA, WisdomTree, and RAFI PowerShares
Heehyun Lim, Edward Tower
The Journal of Investing Nov 2014, 23 (4) 85-98; DOI: 10.3905/joi.2014.23.4.085
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  • Article
    • Abstract
    • STYLE ANALYSIS
    • HOW DO WE CREATE THE CLONE PORTFOLIO?
    • WHY USE A CLONE PORTFOLIO AND STYLE ANALYSIS?
    • WHY USE CONTINUOUS COMPOUNDING AND GEOMETRIC AVERAGE RETURN?
    • WHY USE EQUALLY WEIGHTED PORTFOLIOS AND RISK-AVERSE PORTFOLIOS?
    • WHY DO SOME OF OUR PORTFOLIOS ALLOW SHORT SELLING?
    • DATA
    • THE EXHIBITS
    • DFA INDIVIDUAL FUNDS
    • RAFI INDIVIDUAL FUNDS
    • WISDOMTREE INDIVIDUAL FUNDS
    • THE INDIVIDUAL FUNDAMENTAL INDEX FUNDS
    • FUNDAMENTAL INDEX PORTFOLIOS
    • DFA AGGREGATES
    • RAFI AGGREGATES
    • WISDOMTREE AGGREGATES
    • DOES THE FIRST-HALF PERIOD a PREDICT THE SECOND-HALF PERIOD a?
    • ARE THE aS EXPLAINED BY DIFFERENT SECTOR RETURNS?
    • CONCLUSION
    • ENDNOTE
    • REFERENCES
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