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

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.

TOPICS: Mutual fund performance, developed, performance measurement