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 family we provide 16 measures of how much an aggregate of its fundamental indexes outreturned its corresponding DFA traditional benchmark portfolio through June 2014. Taking averages, (1) the Research Affiliates PowerShare aggregate out-returned its corresponding DFA traditional benchmark portfolio by 1.08 %/year, (2) the DFA fundamental aggregate under-returned by 0.30 %/year, and (3) the WisdomTree aggregate under-returned by 0.74 %/year. One cheer for fundamental international indexation and two for traditional indexation.
Edward Tower is a Professor of Economics at Duke University and a long-term visiting professor at Chulalongkorn University in Bangkok Thailand.
Heehyun Lim is a Phd Candidate and Teaching Fellow at the University of Maryland, College Park.
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Acknowledgments
This chapter is an update and revision of Lim’s honors thesis, which was supervised by Tower. Her thesis is available from her upon request. Bill Bernstein, Henry Blinder, James Dean, John Guerard, Mel Lindauer, and Steve Thorpe provided helpful suggestions. Rob Arnott, Noah Beck, and Vitali Kalesnik kindly commented on a near final version of the chapter. The latter are the readers we have quoted in several instances.
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Lim, H., Tower, E. (2017). Fundamental Versus Traditional Indexation for International Mutual Funds: Evaluating DFA, WisdomTree, and RAFI PowerShares. In: Guerard, Jr., J. (eds) Portfolio Construction, Measurement, and Efficiency. Springer, Cham. https://doi.org/10.1007/978-3-319-33976-4_15
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DOI: https://doi.org/10.1007/978-3-319-33976-4_15
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