PROVIDEND FUNDS FROM DIMENSIONAL FUND ADVISERS (DFA) Fee-based retirement-planning firm Providend is working with Dimensional Fund Advisers (DFA) to offer a low-cost investment approach for accredited investors. To date, eight DFA funds have been lodged with the authorities.
Providend portfolio's expense ratio of 1.3 per cent - comprising a management fee of 0.3 per cent and a wrap fee of up to 1 per cent - is lower than the conventional 2 to 2.5 per cent fee that most unit trusts charge. A more conservative portfolio charges a wrap fee of 0.5 per cent which translates to a total expense ratio of 0.8 per cent.
Accredited investors are those with net personal assets exceeding $2 million or whose income was not less than $300,000 in the preceding 12 months.
DFA believes that it is possible to achieve higher returns by investing in stocks rather than bonds, small firms rather than large ones, value companies rather than growth companies, and high-profitability companies.
A value company tends to be characterised by a low price-to-book ratio and a high dividend yield. Its shares trade at a lower price relative to its fundamentals such as dividends, earnings and sales.
Cost is one of the few things that we can control in our investments. If you go with low-cost investments, you have a significant part of the battle won.
'' MR CHRISTOPHER TAN, chief executive of financial advisory firm Providend.
Founded in 1981, DFA has global assets under management that amounted to US$416 billion (S$560 billion) as at June. It is well known for applying advanced financial science research to equity and fixed-income investment strategies. In fact, its board members are the who's who in the financial research sector, like financial economist Myron Samuel Scholes, while American economist Robert Merton is DFA's resident scientist.
DFA's portfolio-management focus is on diversifying across many stocks in each market, like an index. However, unlike an index, DFA is able to lower its cost of trading by avoiding buying or selling stocks just to have a certain stock or a number of them in the portfolio. It also avoids the cost associated with travelling to attend company visits to analyse stocks since it is not a stock picker. DFA uses low-cost trading algorithms which, along with its size and scale, allow it to enjoy lower trading costs.
For its DFA Global Core Equity Fund, its one-year return is minus 3.4 per cent, while its three-year return is 6.5 per cent and the five-year return is 5.98 per cent. Since its inception on Sept 3, 2008, the fund has posted a return of 5.36 per cent.
Mr Christopher Tan, chief executive of Providend, said that the DFA partnership is a good fit with Providend as its investment philosophy is to avoid market timing and to stay invested by investing regularly over the long term. To do that, investors are encouraged to choose low-cost, well-diversified portfolios that fit their risk profile and needs.
He said: "Investment returns may be a lot lower in the future, so start planning early and look for investment options that are low-cost, but still deliver results.
"Cost is one of the few things that we can control in our investments. If you go with low-cost investments, you have a significant part of the battle won. Additionally, too many investors treat investing like a game or a gamble, and seek the highest returns while paying no attention to risk at all. Choose low-cost, well-diversified portfolios that fit your risk profile and your needs."
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