Forum Archive Index - April 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Travis, 

I have been looking at three things:

1/  The aus.invest FAQ and in particular your section on selecting 
active fund managers (which also comments on index funds).

2/ The July 30th 2002 Prospectus of  'Dimensional Investment Group' 
downloaded off the web, and in particular the performance of the 
'Pacific Rim Small Company Portfolio'  as listed on the page numbered 
68 of that document.

3/ My own investment performance on the NZ and Australian 
sharemarkets from 1997 to 2002.

I chose Dimensional's 'Pacific Rim Small Company Portfolio' (PRSCP) 
for particular attention because it seems to most closely cover the 
investment universe of those people contributing to this forum.

Now, I hear your comment on how low management expense ratios 
(MERs)  and low portfolio turnover are things to look out for.   I also 
note that you suggest that a 0.6% MER is a good benchmark to aim 
for.

However, when I look at the actual performance of the Dimensional 
PRSCP fund, I see that the MER is significantly higher than this.   An 
average of :

(0.84%+0.84%+0.94%+0.74%+0.75)/5= 0.822% pa in fact.

Then when I look at portfolio turnover over the last 5 years I see an 
average figure of:

(24%+26%+34%+7%+10%)/5= 20.2% pa

To me, selling an average of one of every five shares you own every  
year is quite a high turnover.  

Or have I got this wrong and does this 'turnover' include buying and 
selling?  If so, that means the actual rate of change in the share 
portfolio is only 10% per year, because selling 10% of your portfolio 
and buying something else of equivalent value means the money 
involved for the shares in question goes through the brokers hands 
twice?   (10% value sold + 10% value bought = 20% turnover).

The other thing that concerns me about this fund is that the net 
investment income is negative for all of the five years listed.     I 
presume this means that 'on average' people are pulling money out of 
the fund.   Does this not mean that Dimensional are being forced to 
sell out of value investments at the bottom of the market?  I would have 
thought that be be a true value investor you should be a net buyer 
when the markets are down?

Perhaps this is one reason, (the rest being my own lower MER and 
lower turnover)  why while followiing a broadly value based strategy 
myself (although generally chasing yield rather than a low asset to 
book value price) I seem to have done significantly better than this 
fund investing in the Australian and NZ market. 

 If I read the returns on p68 correctly, the Dimensional 'Pacific Rim 
Small Company Portfolio'  has turned $10,000 invested at the start of 
FY1997 into:

$10,000 x (1-0.3807)= $6,193 at EOY 1997
$6,193 x (1-0.2398)= $4,708 at EOY 1998
$4,708 x (1+0.5436)= $7,267 at EOY 1999
$7,267 x (1-0.1525)=  $6,159 at EOY 2000
$6,159 x (1+0.2320)= $7,588 at EOY2001

25% of the original capital lost over five years is not a good medium 
term result IMO!   When you consider that the actual capital lost must 
be more than this, because these returns take into account the 
dividends paid, I don't think this fund stacks up to your 'good fund 
criteria' very well.   Comments?

SNOOPY

 



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