Replicating a Dimensional Funds Portfolio

by: Travis Pickens

Dimensional Fund Advisors (DFA) is an amazing company with an amazing list of VIPs among their advisors. Many of the ideas generated by these advisors have revolutionized the investment world and DFA continues to acquire assets at an amazing pace. There is a major downside, however, to this great company.

DFA funds are only available through financial advisors and only certain advisors at that. When I founded Asset Advisors, I approached DFA to see if I could be approved and they declined me because I did not have a long enough track record. Because of this, I decided to see if I could replicate DFA strategies and success utilizing ETFs and found that it was not difficult at all. I started my search by looking for a DFA advisor's recommended moderate portfolio.

Once I found the portfolio, I used Morningstar to determine each of the DFA funds holdings and began comparing those with ETFs in the respective asset class. For almost each fund, I was able to find a comparable ETF that had similar holdings, expenses and performance. Obviously it wasn't a perfect match so I decided to put it into model portfolios to see how my ETF portfolio performed against the DFA portfolio.

The DFA Moderate Portfolio since 1/4/2011 is on top of the image below. The one problem I ran into was that the DFA Commodity fund is less than a year old so I wasn't able to model that fund's performance. I wanted to include a commodity exposure as was recommended in the portfolio so I put the ETN into the DFA portfolio.

click to enlarge

As you can see, my ETF portfolio performed right in line with the DFA funds. For all the do it yourself investors out there who want DFA performance, I suggest you find a model portfolio that suits you and make it at home with ETFs.

Disclosure: I am long DJP, VNQ.