Andrew Herdman

Two Concerns With the New ETFs Hitting the Market

I agree with your comments on DFA and characterisation of fundamental indexing as quasi-active 3-factor tilts disguised as passive indexing, flattered by misleading benchmark comparisons.

As for DFA's reluctance to offer ETF's, Vanguard were similarly reluctant to embrace the ETF model but now offer VIPERS. Interestingly I saw an article recently penned by a couple of DFA directors complaining that index mutual funds are disadvantaged in capital gains tax terms compared to ETF's and seeking equivalent tax treatment. As you note, DFA's business model for retail investors is built around selected IFA's charging an additional management fee, partly on the basis of gaining exclusive access to DFA funds. Offering ETF's would make DFA funds available to all, so would require some changes to their distribution model. But I would not be surprised if DFA were to also join the ETF bandwagon.

Meanwhile, keep an eye out for iPath Exchange Traded Notes from BGI, perhaps the start of another wave.
Andy Herdman