DFA Emerging Markets Portfolio

Class Inst (DFEMX)
Scorecard
4 / 5 Stars
Lipper
4 4 1 5 2
Zacks Investment Research
3 (Hold)
Standard & Poor's
4 / 5 Stars
TheStreet.com
E (Sell)

#20 in Diversified Emerging Mkts

U.S. News evaluated 202 Diversified Emerging Mkts Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Performance

The fund has returned -5.98 percent over the past year, -1.68 percent over the past three years, 17.38 percent over the past five years, and 10.54 percent over the past decade.

Trailing Returns Updated 02.28.2014
Year to date -3.6%
1 Year -6.0%
3 Years (Annualized) -1.7%
5 Years (Annualized) 17.4%
10 Years (Annualized) 10.5%

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Summary

DFA Emerging Markets I fund isn’t trying to beat the market. Like other funds offered by Dimensional Fund Advisors, this one seeks to instead provide investors with concentrated exposure to a particular area of the market—in this case large-cap emerging market stocks.

As of March 05, 2014, the fund has assets totaling almost $3.57 billion invested in 1,058 different holdings. Its portfolio consists primarily of the largest companies in the emerging markets and is closely aligned with the MSCI Emerging Markets Index.

DFA views its method as scientific investing. The company follows economists Eugene Fama’s and Kenneth French’s concepts on “equilibrium” investing and efficient markets theory. Rather than trying to predict movements in the market or pick individual stocks based on future prospects, lead manager Karen Umland manages a team of researchers and traders that deal only in value and growth ratios. By buying a portfolio of large- and mega-cap emerging market stocks and only selling when a stock’s fundamentals outgrow the criteria by which they were selected, the fund limits the human impulse to time markets or make bets on a hunch. The only actively managed part of the operation is that traders are given large selling windows, often several months to close a position.

With more than 600 stocks, the fund is weighted by market capitalization similar to the MSCI Emerging Markets Index. It differs from the index by allocating no more than a 12.5 percent of assets to any one country, which limits positions in Brazil and China. The fund has returned -5.98 percent over the past year and -1.68 percent over the past three years.

The fund’s performance is closely in line with its emerging market peers, but it also offers a low management fee.

Investment Strategy

More so than other DFA funds, the DFA Emerging Markets fund acts like an index by simply buying the 20 to 50 largest companies in various emerging market countries without wading through any qualitative or quantitative research. Stocks are only sold when their market capitalization is surpassed by other companies in the same market. Managers don’t sell positions themselves. Instead, they give a separate group of traders a large selling window — as much as four months —  to exit a position, a strategy designed to reduce trading costs. The fund holds a company for seven years on average.

Role in Portfolio

Morningstar recommends that the fund play a supporting role in your portfolio.

Management

This is one of several emerging market funds run by Karen Umland. She has managed the fund since early 1999. Portfolio managers Stephen Clark, Joseph Chi, and Jed Fogdall, who have worked on other DFA funds with Umland for years, became official co-managers of the fund in February 2010.

Fees

DFA Emerging Markets Portfolio has an expense ratio of 0.57 percent.

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Risk

The fund’s large-cap holdings in emerging markets could suffer if small- and mid-cap stocks lead the market. Because DFA doesn’t pay attention to company management, prospective earnings, or economic outlooks, the fund relies solely on the success or failure of its efficient-market-based models. Additionally, individual emerging market economies tend to succumb to larger market swings than developed economies. Investors only have access to the fund through DFA-approved financial advisors.

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