So Re-balance Cycle Reminder All MyPlanIQ’s newsletters are archived here.

Regular AAC (Asset Allocation Composite), SAA and TAA portfolios are always rebalanced on the first trading day of a month. the next re-balance will be on Wednesday March 1, 2023. 

As a reminder to expert users: advanced portfolios are still re-balanced based on their original re-balance schedules and they are not the same as those used in Strategic and Tactical Asset Allocation (SAA and TAA) portfolios of a plan.

Dimensional Fund Advisors and Capital Group ETFs

Vanguard and iShares have dominated index ETF space. However, recently several mutual fund power houses have started to offer ETFs for their prized mutual funds. These include DFA (Dimensional Fund Advisors), Capital Group and to a less extent, T.Rowe Price. In this article, we look at these ETFs in some details. We believe DFA and Capital Group ETFs are now becoming strong (and likely better) alternatives to those of Vanguard and iShares. This is a good news for investors as now we have more choices to better our returns.

DFA ETFs revisited

In October 18, 2021: Dimensional Fund Advisors DFA ETFs, we first discussed the newly introduced DFA ETFs. We concluded that it was still too early to tell how these ETFs would perform. Let’s now revisit these stock ETFs discussed in the newsletter first.

The  following is the updated expense ratio table:

DFA ETFs vs. Vanguard Expense ratio
ETF name Expense Ratio
DFAC (DFA US Core Equity 2 ETF) 0.19%
DFAU (DFA US Core Equity Market ETF) 0.12%
VTI (Vanguard Total Stock Market ETF) 0.03%
DFAI (DFA International Core Equity Market ETF) 0.18%
VEA (Vanguard FTSE Developed Markets ETF) 0.05%
DFAE (DFA Emerging Core Equity Market ETF) 0.35%
VWO (Vanguard FTSE Emerging Markets ETF) 0.1%
DFCF (DFA Dimensional Core Fixed Income ETF) 0.19%
BND (Vanguard Total Bond Market ETF) 0.03%
DFA ETFs vs Vanguard ETFs (as of 2/24/2023):
ETF Name Since inception AR* YTD
1Yr AR Morningstar Analyst Ratings
DFAU (DFA US Core Equity Market ETF) 8.1% (11/20/20) 4.4% -3.5% Gold
VTI (Vanguard Total Stock Market ETF) 6.02% (11/20/20) 4.3% -5.2% Gold
DFAI (DFA International Core Equity Market ETF) 5.6% (11/20/20) 5.1% -0.3% Gold
VEA (Vanguard FTSE Developed Markets ETF) 4.4% (11/20/20) 4.8% -1.3% Silver
DFAE (DFA Emerging Core Equity Market ETF) -4.1% (12/02/20) 1.9% -10.5% Bronze
VWO (Vanguard FTSE Emerging Markets ETF) -5.9% (12/02/20) 1.2% -13.5% Bronze
DFCF (DFA Dimensional Core Fixed Income ETF) -11.7% (11/16/21) 0.3% -10.5% Bronze
BND (Vanguard Total Bond Market ETF) -8% 0.6% -7.0% Gold

Compare links>>

AR: Annualized Return

*: Since each DFA fund’s individual start date

**YTD: Year to Date

The good news for DFA ETFs is that for the three major stock asset ETFs: US, international and emerging market stocks, they each outperformed their Vanguard counterparts by some large margins: for example, DFAU’s 8.1% AR (Annualized Return) vs. VTI’s 6% since 11/20/2020 (more than 2 years). We can see some similar outperformance in the foreign stock ETFs also.

Morningstar’s Analyst ratings for DFA international stock ETF DFAI is Gold, better than the Silver given to Vanguard’s VEA. The other two ETFs all have the same ratings (Gold and Bronze respectively).

However, the DFA fixed income ETF DFCF did much worse in its more than one year time span. Unfortunately, DFA doesn’t have a similar US core fixed income mutual fund offering so that we can look at its performance for a longer period.

Morningstar has a Bronze rating for DFCF (DFA Dimensional Core Fixed Income ETF), compared with the Gold rating for BND (Vanguard Total Bond Market ETF).

From the latest performance data that covered the both bull (2021) and bear periods (and also the DFA’s outstanding long term mutual fund performance), we can say that DFA stock ETFs are now strong or even bette alternatives to Vanguard (and iShares) index stock ETFs, even though DFA ETFs have higher expense ratios. However, in terms of fixed income, we believe that the DFA ETF is still yet to be proven.

We believe that investors who are reasonably experienced can start to consider using DFA stock ETFs as substitutes. One drawback of these ETFs is that they are still not as liquid as Vanguard and iShares ETFs. So investors should be mindful of the bid and ask spreads when it comes to buy/sell these ETFs.

Capital Group ETFs

In addition to DFA, another excellent mutual fund company Capital Group has also begun to offer some ETFs for their long running mutual funds. Many people might not be familiar with Capital Group as a company name as the company has kept a very low profile (rightly so, in our opinion, a good company should prove itself by its products or services, not through some flashy marketing), but most might have encountered their mutual funds as they have been widely offered in many 401k plans. Famous Capital Group funds include American Funds (such as American Funds Growth Fund of America, Europacific Growth Fund) and Capital World Growth and Income Fund etc.

Unlike Vanguard and iShares, Capital Group funds are considered ‘active’ as they are not based on well published indexes but instead managed by their group of managers. However, Capital Group have maintained some rigorous proprietary investment policies. For example, their stock investments are mostly a growth as a reasonable price strategy. We want to point out that the boundary of indexing and active is not as a clear cut as one would think it is. In fact, for active funds, as long as they are based on a well defined process/procedure, one can consider them as ‘indexing’ funds. For us, indexing means removing impulsive and/or human short term emotion and is based on a set of mechanical rules. In that regard, we believe Capital Group funds are pseudo or quasi index funds.

Here are some major Capital Group ETFs:

Capital Group ETFs vs. Vanguard Performance Comparison (as of 2/24/2023)
ETF Since inception AR* YTD
Expense Ratio Morningstar Analyst Ratings
CGUS (Capital Group Core Equity ETF) -3.1% (2/23/22) 3.1% 0.33% Gold
VTI (Vanguard Total Stock Market ETF) -3.5% (2/23/22) 4.3% 0.03% Gold
CGXU (Capital Group International Focus Equity ETF) -8.8% (2/23/22) 5.7% 0.54% Gold
VEA (Vanguard FTSE Developed Markets ETF) -2.26% (2/23/22) 4.8% 0.05% Silver
CGCP (Capital Group Core Plus Income ETF) -9.9% (2/24/22) -0.1% 0.34% Gold
BND (Vanguard Total Bond Market ETF) -7% (2/24/22) 0.6% 0.03% Gold


  • Capital Group ETFs in the above table have only one year history. CGUS outperformed its Vanguard counterpart VTI (-3.1% vs -3.5%) while the other two all did worse.
  • Morningstar analyst ratings for Capital Group ETFs are high: we believe they are mostly based on their mutual fund counterparts (as well as managers).
  • Morningstar gave CGCP (Capital Group Core Plus Income ETF) Gold rating. This can be a potential candidate fund for our MPIQ ETF Fixed Income. However, this fund currently has a very thin volume (its AUM is only $500m).

In conclusion, Capital Group ETFs are still too new. We will continue to monitor Capital Group ETFs. They have potential to become another set of excellent alternatives.

Market overview

The January’s core PCE (Personal Consumption Expenditures), the Federal Reserve’s preferred inflation metrics, rose more than expected. Similarly consumer spending rose more than expected. Coupled with extremely low unemployment rate, reasonably strong retail sales and industrial production, the economy is strong and the inflation is still high. It seems that current high interest rates are still not high enough to slow down inflation. Markets are now expecting more interest hikes in the coming months.

In terms of corporate earnings, based on Factset, up to last Friday, with 94% of S&P 500 companies reporting actual results, the blended earnings year over year earnings growth was -4.8%, lower than -3.2% expected on December 31, 2022, but didn’t do much worse than most investors feared.

However, stock prices retreated. Investors are facing some uncertain possible scenarios: whether the economy will have a soft landing, a hard landing or no landing. As the Federal Reserve is about to further raise interest rates and the rising rate impact will take time to feed through the economy, corporate profits will definitely be further weakened. Unfortunately, no one knows to what extent it will be. For now, based on some well known indicators such as the negative spread between 10 year Treasury yield and 3 month yield, one likely scenario is that a recession will happen late this year or next year. Regardless, both stocks and bonds will be volatile.

As always, we call for staying the course which is guided by some well defined and sound strategies:

  • For strategic allocation (buy and hold) investors, ignore the current market behavior. Remember, as what we have emphasized numerous times, when you choose and commit to a strategic portfolio, you essentially know and commit that your investment horizon (or the time you need to utilize this capital) is 20 years or preferably much longer given the current high valuation. As we pointed out, if your investments are those diversified (index) funds such as an S&P 500 index fund (VFINX, for example), you know your money is in some solid ‘business’ that eventually (20 years later and preferably many more years later) will deliver some reasonable returns. As long as you are comfortable with this thesis, you should sit tight and forget about the current gyration.
  • For tactical investors, again, you have to ignore the current market noise. Furthermore, you should follow your strategy rigorously, especially in a time like this. Human emotion, both optimistic and pessimistic, and human desire, both greedy and fearful, are your worst enemies. This has been shown to be true time and time again.

Stock valuation has dropped and now valuation is becoming less hostile. However, it is still not cheap by historical standard. For the moment, we believe it’s prudent to be extra cautious. However how serious a correction might be, we have confidence in the US economy in the long term and thus in the stocks in aggregate. We just need to manage through interim losses carefully.

We again would like to emphasize that for any new investor and new money, the best way to step into this kind of markets is through dollar cost average (DCA), i.e. invest and/or follow a model portfolio in several phases (such as 2 or 3 months) instead of the whole sum at one shot.

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