QUARTERLY MARKET REVIEW – Q1 2019

By | April 10th, 2019|DFA, Dimensional Fund Advisors, Quarterly Market Review|

Click on the link below for a detailed analysis of quarterly performance of the global equity and fixed income markets.

CLICK HERE TO READ THE 1ST QUARTER 2019- QUARTERLY MARKET REVIEW

Getting to the Point of a Point

By | March 15th, 2019|DFA, Dimensional Fund Advisors, Markets|

A quick online search for “Dow rallies 500 points” yields a cascade of news stories with similar titles, as does a similar search for “Dow drops 500 points.”

These types of headlines may make little sense to some investors, given that a “point” for the Dow and what it means to an individual’s portfolio may be unclear. The potential for misunderstanding also exists among even experienced market participants, given that index levels have risen over time and potential emotional anchors, such as a 500-point move, do not have the same impact on performance as they used to. With this in mind, we examine what a point move in the Dow means and the impact it may have on an investment portfolio.

Impact of index construction

The Dow Jones Industrial Average was first calculated in 1896 and currently consists of 30 large cap US stocks. The Dow is a price-weighted index, which is different than more common market capitalization-weighted indices.

An example may help put this difference in weighting methodology in perspective. Consider two companies that have a total market capitalization of $1,000. Company A has 1,000 shares outstanding that trade at $1 each, and Company B has 100 shares outstanding that trade at $10 each. In a market capitalization-weighted index, both companies would have the same weight since their total market caps are the same. However, in a price-weighted index, Company B would have a larger weight due to its higher stock price. This means that changes in Company B’s stock would be more impactful to a price-weighted index than they would be to a market cap-weighted index.

The relative advantages and disadvantages of these methodologies are interesting topics themselves, but the main purpose of discussing the differences in this context is to point out that design choices can have an impact on index performance. Investors should be aware of this impact when comparing their own portfolios’ performance to that of an index.

Headlines vs. reality

Movements in the Dow are often communicated in units known as points, which signify the change in the index level. Investors should be cautious when interpreting headlines that reference point movements, as a move of, say, 500 points in either direction is less meaningful now than in the past largely because the overall index level is higher today than it was many years ago.

Exhibit 1 plots what a decline of this magnitude has meant in percentage terms over time. A 500-point drop in January 1985, when the Dow was near 1,300, equated to a nearly 39% loss. A 500-point drop in December 2003, when the Dow was near 10,000, meant a much smaller 5% decline in value. And a 500-point drop in early December 2018, when the Dow hovered near 25,000, resulted in a 2% loss.

Exhibit 1.       Hypothetical 500-Point Decline of the Dow Measured in Percentage Terms

How does the dow relate to your portfolio?

While the Dow and other indices are frequently interpreted as indicators of broader stock market performance, the stocks composing these indices may not be representative of an investor’s total portfolio.

For context, the MSCI All Country World Investable Market Index (MSCI ACWI IMI) covers just over 8,700 large, mid, and small cap stocks in 23 developed and 24 emerging markets countries with a combined market cap of more than $50 trillion. The S&P 500 includes 505 large cap US stocks with approximately $23.8 trillion in combined market cap. The Dow is a collection of 30 large cap US stocks with a combined market cap of approximately $6.8 trillion.

Exhibit 2.       Performance of MSCI ACWI IMI, S&P 500, and Dow by Calendar Year

Dow Jones and S&P 500 data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. MSCI data © MSCI 2019, all rights reserved. MSCI ACWI IMI is the MSCI All Country World Investable Market Index (net dividends). Their performance does not reflect fees and expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

It is also important to note that some investors may be concerned about other asset classes besides stocks. Depending on investor needs, a diversified portfolio may include a mix of global stocks, bonds, commodities, and any number of other assets not represented in a stock index. A portfolio’s performance should always be evaluated within the context of an investor’s specific goals. Understanding how a personal portfolio compares to broadly published indices like the Dow can give investors context about how headlines apply to their own situation.

Conclusion

News headlines are often written to grab attention. A headline publicizing a 500-point move in the Dow may trigger an emotional response and, depending on the direction, sound either exciting or ominous enough to warrant reading the article. However, after digging further, we can see that the insights such headlines offer may be limited, especially if investors hold portfolios designed and managed daily to meet their individual goals, needs, and preferences in a broadly diversified and cost-effective manner.

Income Calculator – Translating Your Savings to Retirement Income

By | March 1st, 2019|DFA, Dimensional Fund Advisors, retirement|

Focusing on INCOME when investing for retirement, and following a strategy that addresses the RISKS that can affect your future income and standard of living is extremely important! Many are saving and investing to support future spending, but most are focused on a magic number, not the income that a that number can support. Ask yourself…

How much income should I expect my retirement savings to generate once I stop working? When thinking about retirement, understanding how much income you can expect makes planning easier, and having a clear picture of where you are today can help you make informed decisions that can influence your future.

THIS CALCULATOR is designed to help give you a sense of how much income your savings may provide in retirement based on several inputs and an assumed asset allocation that shifts over time.

RETIREMENT INCOME CALCULATOR

If you would like to see how this calculator can fit within an overall retirement plan, please feel free to reach out to our office today!!

Déjà Vu All Over Again

By | February 20th, 2019|DFA, Dimensional Fund Advisors, Markets|

Investment fads are nothing new. When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment opportunities. Over the years, these approaches have sought to capitalize on developments such as the perceived relative strength of particular geographic regions, technological changes in the economy, or the popularity of different natural resources. But long-term investors should be aware that letting short-term trends influence their investment approach may be counterproductive.

“There’s one robust new idea in finance that has

investment implications maybe every 10 or 15 years,

but there’s a marketing idea every week.” Nobel laureate Eugene Fama

What’s Hot Becomes What’s Not

Let’s look back at some investment fads over the decades:

1950’s – the “Nifty Fifty” (50 hot companies) were all the rage.

1960s – “go-go” stocks and funds piqued investor interest.

Late 20th century – emergence of a “new economy”

1990s – attention turned to the rising “Asian Tigers” of Hong Kong, Singapore, South Korea, and Taiwan.

2000’s – “BRIC” countries of Brazil, Russia, India, and China and their new place in global markets.

In the wake of the 2008 financial crisis – “Black Swan” funds, “tail-risk-hedging” strategies, and “liquid alternatives” abounded.

Recently – peer-to-peer lending, cryptocurrencies, and even cannabis cultivation

The Fund Graveyard
Unsurprisingly, however, numerous funds across the investment landscape were launched over the years only to subsequently close and fade from investor memory. While economic, demographic, technological, and environmental trends shape the world we live in, public markets aggregate a vast amount of dispersed information and drive it into security prices. Any individual trying to outguess the market by constantly trading in and out of what’s hot is competing against the extraordinary collective wisdom of millions of buyers and sellers around the world.

With the benefit of hindsight, it is easy to point out the fortune one could have amassed by making the right call on a specific industry, region, or individual security over a specific period. While these anecdotes can be entertaining, there is a wealth of compelling evidence that highlights the futility of attempting to identify mispricing in advance and profit from it.

It is important to remember that many investing fads, and indeed, most mutual funds, do not stand the test of time. A large proportion of funds fail to survive over the longer term. Of the 1,622 fixed income mutual funds in existence at the beginning of 2004, only 55% still existed at the end of 2018. Similarly, among equity mutual funds, only 51% of the 2,786 funds available to US-based investors at the beginning of 2004 endured.

What Am I Really Getting?
When confronted with choices about whether to add additional types of assets or strategies to a portfolio, it may be helpful to ask the following questions:

1. What is this strategy claiming to provide that is not already in my portfolio?

2. If it is not in my portfolio, can I reasonably expect that including it or focusing on it will increase expected returns, reduce expected volatility, or help me achieve my investment goal?

3. Am I comfortable with the range of potential outcomes? 

If investors are left with doubts after asking any of these questions, it may be wise to use caution before proceeding. In addition, there is no shortage of things investors can do to help contribute to a better investment experience. Working closely with a financial advisor can help individual investors create a plan that fits their needs and risk tolerance. Pursuing a globally diversified approach; managing expenses, turnover, and taxes; and staying disciplined through market volatility can help improve investors’ chances of achieving their long-term financial goals.

Conclusion
Fashionable investment approaches will come and go, but investors should remember that a long-term, disciplined investment approach based on robust research and implementation may be the most reliable path to success in the global capital markets.

Park + Elm Investing Principle #9: Look Beyond the Headlines

By | November 26th, 2018|Dimensional Fund Advisors, Markets|

PRINCIPLE #9 IS HERE!

Look Beyond the Headlines!!

Download the rest of our Ebook Here to get all 10 principles!!

Daily market news and commentary can challenge your investment discipline. Some messages stir anxiety about the future while others tempt you to chase the latest investment fad. When tested, consider the source and maintain a long-term perspective.

Why doesn’t the media run more good news? Because bad news sells! It sells because fear is a more powerful emotion than greed. If people preferred good news, the media would supply it. Newspaper editors know it, which is why the front pages are often so depressing.

When the readers are investors, the danger can come when the emotions generated by bad news prompt them to make changes to their portfolios, unaware that the news is likely already built into market prices. For the individual investor seeking to make portfolio decisions based on news, this presents a real challenge. First, to profit from news you need to be ahead of the market. Second, you have to anticipate how the market will react. This does not sound like a particularly reliable investment strategy. Take, for instance, these headlines from the last presidential election:

Trump’s win turns stock market into shock market, CBS News

A Trump win means recession, stock market crash , CNBC

Yet after some brief jitters following Trump’s win, the stock market kept marching skyward. By the time Trump clinched the presidency, the market rallied and closed the trading day 256 points higher, and continued the rally for 2 years. From Trump’s election to Mid-term elections, the S&P 500 gained nearly 25%.

Take also the summer of 2015, when Greece was on a fast track to bankruptcy. Media around the world described the financial crisis to come in Greece, yet the following year, Greece was the #1 performing stock market in the world.

Conversely, what about those EXTREME jackpot prediction headlines:

Six Stocks to Kick Start Your Portfolio

Make Money in Any Market

12-Month Get Rich Plan

In early 2013, the Daily Mail in the UK carried the headline, “Gold Set to Shine Even More Brightly in 2013.” The rationale was that with investors scouring the world for “safe havens,” gold could reach as high as $2,500 an ounce by year end. As it turned out, gold suffered its biggest annual loss in three decades that year, with its spot price falling 28% in US dollar terms. From an all-time high of $1,920 in September 2011, gold fell to just over $1,200 by the end of 2013.

The notion that the path to long-term wealth lies in locating secret and previously undiscovered treasures in the global marketplace of securities is one regularly featured in media and market commentary. It’s a haphazard approach, reliant on chance and requiring a lot of work that is unlikely to be rewarded. Worse, it means taking unnecessary risks by tying one’s fortunes to a handful of securities or to one or two sectors.

A BETTER APPROACH

Luckily, there is better approach to investing. It involves working with the market and accepting that news is quickly built into prices. Those prices, which are forever changing, reflect the collective views of all market participants and reveal information about expected returns. So instead of trying to second-guess the market by predicting news, investors can use the information already reflected in prices to build diverse portfolios based on the dimensions that drive higher expected returns.

WHAT SHOULD YOU DO?

Sound investment boils down to a handful of principles – accepting that markets work, understanding that risk and return are related, diversifying, keeping costs low and maintaining a long-term perspective. You should turn off MSNBC and Mad Money and work with an Adviser to develop an investment strategy that fits YOUR financial goals for your family and retirement.

Quarterly Market Review: Q3-2018

By | October 8th, 2018|DFA, Dimensional Fund Advisors, Markets, Quarterly Market Review|

Click on the link below for a detailed analysis of quarterly performance of the global equity and fixed income markets.

CLICK HERE TO READ THE 3RD QUARTER 2018- QUARTERLY MARKET REVIEW

Total Cost of Ownership

By | October 3rd, 2018|Dimensional Fund Advisors, Markets|

Costs matter. Whether you’re buying a car or selecting an investment strategy, the costs you expect to pay are likely to be an important factor in making any major financial decision.

People rely on a lot of different information about costs to help inform these decisions. When you buy a car, for example, the sticker price indicates approximately how much you can expect to pay for the car itself. But the costs of car ownership do not end there. Taxes, insurance, fuel, routine maintenance, and unexpected repairs are also important considerations in the overall cost of a car. Some of these costs are easily observed, while others are more difficult to assess. Similarly, when investing in mutual funds, different variables need to be considered to evaluate how cost‑effective a strategy may be for a particular investor.

Expense ratios

Mutual funds have many costs, all of which affect the net return to investors. One easily observable cost is the expense ratio. Like the sticker price of a car, the expense ratio tells you a lot about what you can expect to pay for an investment strategy. Expense ratios strongly influence fund selection for many investors, and it’s easy to see why.

Exhibit 1 illustrates the outperformance rate, or the percentage of funds that beat their category index, for active equity mutual funds over the 15-year period ending December 31, 2017. To see the link between expense ratio and performance, outperformance rates are shown for quartiles of funds sorted by their expense ratio. As the chart shows, while active funds have mostly lagged indices across the board, the outperformance rate has been inversely related to expense ratio. Just 6% of funds in the highest expense ratio quartile beat their index, compared to 25% for the lowest expense ratio group.

This data indicates that a high expense ratio presents a challenging hurdle for funds to overcome, especially over longer time horizons. From the investor’s point of view, an expense ratio of 0.25% vs. 1.25% means savings of $10,000 per year on every $1 million invested. As Exhibit 2 helps to illustrate, those dollars can really add up over time.

Exhibit 1.       High Costs Can Reduce Performance, Equity Fund Winners and Losers Based on Expense Ratios (%)


Exhibit 2.      
Hypothetical Growth of $1 Million at 6%, Less Expenses

For illustrative purposes only and not representative of an actual investment. This hypothetical illustration is intended to show the potential impact of higher expense ratios and does not represent any investor’s actual experience. Assumes a starting account balance of $1 million and a 6% compound annual growth rate less expense ratios of 0.25%, 0.75%, and 1.25% applied over a 15-year time horizon. Performance of a hypothetical investment does not reflect transaction costs, taxes, other potential costs, or returns that any investor would have actually attained and may not reflect the true costs, including management fees of an actual portfolio. Actual results may vary significantly. Changing the assumptions would result in different outcomes. For example, the savings and difference between the ending account balances would be lower if the starting investment amount were lower.

Going beyond The expense ratio

The poor track record of mutual funds with high expense ratios has led many investors to select mutual funds based on expense ratio alone. However, as with a car’s sticker price, an expense ratio is not an all-encompassing measure of the cost of ownership. Take, for example, index funds, which often rank near the bottom of their peers on expense ratio.

Index funds are designed to track or match the components of an index formed by an index provider, such as Russell or MSCI. Important decisions in the investment process, such as which securities to include in the index, are outsourced to an index provider and are not within the fund manager’s discretion. For example, the prescribed reconstitution schedule for an index, which is the process of deleting or adding certain stocks to the index, may cause index funds to buy stocks when buy demand is high and sell stocks when buy demand is low. This price-insensitive buying and selling may be required so that the index fund can stay true to its investment mandate of tracking an underlying index. This can result in sub-optimal transaction prices for the index fund and diminished overall returns. In other words, for a given amount of trading (or turnover), the cost per unit of trading may be higher for such a strictly regimented approach to investing. Moreover, this cost will not appear explicitly to investors assessing such a fund on expense ratio alone. Further, because indices are reconstituted infrequently (typically once per year), funds seeking to track them may also be forced to buy and sell holdings based on stale eligibility criteria. For example, the characteristics of a stock considered value as of the last reconstitution date may change over time, but between reconstitution dates, those changes would not affect that stock’s inclusion or weighting in a value index. That means incoming cash flows to a value index fund could actually be used to purchase stocks that currently look more like growth stocks, and vice versa. Metaphorically, these managers’ attention may be more focused on the rear-view mirror than on the road ahead for investors.

For active approaches like stock picking, both the total amount of trading and the cost per trade may be high. If a manager trades excessively or inefficiently, costs like commissions and price impact from trading can eat away at returns. Viewed through the lens of our car analogy, this impact is like the toll on your vehicle from incessantly jamming the brakes or accelerating quickly. Subjecting the car to such treatment may result in added wear and tear and greater fuel consumption, increasing your total cost of ownership. Similarly, excessive trading can lead to negative tax consequences for a fund, which can increase the cost of ownership for investors holding funds in taxable accounts. Such trading costs can be reduced by avoiding unnecessary turnover and seeking to minimize the cost per trade.

In contrast to both highly regimented indexing and high-turnover active strategies, employing a flexible investment approach that reduces the need for immediacy, and thus enables opportunistic execution, is one way to potentially reduce implicit costs. Keeping turnover low, remaining flexible, and transacting only when the potential benefits of a trade outweigh the costs can help keep overall trading costs down and help reduce the total cost of ownership.

conclusion

The total cost of ownership of a mutual fund can be difficult to assess and requires a thorough understanding of costs beyond what an expense ratio can tell investors on its own. We believe investors should look beyond any one cost metric and instead evaluate the total cost of ownership of an investment solution.

Today’s Video: Do Mutual Funds Outperform Benchmarks?

By | September 17th, 2018|DFA, Dimensional Fund Advisors|

Our partner, Dimensional Fund Advisors’ analysis of US-based mutual funds shows that only a small percentage of funds have outperformed industry benchmarks after costs—and among top-ranked funds based on past results, only a small percentage have repeated their success. Check out the short video!

Where’s the Value?

By | July 23rd, 2018|DFA, Dimensional Fund Advisors|

Fresh hot coffee on newspaper with Glasses and pen

From 1928–2017 the value premium in the US had a positive annualized return of approximately 3.5%. In seven of the last 10 calendar years, however, the value premium in the US has been negative.

This has prompted some investors to wonder if such an extended period of underperformance may be cause for concern. But are periods of underperformance in the value premium that unusual? We can look to history to help make sense of this question.

short-term results

Exhibit 1 shows yearly observations of the US value premium going back to 1928. We can see the annual arithmetic average for the premium is close to 5%, but in any given year the premium has varied widely, sometimes experiencing extreme positive or negative performance. In fact, there are only a handful of years that were within a 2% range of the annual average—most other years were farther above or below the mean. In the last 10 years alone there have been premium observations that were negative, positive, and in line with the historical average. This data helps illustrate that there is a significant amount of variability around how long it may take a positive value premium to materialize.

Exhibit 1: Yearly Observations of Premiums, Value minus Growth: US Markets, 1928–2017

exhibit 1

In US dollars. The one-year relative price premium is computed as the one-year compound return on the Fama/French US Value Research Index minus the one-year compound return on the Fama/French US Growth Research Index. Fama/French indices provided by Ken French.Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

long-term results

But what about longer-term underperformance? While the current stretch of extended underperformance for the value premium may be disappointing, it is not unprecedented. Exhibit 2 documents 10-year annualized performance periods for the value premium, sorted from lowest to highest by end date (calendar year).

Exhibit 2: Historical Observations of 10-Year Premiums, Value minus Growth:
US Markets 10-Year Periods ending 1937–2017

exhibit 2

 

This chart shows us that the best 10-year period for the value premium was from 1941–1950 (at top), while the worst was from 1930–1939 (at bottom). In most cases, we can see that the value premium was positive over a given 10-year period. As the arrow indicates, however, the value premium for the most recent 10‑year period (ending in 2017) was negative. To put this in context, the most recent 10 years is one of 13 periods since 1937 that had a negative annualized value premium. Of these, the most recent period of underperformance has been fairly middle-of-the-road in magnitude.

 

In US dollars. The 10-year rolling relative price premium is computed as the 10-year annualized compound return on the Fama/French US Value Research Index minus the 10-year annualized compound return on the Fama/French US Growth Research Index. Fama/French indices provided by Ken French. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

 

While there is uncertainty around how long periods of underperformance may last, historically the frequency of a positive value premium has increased over longer time horizons. Exhibit 3 shows the percentage of time that the value premium was positive over different time periods going back to 1926. When the length of time measured increased, the chance of a positive value premium increased. For example, when the time period measured goes from five years to 10 years, the frequency of positive average premiums increased from 75% to 84%.

Exhibit 3: Historical Performance of Premiums over Rolling Periods, July 1926–December 2017

exhibit 3In US dollars. Based on rolling annualized returns using monthly data. Rolling multiyear periods overlap and are not independent. Fama/French indices provided by Ken French. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

conclusion

What does all of this mean for investors? While a positive value premium is never guaranteed, the premium has historically had a greater chance of being positive the longer the time horizon observed. Even with long-term positive results though, periods of extended underperformance can happen from time to time. Because the value premium has not historically materialized in a steady or predictable fashion, a consistent investment approach that maintains emphasis on value stocks in all market environments may allow investors to more reliably capture the premium over the long run. Additionally, keeping implementation costs low and integrating multiple dimensions of expected stock returns (such as size and profitability) can improve the consistency of expected outperformance.

What You Pay, What You Get: Connecting Price and Expected Returns

By | June 19th, 2018|DFA, Dimensional Fund Advisors, Markets|

STOCK PRICES ARE CHANGING EVERY DAY – AND AS PRICES CHANGE, SO DO EXPECTED RETURNS.

It has been more than 50 years since the idea of stock prices containing all relevant information was put forth. Information might come in the form of data from a company’s financial statements, news about a new product, a change in the regulatory environment, or simply a shift of investors’ tastes and preferences toward owning different investments.

 

Information is incorporated into security prices through the buying and selling process. While fair prices may
not depend on a certain level of trading, over $400 billion of stocks traded on average each day in the world equity
markets suggests that a great deal of information is incorporated into stock prices.

As investors, we should consider whether we want to use the price we observe or look for a better price. A recent
study from Dimensional Fund Advisors shows that over the 15-year period ending December 2017, only 14%
of investment managers that attempted to outguess the market survived and beat benchmarks.

This study is just one of many conducted over the past 50 years that have documented similar results. With investing, many things are out of our control, but we can make decisions that improve our odds of having a positive investment experience. Looking at these results, attempting to identify a better price than the one we observe in the market may not be accomplishing this objective.

What-You-Pay_-What-You-Get_-CoPrice-and-Expected-Returns-625-1

WHAT CAN WE LEARN FROM THE PRICE

Beyond the challenge of trying to outguess the market, why is price so important? We should first understand
the connection between the price you pay and the return you expect to receive.

Let’s consider an example: Imagine that you want to buy a house and you know for certain the house will be worth $2 million 10 years from now. If you pay $1 million for the house today or you pay $500,000, in which case would you earn a higher return? Obviously paying less, $500,000, would earn you a higher return.

Of course, investing offers few, if any, guarantees, and we can’t know for certain what something will be worth in the future. Given this, investors should think in terms of expected returns and what decisions will lead to an investment with higher expected returns. Holding other factors constant, the lower the price you pay, the higher the expected return, which is why it’s so important to consider a stock’s observed market price. The price paid has a direct connection to the return we expect to receive.

AS PRICES CHANGE, SO DO EXPECTED RETURNS

We also know that, in a changing world, new information becomes available on a regular basis and that new information can affect the price of stocks. Let’s imagine a pharmaceutical company announces a new drug that investors believe will generate substantial revenues for the company. If this news was previously unknown, once it becomes available, it will likely influence the price of the stock. The price will adjust based on new information, and as the price changes, so will the expected return. Changes in stock prices are taking place every day, and as prices change, so do expected returns.

What-You-Pay_-What-You-Get_-CoPrice-and-Expected-Returns-625-2

 

 

 

 

 

INDEX MANAGEMENT AND MARKET PRICES

Each year on the last Friday in June, the Russell indices go through a process called reconstitution. In this process, certain stocks are added and deleted from the index. The goal of reconstitution is to periodically rebalance the index to account for historical changes in stocks during the prior period. Index providers, such as S&P, Russell, or CRSP, have different processes for adding and deleting stocks, and while each will have some variation, all will establish pre-set points in time to make their adjustments.

To decide which stocks will be added or deleted, the index provider may look at the market price of a stock to determine what is a small cap vs. large cap stock or what is a value vs. growth stock. It is only during these pre-set dates of reconstitution that index providers might consider market prices. On all other days between the reconstitution dates, changes in the prices of stocks are not being incorporated by the index. And since there is a direct relation between the price of a stock and expected return of a stock, indices are considering differences in expected returns only at infrequent intervals during the year. It not only seems logical that we may want to consider changes in market prices more frequently, the failure to do so can have a direct impact on the expected return of the index.

Again, this is why we believe using market prices is so important. The price we see gives us information about what we expect to receive. If you want to have an investment approach that targets higher expected returns every day, you need to ensure the approach incorporates changes in price every day. Otherwise, investors may not be getting what they think they are paying for.

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