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Foreign Dev Mkts Lrg Cap Value Funds

 

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There is at least one good reason why most investors should consider investing a portion of their portfolios in foreign stocks:

bulletForeign stocks have imperfect correlations with domestic stocks, so including them in a portfolio should improve the portfolio's risk/return characteristics.

Additionally, there is good reason to believe that large value stocks will, in the long run and on average, tend to have higher risk-adjusted returns than large growth stocks.

For more information on investing overseas, see here.

There are several similar-seeming investment options available.  Which is best?

The funds are listed in rough order of our overall preference.

Preferences are listed separately for use in retirement accounts and for taxable accounts.

For a listing of our preferences in other asset classes, see here.

Retirement Accounts (i.e., tax-deferred or tax-exempt accounts)

bulletDFA International Value Portfolio (DFIVX).  E/R: 0.43%.  This fund invests in stocks of foreign companies whose market capitalization is at least $800M and whose book-to-market ratio is in the upper 30% of the investment universe for each country.  Country weighting conforms to that of the MSCI EAFE index.
 
bulletiShares MSCI EAFE Value Index Fund (EFV).  E/R: 0.40%.  This ETF tracks the MSCI EAFE Value Index of valuey large cap stocks from non-North American developed market countries.  For more information on ETFs, see here.
 
bulletSchwab Fundamental International Large Company Index Fund (SFNNX).  E/R: 0.35%.  This fund tracks the Russell Fundamental Developed ex-U.S. Large Company Index, a non-cap weighted index of non-US developed market large cap stocks.
 
bulletWisdomTree International LargeCap Dividend Fund (DOL).  E/R: 0.48%.  This is an ETF which tracks the WisdomTree International LargeCap Dividend Index.  This index consists of the 300 largest (by market cap) companies in the WisdomTree WisdomTree Dividend Index of Europe, Far East Asia and Australasia (the “WisdomTree DIEFA Index”).  The index weights the 300 companies by the cash value of their dividend payouts.  For more information on ETFs, see here.

bulletPowershares FTSE RAFI Developed Markets ex-US Portfolio ETF (PXF).  E/R: 0.47%.  This ETF tracks the FTSE RAFI Developed ex-US Index of valuey large cap stocks from non-US developed market countries.  For more information on ETFs, see here.
 
bulletVanguard International Value Fund (VTRIX).  E/R: 0.46.  This is an actively managed fund.  This fund simply isn't very valuey.  DFIVX is DRAMATICALLY more “valuey” (i.e., significantly higher b/m ratio) than this fund.

Taxable Accounts

bulletDFA Tax-Managed International Value Portfolio (DTMIX).  E/R: 0.53%.  This fund invests in stocks of foreign companies whose market capitalization is at least $800M and whose book-to-market ratio is in the upper 30% of the investment universe for each country.  Country weighting conforms to that of the MSCI EAFE index.  The fund manages to minimize capital gains distributions.

bulletiShares MSCI EAFE Value Index Fund (EFV).  E/R: 0.40%.  This ETF tracks the MSCI EAFE Value Index of valuey large cap stocks from non-North American developed market countries.  As an ETF, this fund is expected to be perfectly capital-gains tax efficient.  For more information on ETFs, see here.
 
bulletPowershares FTSE RAFI Developed Markets ex-US Portfolio ETF (PXF).  E/R: 0.47%.  This ETF tracks the FTSE RAFI Developed ex-US Index of valuey large cap stocks from non-US developed market countries.  For more information on ETFs, see here.
 
bulletSchwab Fundamental International Large Company Index ETF (FNDF).  E/R: 0.32%.  This fund tracks the Russell Fundamental Developed ex-U.S. Large Company Index, a non-cap weighted index of non-US developed market large cap stocks.
 
bulletDFA International Value Portfolio (DFIVX).  E/R: 0.43%.  This fund invests in stocks of foreign companies whose market capitalization is at least $800M and whose book-to-market ratio is in the upper 30% of the investment universe for each country.  Country weighting conforms to that of the MSCI EAFE index.
 
bulletWisdomTree International LargeCap Dividend Fund (DOL).  E/R: 0.48%.  This is an ETF which tracks the WisdomTree International LargeCap Dividend Index.  This index consists of the 300 largest (by market cap) companies in the WisdomTree Dividend Index of Europe, Far East Asia and Australasia (the “WisdomTree DIEFA Index”).  The index weights the 300 companies by the cash value of their dividend payouts.  As an ETF, this fund is expected to be more (capital gains) tax-efficient than the non-ETFs listed here.  For more information on ETFs, see here.

bulletVanguard International Value Fund (VTRIX).  E/R: 0.46%.  This is an actively managed fund.  This fund simply isn't very valuey.  Both DTMIX and DFIVX are DRAMATICALLY more “valuey” (i.e., significantly higher b/m ratio) than this fund.

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This web page contains the current opinions of Eric E. Haas at the time it is written and such opinions are subject to change without notice.  This web page is intended to serve two purposes:

bulletTo educate the public; and
bulletTo provide disclosure of Mr. Haas' opinions to prospective clients.  We believe that prospective clients are well-served by being made aware of what they are buying — and what they are buying is advice that is based on these opinions.

We believe the information provided here to be useful and accurate at the time it is written.  Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. 

No investor should invest solely on the basis of information listed here.  Before investing, it is important to consult each prospective investment's prospectus and consider both its risk/return characteristics and its effect on your overall portfolio.

This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice.  Where specific advice is necessary or appropriate, Altruist recommends consultation with a qualified tax adviser, CPA, financial planner, or investment adviser.  If you would like to discuss the rationale or support for any particular idea expressed on this web page, feel free to contact us.

 

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