Not all index and passively managed funds are created equal. While index funds as a whole outperform actively managed funds, certain funds bear significant costs to the investor. In selecting funds, we carefully assess tradeoffs between expense ratio, tax efficiency, embedded capital gains, turnover, securities lending revenue, spread costs (in the case of ETFs), and the fund manager’s trading skill and long-term commitment to index fund investing.
As mentioned, BluePrint Investing has access to institutional asset class funds called Dimensional Funds. Many of these funds are built on scientific research and offer the purest exposure to the size and value premiums. While the research shows the persistence of a value premium, many other fund companies offer a definition of “value” that is not entirely consistent with the academic studies. Furthermore, many of Dimensional’s funds do not rigidly adhere to a widely followed index, and thus avoid many of the hidden trading costs associated with unnecessary turnover of certain indices, and the need to buy securities at a premium when they are added to an index. Dimensional also offers a wider selection of tax-managed funds than other index fund companies.