Unconventional Wisdom

Talis Portfolio Performance

  

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One of the benchmarks that we pay attention to is where our equity portfolio (Talis 100) ranks as compared to the universe of mutual funds.  The Morningstar Principia database is useful for this analysis.  We've identified some issues with survivorship bias in this database in the past that cause this type of analysis to understate the relative performance of our portfolio, but it's still an interesting snapshot.

Comparing portfolio performance to single asset class performance is not meaningful, so we sort the database by the Morningstar category and look at funds that use some sort of allocation, either to equities or to equities and fixed income.  We include all global, foreign, and US allocation funds as well as balanced funds in the analysis because they are most comparable to our portfolio and could reasonably be used by an investor as a complete portfolio solution.

There are 5163 funds found in these Morningstar categories.  Of those, 61 had a load adjusted 10 year annualized rate of return that exceeds the 10 year annualized rate of return for the Talis 100 portfolio adjusted for our highest advisory fee for the 10 year time period ending June 30, 2010.  In other words, the strategic asset allocation used in the Talis 100 portfolio with asset class exposure provided by DFA funds outperformed 98.8% of the 5163 diversified mutual funds over this 10 year period of time, even when adjusted for the highest advisory fee that we charge.

Since many of these funds are actively managed and attempt to tactically allocate to asset classes that they expect to outperform in the future, this also serves to illustrate the folly of that investment philosophy in practice.  Our portfolio simply maintained a constant exposure to asset classes over time and was rebalanced annually.

We haven't taken taxes into account here, so this is most relevant for qualified accounts.  But, previous work that we've done shows that the outstanding tax efficiency of our portfolios makes the analysis even more favorable.  We'll take a look at the load-adjusted after-tax performance in a future article.

To view our model portfolio performance and required disclosure, please click here.