In perhaps his most provocative post, advisor and investment thought leader Eric Nelson measures Warren Buffett, Jeremy Grantham and John Bogle and finds them all wanting in comparison with his own favored DFA approach to investing.
Nelson, a CFA and registered investment advisor with Servo Wealth Management, regularly analyzes the relative merits of asset-class investing, most particularly with the value-based and small-cap tilt associated with Dimensional Fund Advisors’ funds.
His current post in his “Servo Thoughts” series compares asset-class investing — combining assets with low or negative correlations — by setting up the best known proxies for various approaches.
To stand in for active management, Nelson hauls in Warren Buffett, specifically his Berkshire Hathaway Class B shares (NYSE:BRK.B).
As a proxy for tactical management, Nelson brings in Jeremy Grantham’s GMO Global Asset Allocation Fund III (GMWAX).
Representing an indexing approach is the Vanguard Balanced Index Admiral Shares (VBIAX), the 60-40 U.S. stock-bond portfolio that John Bogle recommends for his own family.
And for the asset-class approach, Nelson used a globally diversified 60-40 stock-bond portfolio made up of seven DFA funds (DFUSX; DFLVX; DFSVX; DFIVX; DISVX; DFEVX; DFGBX), whose stocks tilt toward small value and whose bonds are short-term, high-quality and global.
Over 10 years through February 2014, Buffett’s returns were lowest (6.3%) and BRK.B’s performance in the market mayhem of 2008 was the worst of the four approaches (-31.8%).
(Notably, in his annual letter to shareholders released Saturday the Sage of Omaha recommended his heirs invest in a Vanguard index fund.)