In a recent (subscription only) article for the Globe and Mail, Andrew Hallam discussed his observations on DFA Canada’s performance. He noted that while DFA’s U.S. domiciled funds tend to beat the market, most of DFA Canada’s funds have underperformed comparable ETFs over a trailing five year period.

This article is the kind of noise that makes it difficult for investors to maintain a long-term strategy; it also justifies DFA’s decision to distribute their products exclusively through trained advisors who understand the funds. To be fair, Hallam does end his article urging readers not to write off DFA Canada just yet, suggesting that more time is needed to properly assess the efficacy of DFA’s strategies in Canada. This assertion is unfounded, as DFA maintains the same strategies in Canada as it does in the U.S – they will not cease to be effective if the country of domicile is changed. It is not a question of if, but when DFA Canada’s funds will be observed as successful compared to a benchmark ETF; observing short-term outperformance of DFA funds is time-period dependent.

DFA’s strategy is to invest in the broad market with an increased weighting toward small cap and value stocks.

Small cap and value stocks have demonstrated long-term outperformance as compared to large cap and growth stocks, while their returns have also proven to be more volatile. Over short time periods, it is far more relevant for investors to understand rather than try to observe the expected outperformance of DFA’s strategies. In the short-term, there is no question that DFA funds will underperform the market, sometimes. They will also outperform the market, sometimes. In aggregate, and over the long-term, it is expected that DFA’s tilts toward small cap and value will yield market-beating performance, as their U.S. funds have. The catch is that this long-term outperformance is only available to the people that understand the strategy and stay invested through periods where they observe underperformance. Assessing DFA’s funds on five year performance is meaningless, and misleading for investors.