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Manager Change: DFA Global Core Plus Fixed Income Portfolio (DGCFX) Replaces DFA Investment Grade Portfolio (DFAPX)

As a result of our ongoing fund manager and asset class reviews, KFG recently decided to make a global manager change to all KFG client portfolios, except in the case of creating a realized gain.

DFA Investment Grade Portfolio (DFAPX) was part of the KFG’s models to provide broad high quality bond exposure to credit and term premiums. Keeping with the firm’s investment policy and client diversification goals, DFA Global Core Plus Fixed Income Portfolio (DGCFX) will replace DFAPX.

DFA launched DFCFX in January of this year. It’s portfolio mix will not only maintain similar high quality term and credit exposure of DFAPX, but will further diversify across 12 currencies and 18 countries. Our old bond fund, DFAPX, was primarily only in US bonds. The new fund will target approximately 40% in foreign bonds (hedged to US Dollar) and serve as a complement to our other fixed income holdings.

The opportunity to add global diversification to our core bond portfolio is of importance to our investment philosophy. Our biggest concern impacting our bond funds are the potential of rising interest rates. While it’s true that generally speaking, rising rates usually have a negative impact on existing bond yields, the challenge is that there is no reliable way to forecast movements, even though Federal Reserve Chairman Powell has confirmed they are coming.

If rates decide to rise quickly, it could negatively impact the fund, however, rising interest rates don’t always negatively impact bond funds. One way to mitigate a negative impact of rising rates on a bond fund is by adding global diversification to the asset class. Global yield curves do not move in lockstep with one another and can shift up or down along different points of the curve. After discussions with those at Dimensional, they also see this as a reasonable expectation. As a result, it’s also possible to expect that rising interest rates in the U.S. may not have as much impact on this new fund compared to a U.S. only aggregate bond fund.

If you have any question about our change to the portfolio, please email us at invest@KahlerFinancial.com.

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