We will add DFA Commodity Strategy (DCMSX) as our commodity manager, replacing Harbor Commodity Real Return Strategy (HACMX) and PIMCO Commodity Real Return Strategy (PCRAX).
There are two major reasons for this switch, cost and the bond holdings.
The DFA fund started in 2010, patterned after the PIMCO fund which began in November 2002. Also, the Harbor fund is managed by the same manager as the PIMCO fund, Mihir Worah, but the net expense ratio is less. The net expense ratio of PCRAX is 1.19% and HACMX is 1.04%. By contrast, DCMSX is 0.35%. While the 0.84% difference over PCRAX in management fees was tempting early on, Rick elected to watch DFA’s fund for a few years to judge its performance and execution of the strategy.
Another significant difference in the funds are the bond holdings used to offset the leverage inherent in a futures position and an active (versus a passive) management component. PIMCO departs from its category peers and uses an actively managed portfolio of TIPS bonds and will take bets against the DJ UBS Commodity Index. The active strategies of PCRAX and HACMX result in them not being pure commodity index plays, but for years they were one of the only choices in this asset class. For example, the bond strategy served PIMCO well during the 12-year bond bull market, but has run into a strong headwind this year with the rise in interest rates.
In contrast, DCMSX uses a passive approach in both the bond and the commodity selections. The fund follows the DJ USB Commodity Index bonds, largely US and foreign investment grade bonds.
We anticipate making this change in the next 30 days to all retirement portfolios and to selected individual portfolios that don’t present a significant tax impact.