The Discipline Fund ETF is a low fee, tax efficient globally diversified fund of funds designed to help you behave better and stay the course.
The Discipline Fund is designed to do what its name implies – help investors stay fully invested and disciplined through all the behavioral challenges we encounter over the boom/bust cycle of markets. The fund implements this strategy using a methodology similar to what John Bogle discussed in this 2018 interview in which he said he rebalanced his portfolio in a countercyclical manner when markets were grossly overvalued because it helped him behave better. The Discipline Fund achieves this by implementing a 50/50 stock/bond benchmark that rebalances in a countercyclical manner over time using a highly diversified, long-term oriented, low fee, tax efficient structure that is fully automated to rebalance between 70/30 stocks/bonds and 30/70 stocks/bonds depending on macro conditions.
Your standard index fund rebalances actively to a static allocation of something like 60% stocks and 40% bonds when it grows out of line with its benchmark allocation. The problem with this is that the static allocation isn’t really static because the 60% slice generates 85%+ of the portfolio volatility and therefore exposes you to more risk late in a market cycle. This creates behavioral risk for the investor who thinks they’re diversified when in fact they’re far more overweight stock market risk than they think.
The Discipline Fund tries to account for this risk by countercyclically rebalancing in a passive, tax and fee efficient manner while also understanding that investors don’t perceive risk in a static manner. Therefore, the Discipline Fund might be underweight stocks late in a market cycle or overweight stocks early in a cycle with the goal of helping the investor remain more comfortable and earning better returns than they otherwise would by helping them be better disciplined with their investments.
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1 – This fee is substantially lower than the average broad world allocation fund which has a fee of 0.81% according to Morningstar.
Further, according to Research Affiliates, the estimated tax liability of a mutual fund when compared to an ETF is 0.8% when adjusted for dividends.
The Fund’s investment adviser has contractually agreed to waive all or a portion of its management fee for the Fund until at least one year from the date of the Fund’s commencement of operations to the extent necessary to offset all Acquired Fund Fees and Expenses.