A New Mutual Fund for Oregon Taxpayers

With the September 10 launch of the DFA Oregon Municipal Bond Fund (DOGMX), we are pleased to announce an improvement to many of our clients’ portfolios.

This new mutual fund invests in highly rated, tax-exempt Oregon municipal bonds, the income from which is generally free from federal and state income tax. Tax-free municipal bonds, both state-specific and national, have long complemented our holdings in high-quality U.S. Treasury, international government, and Treasury inflation-protected bonds.

A Preferred Vehicle

Given their advantages over individual issues (liquidity, lower trading costs, diversification, and ease of reinvestment), mutual funds are our preferred vehicle for accessing Oregon municipal bonds. Fund selection, however, has always been limited in this area of the market, with just a handful of Oregon-specific options in existence.

A few years ago, we approached Dimensional Fund Advisors about designing a new fund to provide high-quality, tax-free bond exposure at a low cost for Oregon taxpayers. Our close work with Dimensional’s research team culminated in this month’s launch of DOGMX, the expense ratio of which will be nearly 50% less than that of its average peer.1

This is our second such collaboration with Dimensional, the first being the 2011 launch of the Dimensional World ex-US Government Fixed Income Fund (DWFIX).

Dougal Williams with, from left: Dartmouth professor Ken French; Nobel laureate Eugene Fama; and Dimensional executive chairman and co-founder, David Booth

The Role of Bonds

When investing in bonds, our primary objective is safety and capital preservation during periods of stock market distress. High-quality municipal bonds, such as the AA+ rated bonds that will make up a significant portion of DOGMX’s holdings, have historically helped fulfill this objective.

For example, from October 2007 to March 2009—a period during which the U.S. stock market fell by over 50%—Oregon municipal bonds provided positive single-digit returns.

More recently, as stocks dropped sharply over the final three months of 2018, highly rated Oregon municipal bonds again delivered positive performance.

A Portfolio Improvement

While the future returns of any investment are far from guaranteed, we can control the costs our clients face. Driving down fund expenses, while also being mindful of taxes, helps ensure more of an investment’s available return lands in our clients’ pockets.

We’re proud to have played a role in the creation of the Dimensional Oregon Municipal Bond Fund and are pleased to introduce it into many of our Oregon clients’ portfolios.

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1 The average expense ratio across seven Oregon municipal bond funds is 0.63% as of September 24, 2019. 

 

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