We are agnostic when it comes to investment selection. We believe that markets price assets efficiently and that higher cost solutions rarely equate to better performance. Dimensional Fund Advisors provides an approach that is consistent with those beliefs.
The DFA difference begins with their commitment to apply a scientific approach to investing based on the best available academic research. From its beginning in 1981, DFA has continued to collaborate with pioneers in finance science from the University of Chicago and other universities, including Nobel Laureates Merton Miller (1990), Myron Scholes (1997), and Gene Fama (2013). Working with some of the world’s leading financial economists, DFA has been able to bring the latest academic theories and research to practice. This includes a long list of innovations such as Fama’s market efficiency research and the Three-Factor Model of stock returns developed by Fama and Ken French of Dartmouth College. Over the years, they have translated financial research into real-world investment solutions.
At Weiser Financial Group, we are convinced that this combination of low costs, scientific rigor, and practical implementation offers the innovative building blocks clients need to assemble portfolios that focus on controlling risk first and having performance follow in unison.
Here’s how DFA invests: It designs its own indexes, often of small-capitalization stocks, then waits—for weeks, if necessary—until an eager seller is willing to unload shares at below the prevailing asking price in the market. Such tactics can minimize and in some cases even erase transaction costs, providing a small but meaningful boost to returns.
Dimensional Fund Advisors has forged a strong and distinctive culture that has served investors well. The firm’s low-cost structure and disciplined approach to investing, launching new strategies, and qualifying the financial advisors who use its funds help set it apart.
More than 75% of its funds have beaten their category benchmarks over the past 15 years, and 80% over five years, according to Morningstar -- remarkable for what some investors wrongly dismiss as index investing. Its process is simple and repeatable -- and yet no other firm has tried emulating it. When asked why, co-founder, chairman, and co-CEO David Booth, 67, draws a surprising analogy to Star Wars, and Luke Skywalker's inability to harness the power of the Force until his devotion was deep and unwavering. "We are believers down to our toes," Booth says.
The force, in this case, is the theory of efficient markets, first put forth by Fama in 1965. Dimensional's funds all operate on the same principles -- that it's hard to beat the market, and impossible to do it consistently, by stock-picking. There are, however, various factors that can be exploited to provide market-beating returns. That, along with sophisticated trading strategies, a keen eye toward tax-efficiency, and low expenses (the average DFA fund charges just 0.39%) has led to Dimensional's success.
But don't liken what DFA does to indexing, and definitely don't call it passive: "I recoil when people think that what we do is being passive, because it has nothing to do with being passive," Booth says. "We are trying to beat the market without forecasting in the usual sense."
There is an amazing track record that the company has built that’s worth understanding and following. Though you may not work with an advisor who has access to the funds, they are still worth any serious investor’s time.
Despite Mr. Booth’s modesty, many of D.F.A.’s mutual funds have actually outperformed their closest equivalent market indexes over time.
That gives Dimensional more flexibility in how and when to buy or sell stocks. And with smaller shares in particular, deft trading can be crucial in getting the best prices, which can boost investors' returns.