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By: Sam Instone

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July 24th, 2018

Why I’m talking so much about Dimensional Fund Advisors

Financial Education | Financial Planning | Investment

I’ve talked about them a lot recently. 

They’re virtually unknown.

But likely represent a golden opportunity for any investor.

So, what’s the big deal?

Dimensional Fund Advisors is currently the eighth-largest fund company…

So why haven’t you heard of them?

The firm does no advertising.

This helps keep fund expense ratios very low. 

It is primarily owned by employees and directors.

It manages assets exclusively for institutional investors and the clients of a select group of fee-based advisers.

Those assets were worth $548billion as of October 2017.

Now for the part I really love.

DFA’s board members, directors, and consultants represent a “who’s who” in the world of financial economics, including the Nobel Prize-winning laureates Eugene Fama, Robert Merton and Myron Scholes.

Eugene Fama is the central scholar whose ground-breaking work with Kenneth French inspired the founding of the firm.

Eugene Fama

The author of the efficient markets hypothesis that underlies all of Dimensional's thinking, Professor Fama helped develop the firm's process.

He continues to supply key research and helps keep the firm abreast of research in academia.

Widely regarded as the "father of modern finance," he has brought an empirical and scientific rigor to the field of investment management.

Transforming the way finance is viewed and conducted.

Evidence-based investment.

DFA does not develop or recommend investor portfolios.

Instead, this work is left up to the adviser chosen by the client.

Development of highly efficient portfolio models requires a thorough understanding of Modern Portfolio Theory (MPT).

The principal goal of MPT is to achieve the greatest return for the amount of risk taken (or, conversely, to minimise the risk in a portfolio targeted to achieve a specific return).

Risks_and_rewards

Doing so requires combining asset classes in the portfolio to achieve effective diversification.

The only free lunch in investing.

This is accomplished by measuring the correlation between specific asset classes that demonstrate a historically high rate of return and combining the asset classes in such a way that portfolio volatility is minimised.

Global diversification of the portfolio protects investors from a downturn in any single asset class.

Domestic or foreign.

Our DFA-based portfolios typically contain more than 9,000 securities in 44 countries.

Dimensional adds value over benchmarks and peers through a dynamic and robust investment process that carefully structures and implements portfolios to target higher expected returns. 

By evolving with advances in financial science, the firm has delivered impressive long-term results for clients. 

Which is why so many institutional clients and big companies use it.

And why it’s a well-kept secret.

Now you see why I’m talking so much about Dimensional Fund Advisors.

About passively managed funds.

And putting my own money where my mouth is.

Find out more about passively managed funds

About Sam Instone

Sam Instone, Director at AES International, is passionate about positive change and ensuring international investors get better results.

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