Dimensional Fund Advisors (DFA)

Dimensional Fund Advisors is currently the eighth-largest fund company, but is virtually unknown to most investors.

DFA manages $548B as of October 2017. The firm does no advertising, which helps keep fund expense ratios very low. It is primarily owned by employees & directors and manages assets exclusively for institutional investors & the clients of a select group of fee-based advisors.  DFA’s board members, directors, and consultants represent a “who’s who” in the world of financial economics, including Nobel laureates Eugene Fama, Robert Merton, and Myron Scholes. Eugene Fama is the central scholar whose groundbreaking work with Kenneth French inspired the founding of the firm. The author of the efficient markets hypothesis that underlies all of Dimensional’s products, Professor Fama helped develop the firm’s process, 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 empirical and scientific rigor to the field of investment management, transforming the way finance is viewed and conducted.

DFA does not develop or recommend investor portfolios. Instead, this work is left up to the advisor chosen by the client. The 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 minimize the risk in a portfolio targeted to achieve a specific return). Doing so requires combining asset classes in the portfolio to achieve effective diversification. 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 minimized. 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 12,000 securities in 44 countries.

Dimensional adds value over benchmarks and peers through a dynamic & 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. We work with our clients to fully understand the process and how it applies to meeting their goals.