THE DIMENSIONAL DIFFERENCE
The historical track record and unsurpassed academic rigor of Dimensional Fund Advisors (DFA)'s scientific, evidence-based investment process gives us confidence that, over time, our clients will benefit by the inclusion of DFA funds in their portfolios.
“In late 2019, Anglia Advisors was approved to offer Dimensional Fund Advisors (DFA) investments to our clients on our existing investment platform. To me, this represented a major milestone in the evolution of the firm. I have always been proud of the quality of the many investment resources made available to our clients, but with Anglia Advisors now able to offer DFA investments to clients with managed portfolios on that very same platform, I truly believe that our managed savings, investment and retirement planning service has now moved to a whole new level.” - Simon Brady, CFP®, founder and principal of Anglia Advisors.
WHY DIMENSIONAL FUNDS?
DFA keeps its funds behind a wall. Only hand-picked Registered Investment Advisors (RIAs) and a very small number of 401(k) programs are allowed to offer them to their clients. They cannot be bought directly by individual investors or sold by advisors who have not be pre-screened by Dimensional. The approved RIAs are almost like specialist franchises. There is an application and interview process at which DFA take a deep dive into the kind of business model that the hopeful advisor is running, their investment philosophy (you can read Anglia Advisors’ Core Investment Philosophy here), whether they share Dimensional’s exclusively evidence-based, systematic approach and enduring belief in the power of markets and prices and would be a high quality, fiduciary steward of their client’s hard-earned money. Essentially the advisor has to demonstrate that they are fully aligned with Dimensional’s “Guiding Principles” in order to be granted the right to offer their funds to clients.
On a recent visit to Dimensional’s offices in Santa Monica, CA I saw these Guiding Principles posted large in the lobby and I took a picture:
DFA’s research has shown that, historically, securities that have shown higher returns share a certain number of characteristics, which they call “dimensions”. To be considered a true dimension, these characteristics must be sensible, persistent over time, pervasive across all markets, and cost-effective to capture. The firm’s funds are structured using extensively diversified portfolios that emphasize these dimensions of higher expected returns through the over-weighting of these securities relative to the standard index and de-emphasizing securities demonstrating qualities and factors that have been historically shown to be a drag on portfolio values by under-weighting them.
These dimensions and the resulting portfolios are monitored and analyzed all day every business day by many of DFA’s 1400 employees worldwide and every day their portfolio managers and traders seek to balance costs against expected returns and diversification. They work for the slightest expected gain, as every incremental improvement adds up over time. When fund portfolios need adjusting because of a change in circumstances, the trading takes place quietly and effectively without the fanfare and therefore price degradation that accompanies changes made to the components of traditional index funds or the subjectivity and complete lack of academic rigor that accompanies the tax-inefficient frequent trading in actively managed mutual funds that simply racks up more costs for the investor. Investors with portfolios in DFA funds have this formidable analytical and human resource behind their investments all day, every day.
In other words, by relaxing and adapting the strict, inflexible standards of adherence that is required for traditional index investing, Dimensional can take a much more cost-effective, tax-optimized and academically rigorous approach of tracking a particular segment of the market while enhancing the overall purpose of the investment strategy.
THE APPROACH WORKS:
Only 17% of all the equity and fixed income mutual funds that were around in 1999 outperformed their respective benchmarks over a 20 year period. And a whopping 59% of them failed to even survive and have closed over the last two decades. I think it is safe to assume that the reason all these funds no longer exist is not because they were highly successful!
For obvious reasons, no traditional index funds are ever able to outperform their respective benchmarks, since they each basically represent their own benchmark minus their fees.
All of Dimensional’s equity and fixed income funds from 1999 are still in business today and over the last 20 years and net of fees, 81% of Dimensional’s funds beat their benchmarks.
Yet Dimensional funds are still low-cost and annual expense fees continue to fall, as can be seen here.
You can learn a lot more about Dimensional Fund Advisors at: https://us.dimensional.com/
Anglia Advisors managed portfolio clients can now access DFA funds in any of their accounts and we still do not have a minimum investment level. For more details of our Professional Portfolio Management services, click here.
