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Dimensional Fund Advisors
Dimensional Fund Advisors was founded in 1981 by David Booth and Rex Sinquefield to apply academic research on capital market behavior to the practical world of managing investment portfolios. The firm maintains close links with the University of Chicago and other research centers for financial economics. Board members and consultants include some of the nation’s most distinguished academic theorists, including Eugene Fama, Kenneth French, Roger Ibbotson, Donald Keim, Nobel laureate Merton Miller, and Myron Scholes.
Dimensional manages $145 billion and serves over 200 corporate, government, college endowment, charitable, and Taft-Hartley clients. Beginning in 1989, the firm began offering its low-cost institutional mutual funds to individual investors through a network of selected investment advisory firms. As one of these advisors, Epple Financial Advisors plays a key role in educating clients about asset class investing, developing portfolio allocations to meet specific objectives, and helping them maintain the necessary discipline to ensure long term success. Dimensional does not distribute its funds through direct marketing or conventional broker/dealer firms.
Investment Philosophy
Dimensional’s approach is firmly rooted in the belief that markets are "efficient", and that investors’ returns are determined principally by asset allocation decisions, not market timing or stock picking. All portfolios employ a passive strategy designed to capture the return behavior of an entire asset class. The firm has no economists forecasting business cycles or interest rates, no investment strategists shifting allocations between stocks and bonds, and no analysts searching out "undiscovered" stocks.
While conventional index managers also employ this passive approach, DFA differs in several key respects. Dimensional funds do not necessarily track popular market benchmarks, but are designed to capture separate dimensions of worldwide returns which are accompanied by independent sources of risk. These dimensions are identified by rigorous academic research, often conducted by one or more of the leading financial economists with which the firm maintains a relationship.
The firm also places great emphasis on minimizing trading costs. Unlike conventional passive managers who replicate an index in mechanical fashion, Dimensional employs a sophisticated equity block trading strategy that allows for slight variations in day-to-day portfolio balance versus a market index in return for substantial cost reductions and hence improved total return. The firm claims to achieve negative trading costs in illiquid market sectors such as U.S. small company stocks.
In its ongoing effort to maintain the low expense characteristic of institutional mutual funds, Dimensional requires us to place client trades through one of several firms (e.g. TD Ameritrade Institutional, Schwab Institutional) who maintain an "omnibus" account relationship with Dimensional and aggregate buy and sell orders on a daily basis. By adhering to this approach, we are able to purchase fund shares in amounts as small as $2,500, versus DFA’s published minimum of $2,000,000.
Dimensional Mutual Funds
All funds are "no-load", although certain international equity Portfolios levy a reimbursement fee of 0.50% - 1.00% on purchases. This fee is payable to the Portfolio, not Dimensional, and is intended to spread the burden of transaction costs in illiquid markets in the most equitable manner. In the absence of this fee, long term shareholders would suffer diminished returns due to trading activity of investors moving money in and out of a Portfolio.
The firm focuses only on market dimensions where research documents a reward for risk taken. As a consequence, DFA offers no strategies investing in long-term bonds, non-investment grade debt, or "growth" companies since research has failed to identify attractive risk/return characteristics for these asset classes.
Dimensional Funds Website: http://www.dfaus.com/
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