Dimensional Fund Advisors, 2002
Dimensional Fund Advisors, 2002
1. What is DFA’s business strategy? What do you think of the firm? Are the DFA people really believe in efficient markets?
Dimensional Fund Advisors (DFA) is an investment firm based in Santa Monica, California, whose primary businesses are small stock funds. DFA’s core beliefs are efficient markets and two other principles: the value of sound academic research, and the ability of skilled traders to contribute to a fund’s profits even when the investment was inherently passive. With its founding, DFA surmised that acting on these beliefs would make it unique among investment companies. Besides, DFA charged fewer fees than those of most actively managed funds but more than those of pure index funds, which was fitting given DFA’s position in the market as a passive fund that still claimed to add value.
Its business strategy makes sense, and that could be proved by its steady growth and strong profits. And with this strategy, it could pursue high-net-worth individuals, in addition to institutions, as clients through registered investment advisors (RIAs), which were a crucial conduit enabling DFA to reach the market without advertisement.
Although DFA is dedicated to the principle of efficient market, but to some extent, the DFA people do not totally believe it. According to the efficient market hypothesis, when market efficiency is strong-form, stocks always trade at their fair value on stock exchanges and technical analysis, fundamental analysis and insider trading analysis are all fruitless. But DFA was not simply an index fund manager, it believed in the value of sound academic research and skilled traders’ contribution. Because DFA used the found that small size and high B/M ratio stocks had higher expected returns, its small-stock fund outperformed most small-stock benchmarks.
2. Do the Fama-French findings make sense? Should we expect small stocks to outperform large stocks in the future? Value stocks to outperform
1. What is DFA’s business strategy? What do you think of the firm? Are the DFA people really believe in efficient markets?
Dimensional Fund Advisors (DFA) is an investment firm based in Santa Monica, California, whose primary businesses are small stock funds. DFA’s core beliefs are efficient markets and two other principles: the value of sound academic research, and the ability of skilled traders to contribute to a fund’s profits even when the investment was inherently passive. With its founding, DFA surmised that acting on these beliefs would make it unique among investment companies. Besides, DFA charged fewer fees than those of most actively managed funds but more than those of pure index funds, which was fitting given DFA’s position in the market as a passive fund that still claimed to add value.
Its business strategy makes sense, and that could be proved by its steady growth and strong profits. And with this strategy, it could pursue high-net-worth individuals, in addition to institutions, as clients through registered investment advisors (RIAs), which were a crucial conduit enabling DFA to reach the market without advertisement.
Although DFA is dedicated to the principle of efficient market, but to some extent, the DFA people do not totally believe it. According to the efficient market hypothesis, when market efficiency is strong-form, stocks always trade at their fair value on stock exchanges and technical analysis, fundamental analysis and insider trading analysis are all fruitless. But DFA was not simply an index fund manager, it believed in the value of sound academic research and skilled traders’ contribution. Because DFA used the found that small size and high B/M ratio stocks had higher expected returns, its small-stock fund outperformed most small-stock benchmarks.
2. Do the Fama-French findings make sense? Should we expect small stocks to outperform large stocks in the future? Value stocks to outperform