DFA case
Why has DFA’S small stock fund performed so well?
3. Why has DFA’s small stock fund performed so well?
We conclude 6 reasons for the stellar performance of DFA’s small stock funds:
1) Distinct Investment Strategies. Dimensional founders believed passionately in principle of "passive" stock market investing. As passive investors believe in the so-called efficient market theory, which maintains that almost no one can be smarter than the market as a whole in the long run. Hence DFA buy and hold broad portfolios of shares, betting that their returns over time will trump the gains of most "active" managers who try to find the stocks that would outperform the market.
Dimensional does not actively pick stocks or passively track commercial indexes but instead structures portfolios based on risk and returns as identified through financial science. Their main objective is to help clients structure globally diversified portfolios and to increase returns through state-of-the-art portfolio design and trading. 2) Investment Philosophy Is Grounded in Robust Academic Research
DFA 's investment strategies were based on sound academic research, which proves successful.
DFA began as a small-stock fund in 1981, attempting to take advantage of the "size affect" (excess performance of small stocks) that had been discovered by a number of academic researchers. Most notably is the academic paper from the University of Chicago PH.D. dissertation of Rolf Banz, small stocks had consistently outperformed large stocks over the entire history of the stock market from 1926 through the late 1970s.
Later, research by Professors Eugene Fama and Kenneth French identified equity market exposure, capitalization, and price relative to fundamentals as the 3 factors that primarily determine the returns of a broadly diversified portfolio. Their work has held up through rigorous open review and Dimensional strategies focus on their insight.
3) Combination of Theory and Practice.
3. Why has DFA’s small stock fund performed so well?
We conclude 6 reasons for the stellar performance of DFA’s small stock funds:
1) Distinct Investment Strategies. Dimensional founders believed passionately in principle of "passive" stock market investing. As passive investors believe in the so-called efficient market theory, which maintains that almost no one can be smarter than the market as a whole in the long run. Hence DFA buy and hold broad portfolios of shares, betting that their returns over time will trump the gains of most "active" managers who try to find the stocks that would outperform the market.
Dimensional does not actively pick stocks or passively track commercial indexes but instead structures portfolios based on risk and returns as identified through financial science. Their main objective is to help clients structure globally diversified portfolios and to increase returns through state-of-the-art portfolio design and trading. 2) Investment Philosophy Is Grounded in Robust Academic Research
DFA 's investment strategies were based on sound academic research, which proves successful.
DFA began as a small-stock fund in 1981, attempting to take advantage of the "size affect" (excess performance of small stocks) that had been discovered by a number of academic researchers. Most notably is the academic paper from the University of Chicago PH.D. dissertation of Rolf Banz, small stocks had consistently outperformed large stocks over the entire history of the stock market from 1926 through the late 1970s.
Later, research by Professors Eugene Fama and Kenneth French identified equity market exposure, capitalization, and price relative to fundamentals as the 3 factors that primarily determine the returns of a broadly diversified portfolio. Their work has held up through rigorous open review and Dimensional strategies focus on their insight.
3) Combination of Theory and Practice.