Dimensional Fund Advisors
Dimensional Fund Advisors 2002
Introduction:
Dimensional Fund Advisors (DFA) is an investment firm based in Santa Monica, California. It was founded in 1981 by David Booth and Rex Sinquefield. It is a different investment firm which think differently and push the frontiers of innovation. The firm had close working relationships with academics such as Eugene Fama and Kenneth French who introduced the Fama & French three factors model. Fama has worked in DFA since very early days, now he is the director of research department of DFA. He is known for his work on portfolios and asset pricing. This report is going to discuss the business strategy of DFA, issues relating to Fama & French Three Factor Model such as variables being used also the performance of DFA.
DFA’s business strategy:
The overall strategy of DFA is passive but still claimed to add value. In 1981, DFA launched its first business strategy which was to invest mainly in small cap stocks; they also believed two principles: the value of sound academic research and the ability of skilled traders. DFA encouraged academic researches and reward the professors who can contribute sound investment strategies to the firm. DFA believed that by combining these principles would make it successful among investment companies. In 1983, by applying Eugene Fama’s term structure research, DFA launched its second strategy which was to invest in a short-term fixed income portfolio.
In 1989, DFA began to managing money for wealthy individuals, before that DFA’s clients were mostly major institutions such as corporate, government, union pension and charities. Because the direct accounts with individual investors were intolerably expensive, DFA created a limited number of investment and accounting firms known as registered investment advisor (RIAs). RIAs contributed to DFA’s core beliefs which are lower transaction cost, low turnover and diversification. Lower cost enabled DFA to charge fewer fees to the client.
Introduction:
Dimensional Fund Advisors (DFA) is an investment firm based in Santa Monica, California. It was founded in 1981 by David Booth and Rex Sinquefield. It is a different investment firm which think differently and push the frontiers of innovation. The firm had close working relationships with academics such as Eugene Fama and Kenneth French who introduced the Fama & French three factors model. Fama has worked in DFA since very early days, now he is the director of research department of DFA. He is known for his work on portfolios and asset pricing. This report is going to discuss the business strategy of DFA, issues relating to Fama & French Three Factor Model such as variables being used also the performance of DFA.
DFA’s business strategy:
The overall strategy of DFA is passive but still claimed to add value. In 1981, DFA launched its first business strategy which was to invest mainly in small cap stocks; they also believed two principles: the value of sound academic research and the ability of skilled traders. DFA encouraged academic researches and reward the professors who can contribute sound investment strategies to the firm. DFA believed that by combining these principles would make it successful among investment companies. In 1983, by applying Eugene Fama’s term structure research, DFA launched its second strategy which was to invest in a short-term fixed income portfolio.
In 1989, DFA began to managing money for wealthy individuals, before that DFA’s clients were mostly major institutions such as corporate, government, union pension and charities. Because the direct accounts with individual investors were intolerably expensive, DFA created a limited number of investment and accounting firms known as registered investment advisor (RIAs). RIAs contributed to DFA’s core beliefs which are lower transaction cost, low turnover and diversification. Lower cost enabled DFA to charge fewer fees to the client.