ADDTIONAL CONTENT

ABOUT DFA FUNDS

about DFA Model Folios

Being on the institutional investment platform, also gives our clients access to DFA mutual funds. DFA funds are distributed to investors only through approved fee-only advisors. FPL Capital Management has been an approved advisor since 2006. DFA is considered to be one of the top fund families around.

Working years ahead of the industry, Dimensional forged a new way to invest. The firm inaugurated its strategies in 1981 with early research into the stronger performance of small cap stocks. Later, a comprehensive analysis of stock prices worldwide deepened the strategy repertoire and set a new standard for portfolio design. This evolution reflects an abiding belief in financial science and the efficacy of capital markets.

At Dimensional, they see markets as an ally, not an adversary. Rather than trying to take advantage of the ways markets are mistaken, they take advantage of the ways markets are right-the ways they compensate investors. The firm designs portfolios to help their investors capture what the market offers in all its dimensions.

Dimensional is owned primarily by employees and directors, and manages assets exclusively for institutional investors and the clients of registered financial advisors. From offices in Austin, Santa Monica, London, and Sydney, their professional staff supervises portfolios twenty-four hours a day.

Currently, the company has over $277 Billion under management.

Dimensional is always researching tomorrow's solutions today. They do this through deep working relationships with leading financial economists. By acting as a conduit between scientists and practicing investors, Dimensional has pioneered many strategies and consulting technologies now taken for granted in the industry.

Dimensional's process explores every aspect of dynamic real-world markets, including portfolio architecture, trading methodology, and tax management. Their investment staff is involved in research efforts through its daily trading activities, resulting market studies, and Investment Committee participation. Clients benefit when research and experience combine to solve new investment challenges. As often as a research innovation generates a new technology, a client need or investment problem drives a new solution.

DFA’s Science of Investing

MARKETS WORK

Markets throughout the world have a history of rewarding investors for the capital they supply. Companies compete with each other for investment capital, and millions of investors compete with each other to find the most attractive returns. This competition quickly drives prices to fair value, ensuring that no investor can expect greater returns without bearing greater risk. Traditional investment managers strive to beat the market by taking advantage of pricing “mistakes” and attempting to predict the future. Too often, this proves costly and futile. Predictions go awry and managers miss the strong returns that markets provide by holding the wrong stocks at the wrong time. Meanwhile, capital economies thrive—not because markets fail but because they succeed.

In the following video, David Booth explains why it makes sense to stay invested in equities:

INVESTING VERSUS SPECULATING

The futility of speculation is good news for the investor. It means that prices for public securities are fair and that persistent differences in average portfolio returns are explained by differences in average risk. It is certainly possible to outperform markets, but not without accepting increased risk. When you reject costly speculation and guesswork, investing becomes a matter of identifying the risks that bear compensation and choosing how much of these risks to take. Financial science identifies the sources of investment returns. Dimensional provides the tools and experience to achieve them.

In the following video, Scott Bosworth explains how knowledge and discipline can help investors control their instincts for a better investment outcome:

GAINING CLARITY

Working years ahead of the industry, Dimensional forged a new way to invest. The firm inaugurated its strategies in 1981 with early research into the stronger performance of small cap stocks. Later, a comprehensive analysis of stock prices worldwide deepened the strategy repertoire and set a new standard for portfolio design. This evolution reflects an abiding belief in financial science and the efficacy of capital markets. At Dimensional, we see markets as an ally, not an adversary. Rather than try to take advantage of the ways markets are mistaken, we take advantage of the ways markets are right—the ways they compensate investors. The firm designs portfolios to capture what the market offers in all its dimensions. Relieve the stress and confusion of investing with a clear and empirical approach to wealth management.

TAKE RISKS WORTH TAKING

Evidence from practicing investors and academics alike points to an undeniable conclusion: Returns come from risk. Gain is rarely accomplished without taking a chance, but not all risks carry a reliable reward. Financial science over the last fifty years has brought us to a powerful understanding of the risks that are worth taking and the risks that are not. Everything we have learned about expected returns in the equity markets can be summarized in three dimensions. The first is that stocks are riskier than bonds and have greater expected returns. Relative performance among stocks is largely driven by the two other dimensions: small vs. large and value vs. growth. Many economists believe small cap and value stocks outperform because the market rationally discounts their prices to reflect underlying risk. The lower prices result in higher returns to investors as compensation for bearing this risk.

Relative performance in fixed income is largely driven by two dimensions: bond maturity and credit quality. Bonds that mature farther in the future are subject to the risk of unexpected changes in interest rates. Bonds with lower credit quality are subject to the risk of default. Extending bond maturities and reducing credit quality increases potential returns. With this understanding, investors can plan the total risk/return profile of their portfolios, considering how much exposure they need to target their performance goals.

For example, investors seeking greater expected returns may increase their equity exposure while keeping their bond portfolio short and high-quality. Alternatively, they may choose to hold bonds with slightly longer maturities and slightly lower credit quality while maintaining their equity allocation. Whatever approach you choose, financial science has clarified the investment process by identifying the relevant dimensions of performance.

STRUCTURE IS THE STRATEGY

Successful investing means not only capturing risks that generate expected return, but reducing risks that do not. Avoidable risks include holding too few securities, betting on countries or industries, following market predictions, and speculating on “information” from rating services. To all these, diversification is the antidote. It washes away the random fortunes of individual stocks and positions your portfolio to capture the returns of broad economic forces. Traditional managers do one of two things: Active managers focus on picking individual stocks, the antithesis of diversification; index managers hold many securities but mimic arbitrary benchmarks. Dimensional chooses a different path. It structures strategies based on scientific evidence rather than on speculation or commercial indexes. The firm diversifies not only in the amount of securities it holds (thousands) but in the range of capital market strategies it explores and develops. Small cap strategies target smaller stocks more consistently. Value strategies target value returns with greater focus. As a result, investors achieve more consistent portfolio structure.

SMART TRADING INCREASES RETURNS

Trading stocks —especially small cap stocks—is expensive. Most managers are only too willing to pay these costs to meet a forecast or follow an index. The costs they generate are buried in financial statements and corporate ledgers, but the investor always pays in the form of lowered returns. Careful trading can reduce or even reverse the costs borne by traditional managers. The savings accrue directly to the investor’s return. Dimensional focuses on trading. Our refusal to forecast or follow indexes gives us negotiating strength. Where others feel compelled to buy and sell, the firm can take its time. Dimensional trades more than 12,000 equity securities per year. It is more important that we capture the systematic performance of broad market dimensions than the random fluctuations of any single security. It is more important that we keep costs low—patiently and expertly. For nearly three decades, Dimensional has developed its trading infrastructure to make this possible. Our state of-the-art desks around the world ensure a formidable presence in financial markets. Such a large scale brings opportunity for cost-effective and lucrative trades. A vast universe of illiquid stocks is transacted in a coordinated way. The result: performance driven by a potent combination of investment philosophy and trading power. A Dimensional investor is not satisfied with traditional definitions of returns. By being patient when others are pushing to transact and by being thrifty when others pay a premium, the firm works daily to improve your results.

PIONEERS IN FINANCIAL ENGINEERING

Dimensional is always researching tomorrow’s solutions today. We do this through deep working relationships with leading financial economists. By acting as a conduit between scientists and practicing investors, Dimensional has pioneered many strategies and consulting technologies now taken for granted in the industry. The firm started with a single micro cap portfolio that helped pioneer small cap investing. Since then, the fund family has grown to include more than a hundred portfolios worldwide. This would seem to be a perplexing number of choices were it not for the consulting technology and investment philosophy that evolved alongside the strategy line. Dimensional’s funds are coordinated by elegant models of risk and return, trial-tested in academic labs, and time-tested in actual portfolios. The result is increased flexibility. A client’s portfolio can target its goals with a wide range of highly engineered vehicles—a range that continues to grow for tomorrow’s needs.

THE NEXT FRONTIER

The latest and perhaps most complete manifestation of Dimensional’s investing paradigm is its core equity strategies. Each core strategy targets stocks across the multiple asset classes of a market. But unlike conventional approaches, the securities are not held in their market-value proportions. The portfolios increase the relative weight of small cap and value stocks where expected returns are greater. Because the architecture is seamlessly integrated and includes a full range of securities, the costs normally associated with maintaining multiple vehicles are greatly reduced. Frictions caused by risks and costs are continually managed in a fully diversified portfolio designed to increase client wealth. Dimensional’s core equity strategies can form the ideal foundation for any modern investment plan.

A PL AN FOR THE FUTURE

The work is never complete. The final chapter will never be written. But a process grounded in science can only improve your financial plan. The peace of mind and clarity of such an approach would be reward enough were it not for its long history of documented performance.

By applying modern financial principles to wealth management, Dimensional remains ahead of the industry, ready to address your future needs. Get involved today. Become a Dimensional investor and bring science to the life of your wealth.

Below you will find material that supports DFA’s principles and fundamentals
(following slides are provided by DFA):

Seven Key Ideas for a Well-Rounded Portfolio

Seven Key Ideas For a well-rounded portfolio

The Importance of Diversification

Stocks are risky. Although equity risk cannot be eliminated, broad diversification washes away the random behaviors and movements of individual stocks and positions in portfolios to capture the returns associated with broad economic forces.

The Importance of Diversification
Seven Key Ideas For a well-rounded portfolio

Believing in Efficient Market Hypothesis

Capital markets do a good job of aggregating information and quickly driving security prices toward their fair value. A belief in market efficiency supports a diversified, passive, buy-and-hold investment approach. This has become the standard for fiduciary prudence. Pages in the PDF below illustrate the challenge facing active managers who try to consistently outperform the market through stock picking and market timing.

Believing in Efficient Market Hypothesis
Seven Key Ideas For a well-rounded portfolio

Risk Return Rewards

Returns are compensation for risk, but not all risks carry a reliable reward. Financial science over the last fifty years has identified risks that are worth taking and those that are not. The following PDF explains the multiple risk factors that drive returns and how targeting these risk factors is the key to portfolio construction.

Risk Return Rewards
Seven Key Ideas For a well-rounded portfolio

Having Discipline is Key

Investors should understand the importance of developing a well-defined multifactor investment strategy and committing to it through changing market environments. The following PDF explains the benefits of a disciplined, structured approach to investing.

Having Discipline is Key
Seven Key Ideas For a well-rounded portfolio

Important Investment Considerations

A passive, structured portfolio should focus on investment priorities that add value over time. These include maintaining broad and consistent exposure to compensating risk factors, and managing portfolio costs. The following PDF illustrates how portfolio structure and cost control influence long-term performance.

Important Investment Considerations
Seven Key Ideas For a well-rounded portfolio

Investment Theory

Although financial science is a relatively young academic field, the theories, research and applications have revolutionized investment strategy. The following PDF provides a historical perspective of modern finance and emphasizes the significant role Dimensional has played in the practical application of the research.

Investment Theory
Seven Key Ideas For a well-rounded portfolio

Downfalls of Traditional of Indexing

PDF in this section demonstrates how patient trading, flexible index tracking, and portfolio integration can increase returns by reducing costs.

Limitations of Indexing