About Us: Investment Products

Choosing Dimensional Funds

To create client portfolios using our investment philosophy, structure, strategy, and style, we use the funds of Dimensional Funds (DFA), “the best fund family you have never heard of.”    The quote is the title of a Mutual Fund Monday article.  The article explains that you haven’t heard of DFA because they want it that way.  According to DFA, “We want investors that share our philosophy.  In the past 10 or 15 years people, have become active investors, even with their mutual funds.  That raises a fund’s expenses.  We’d rather deal with people who appreciate our style and can stick with it.”  That is why DFA funds are only sold through a limited number of advisors that share the company’s philosophy.

Index vs. Asset Class Mutual Funds

We use DFA funds because they embrace passive investing.  However, their style of investing, asset class investing, is a little different than traditional indexing. Rex Sinquefield, founder of Dimensional Fund Advisors (DFA) and a pioneer in passive investing contrasts the trading practices of managers of index funds with those of managers of asset class funds:  “Index fund managers tend to hold securities in their portfolios in the exact proportions of the target universe… In general, when orders are placed, brokers are instructed to complete all or most of the buy program in a few days, at most… In contrast, asset class fund managers may overweight positions by purchasing large blocks of securities below current bid prices and underweight positions by trying to avoid purchases at or above current ask prices.”  In other words, asset class managers, unlike index managers, try to avoid excess trading costs when making purchases.

Absent trading rules and other investment techniques, index funds and asset class funds are similar in the sense that the managers of either type of fund 1) pick stocks for the purpose of trying to beat the market, 2) market time, or 3) attempt to predict the future.

Vanguard vs. Dimensional Fund Advisors

Vanguard is the best example of index mutual funds and Dimensional Fund Advisors (DFA) of asset class funds.  IndexAdvisor.Com compares these two fund families in an article titled “DFA vs. Vanguard: The All-Stars Compared”.  What they point out up front is that they are “comparing one all-star to another.”  They go on to say: “Along with State Street Global Advisors and Barclays Global Investors, Vanguard and DFA are two of the world's leading managers of index investment products. Compared to the other three firms, DFA is in some ways unique. It has the strongest emphasis on indexed products, and perhaps the strongest association with very well-known academics, including Rex Sinquefield, Gene Fama, and Ken French. Moreover, there is a certain mystique about its retail mutual funds, which are only available through a select group of financial advisers.”

In a 2002 article, Paul Merriman, of CBS MarketWatch wrote: “DFA is the only no load fund family with (asset class or) index funds that cover each asset class that we recommend.  The only fund family that even comes close to DFA’s ability to offer index (or asset class) funds is Vanguard.”

In a January 1, 2004 article in Index Fund Magazine (DFA Vs Vanguard), Christian Chensvold states that Vanguard is better known than DFA but:  “Research shows that for a long-term investment strategy, Dimensional Fund Advisors (DFA) consistently delivers superior results to Vanguard. In a survey of between 1,100 and 2,000 investment advisors conducted three times between 1997-2002, Dalbar Research rated DFA best overall mutual fund company, sometimes well above Vanguard. Part of the misconception lies in the fact that DFA funds are mostly owned by institutions and are not easy for the average investor to buy.”

By only selling through a select network of independent investment advisors who are able to educate investors about the failings of active management and encourage them to take a buy-and-hold approach DFA is able to keep operating expenses low. Fortune Magazine called DFA an investment club for “the really smart investor.”  Because of their strong association with well know academics, their excellent performance, and their attention to all costs, we believe that DFA “asset class” funds are better instruments for implementing a passive investment strategy than the more well known “index” funds provided by Vanguard.