Essay DFA case

807 Words Oct 10th, 2014 4 Pages
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
…show more content…
This makes for an exchange of ideas that allows Dimensional to position themselves at the forefront of innovative solutions.
The reason why DFA's RIA business has grown rapidly (see exhibit 2) was good evidence that DFA educated its RIAs by providing them with access to top researchers who were developing innovative theories and empirical analyses. The RIAs then used what they had learned to advise their clients. And this advice generated questions that DFA delivered back to the academics for continued research.
Also, DFA encouraged academics to work on subjects of interest to the firm by giving any professor a share of profits from investment strategies derived from his or her ideas.
4) Low Costs – low management fee to attract client
Their investment management fees are positioned well below those of traditional active managers. DFA's fees tended to be lower than those of most actively managed funds but higher than those of pure index funds. This was fitting given DFA's position in the market as a passive fund that still would add value. And this competitive and well-positioned pricing helped attracted client.
5) Smart Trading Can Increase Returns
This is also another important reason that enabled FDA's passively managed small-stock portfolio to outperform typical small-stock indexes by about 200 basis points per year over the past 20 years
6) Professional team
The ability of

More about Essay DFA case

Open Document