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A Different Dimension (DFA Funds)

This is an excellent article about DFA Funds by Dave Yeske & Elisa Buie. Full Disclosure – I am a fan of these funds!



As you may recall, we wrote last November about University of Chicago economist Gene Fama receiving the Nobel Prize in Economic Sciences for his work on the “empirical analysis of asset prices,” which is another way of saying “for the scientific exploration of what determines stock prices and returns.” At the time, we thought this notable for two reasons: first, the work of Fama on the concept of “market efficiency” and, later, his joint work with Dartmouth economist Ken French to develop a “three-factor model” of stock returns, has deeply influenced our approach to building and managing investment portfolios for over 20 years now. Secondly, Fama’s research has also deeply influenced – and continues to influence – the work of fund company Dimensional Fund Advisors (DFA), which provides many of the investment building blocks we use when assembling client portfolios.

We’re clearly not the only ones making that connection, however, as the latest issue of Barron’s has a cover article by Beverly Goodman devoted to Dimensional Fund Advisors and the ideas that guide it called, “A Different Dimension” (Goodman wrote an article for Barron’s last August that also focused on Dimensional titled “Where the Smart Money is Headed“). Of course, this has not been the first time that DFA and Gene Fama have made it to the cover of a major business publication. As far back as 1998, DFA was the subject of a Fortune Magazine cover story called, “How the Really Smart Money Invests: Nobel Prize winners entrust their next eggs to DFA where investing is a science, not a spectator sport.” The appearance of this month’s Barron’s article, meanwhile, inspired John Rekenthaler, Vice President of Research for Morningstar to offer his own appraisal of the company titled, “The DFA Model.”

The Force Be With You

That certainly seems like a lot of attention to be lavished on a mutual fund company. In her article, Goodman says that “Dimensional Fund Advisors is unusual” and Rekenthaler declares that DFA ”really is different.” Unusual and different in what way, one might rightly ask. And why should anyone care? Goodman explains it this way:

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