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Does DFA hit its benchmarks?

I have been a proponent of the DFA (Dimensional Fund Advisors) approach to investing, based on the academic research of Fama and French – and their three-factor model.  This article by Larry Swedroe explains why.



Many investment strategies appear to show value added before expenses, but the big question is if they actually deliver what they promise. Today, we’ll look at whether the passively managed asset-class funds of Dimensional Fund Advisors, which has well over $200 billion in assets under management, have delivered the returns of the asset classes in which their funds invest.

According to its website, DFA touts its ability to “capture what markets have to offer.” Thus, it should be able to produce fund returns comparable to appropriate benchmarks. As you review the results, remember that indexes have no costs, but funds do. We should generally expect to see a fund underperform its benchmark by at least its expense ratio, plus some additional amount related to the costs of turnover. Also, we’ll also take a look at each fund’s securities lending revenue, which helps offset the fund’s expenses. (Please note that the revenue figures are for the fund’s latest fiscal year, which ends in October, so they don’t exactly align with the fund’s returns as presented.)


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