For the first time in more than 20 years, Dimensional Fund Advisors is changing the way it builds equity portfolios.
Thanks to a breakthrough in asset-pricing research last year, DFA is adding a third layer of screening to its equity portfolios, which already tilt toward small and value stocks. The new layer, or dimension, focuses on a company’s persistence of profitability — basically a stock’s ability to earn a profit consistently.
The idea that a profitable company is going to perform better than a less profitable company over time isn’t a new idea. In fact, it is kind of common sense.
The challenge for DFA, which