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Dimensional Fund Advisors

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by

Adam Ause

on 27 February 2014

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Transcript of Dimensional Fund Advisors

Case 2: Dimensional Fund Advisors
DFA's Business Strategy
Purchasing large blocks of small, illiquid stocks at a discount

Close relationships with prominent academics, including Fama and French

Matching a broad based, value-weighted small stock index
Fama-French Findings
1. Stocks with high betas don't always offer higher returns than stocks with low betas
Beta is not an accurate measure
CAPM model
2. High book-to-market stocks generate higher returns than low book-to-market stocks
3. Small cap stocks outperform large cap stocks
DFA's Tax Managed Fund
Tax exempt institutional clients (e.g., union pension funds, college endowments, government) vs. high net worth individuals

Capital gains vs. dividend taxes

10 basis point premium
DFA's Success
Reputation
Important resource for large funds (trade discounts)
Avoidance of adverse selection
Earnings announcement
Negative surprises
Insider sales
Higher discounts for unfamiliar sellers
"Penalty Box"
Q & A
Future Strategy
Proven strategy - approximately $0 in 1981 to $35 billion in 2001
Survived tech bubble
Allow room for growth in the tax-managed fund


Why fix what isn't broken?
Adam Ause
Dave Spahn
David Inglis
Alix Byrum
David Heetderks
Chase Cha
February 27, 2014
Full transcript