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Dimensional Fund Advisors
Transcript of 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
1. Stocks with high betas don't always offer higher returns than stocks with low betas
Beta is not an accurate measure
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
Important resource for large funds (trade discounts)
Avoidance of adverse selection
Higher discounts for unfamiliar sellers
Q & A
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?
February 27, 2014