Putting You on the Path to Success
In designing our client portfolios, we are free to choose from among thousands of mutual funds. We generally prefer passively managed funds with low expense ratios because we believe they provide the best value for our clients. Although there are many companies to choose from, we rely primarily on Dimensional Fund Advisors (https://us.dimensional.com/). Dimensional is an institutional investment manager that serves more than 200 corporations, college endowments, government organizations, and charitable foundations. Its directors and board members include some of the world's most distinguished academic theorists, including Nobel laureates Merton Miller and Myron Scholes. The Dimensional family of no-load funds was previously only available to institutional investors. Although Dimensional funds are still not directly available to the general public, individuals can gain access to them through a limited number of registered investment advisory firms, such as Shearwater Capital.
What is it that makes Dimensional funds different? Although they are passively managed, they offer superior value compared to conventional index funds. Each Dimensional fund is designed to capture the returns of a specific asset class, whereas index funds merely replicate market indexes. Dimensional funds also provide increased returns through innovative trading strategies and portfolio engineering. Some of the funds add value by overweighting small cap and value stocks, which have historically outperformed the overall market averages over long time periods. Many Dimensional funds also incorporate a profitability screen and a momentum algorithm, which can potentially boost returns.
Dimensional also adds value by minimizing transaction costs. Rather than replicating an index in a mechanical fashion, Dimensional uses discount block trades. This results in slight variations in day-to-day market weighting that are not permitted in most index funds. The advantage is that net investment returns are enhanced by reducing trading costs. The effectiveness of this strategy is illustrated by the fact that Dimensional has achieved negative trading costs in illiquid market sectors such as U.S. small company stocks. This translates directly into increased returns for our clients.