At Ferguson-Johnson Wealth Management, we employ investment management solutions offered by Dimensional Fund Advisors. Access to DFA mutual funds is restricted to a select group of fee-only financial advisory firms who share the same academic, data-driven investment philosophy.
The relationship between Dimensional and Ferguson-Johnson Wealth Management reflects our shared views about how capital markets work and how best to provide you with a successful investment experience.
Interested in learning more about how Dimensional funds could help you achieve your financial goals? Contact a fee-only financial advisor at Ferguson-Johnson Wealth Management today!
Dimensional Funds are mutual funds and exchange-traded funds (ETFs) that are managed by Dimensional Fund Advisors (DFA). The fund family builds portfolios with an emphasis on small cap and value stocks with low turnover ratios.
In this sense, Dimensional Funds are passively managed funds, but they are not to be confused with index funds. In 2020, DFA funds entered the ETF market to diversify and offer more tax-efficient strategies.
Dimensional structures strategies based on academic research rather than on speculation or commercial indexes. Small cap strategies target smaller stocks more consistently. Value strategies target value returns with greater focus. As a result, investors can achieve more consistent portfolio structure.
Dimensional board members include some of the nation’s most distinguished and recognized academicians, including the Nobel Laureate economists Myron Scholes, Merton Miller, and Eugene Fama.
For more than 30 years, Dimensional has helped investors pursue dimensions of higher expected returns through advanced portfolio design, management, and trading.
The strategies implemented by Dimensional echo much of our investment philosophy. DFA funds are built around the following core beliefs:
While at first glance these beliefs may appear similar to a passive or index strategy. However, Dimensional’s management differs in several notable ways.
| DIMENSIONAL | TRADITIONAL ACTIVE MANAGEMENT |
INDEX MANAGEMENT |
|---|---|---|
| Believes that, in liquid markets, prices reflect all available information | Attempts to identify mispricing in securities on a consistent basis | Allows commercial benchmarks to define strategy |
| Focuses strategies on the dimensions of higher expected returns | Often relies on forecasting techniques to pick securities and/or time markets | Tethered to a benchmark, reducing flexibility |
| Seeks to add value through portfolio design and implementation | Generates higher expenses, trading costs, and excess risk | Accepts lower returns and increased trading costs in favor of tracking |
An Exchange Traded Fund, commonly known as an ETF, is a fund that is traded on an exchange in the same manner as a stock. It is bought and sold during market hours and its prices fluctuate throughout the day like common stocks.
With the exception of single-security ETFs, these pooled bundles of assets operate much like mutual funds but often with lower operating expenses and potential for greater tax efficiency. When included appropriately with professional guidance, ETFs may be a better option than mutual funds in certain situations.
While the goal of ETFs and mutual funds is to generate a return, there are key differences that can influence investors to favor ETFs over mutual funds.
ETFs offer more purchasing flexibility as they can be purchased anytime during market hours at market prices making them an obvious choice for active traders.
Conversely, mutual funds can only be purchased at a set time of the day at a net asset value price. ETFs also tend to generate fewer capital gains due to their lower turnover, making them an appealing option for tax-sensitive investors.
Dimensional exchange-traded funds are ETFs managed by Dimensional Fund Advisors (DFA). Much like the mutual funds managed by DFA, their ETFs adhere to the same investment philosophy of low-cost, low-turnover portfolios incorporating academic research into the strategy and operation of the funds.
By tilting portfolios toward “premiums” such as smaller companies, value companies, and companies with high relative profitability, they seek to out-perform respective benchmarks. The ETF fund-type allows for more tax-efficient investment management when used appropriately.
DFA’s investment philosophy is a strategic approach to investing. It follows the belief that asset allocation is a key factor in achieving favorable financial outcomes.
Unlike fund families who simply track market indexes or seek to achieve out-performance through stock picking or market timing, DFA’s investment strategies are backed by academic research to better understand the overall behavior of a specific asset class.
This results in an approach that favors small cap, value, and high-profitability stocks as opposed to large caps, growth, and low-profitability stocks.
Investing in Dimensional Funds is as easy as finding a financial advisor, that is in alignment with the DFA investment philosophy and employs DFA funds in portfolios for their clients.
Our advisors can help you determine if Dimensional Funds are the best approach for your portfolio and get you started on the path to investment success.
To Gain More Insights Consider Reading ‘Investment Guide to DFA Mutual Funds‘.
If you live near Maryland, Northern Virginia, the DC area we can help you with your investment strategy. In addition to the use of Dimensional funds, our fiduciary advisors work with you to determine the best overall makeup for your portfolio based on your goals.
As fee-only advisors, we give you objective advice aimed to help you succeed in all your financial endeavors—which isn’t something every advisory firm can say.
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