Dimensional Fund Advisors Paper

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- Distinct investment philosophy and strategies grounded on academic researches. DFA has built a long-term relationship with scholars from the very beginning, and the company never fear to adapt the newest academic research findings to modify its business strategies.

- Combine the theory and practice. As a conduit between researchers and clients, DFA has pioneered many strategies and consulting technics now taken for granted in industry.

- Diversification. Small stocks continued to be DFA’s primary business, but DFA offers a fairly broad product line about it. When buying stocks, the company also focus on making its portfolio diversified.

- Smart trading strategy. Adopting the usage of block trading enable DFA to extract a discount on the stock purchasing. To reduce the adverse selection problem, the firm would only trade with trustworthy parties that passed a rigorous screening and investigation.

- A great team. As DFA believed, professional and skilled traders are crucial to a successful investment company, although the case did not mention this part clearly.

New business: tax-managed funds

Historical data show DFA’s tax-efficiency. Tax-managed funds are natural business for DFA, they target market segments that have higher expected returns but are otherwise costly or unsuitable for taxable investors. A successful fund needed to make tax-beneficial trades in a way that kept trading costs low, which were a DFA specialty. Additionally, this new business allows the company to access additional capital form high net worth individual clients. However, since such funds are not for all investors and high net worth individual clients are still the minority in DFA’s clients structure, this type of funds might remain a small niche market in the recent future.

Future of DFA

With the help of current investing strategies, DFA helped clients build broadly diversification portfolios across a range of asset classes in the market and has been the leader in small stock research since inception according to its philosophy. DFA should consist on the path that had brought them so far and make :1) focus on small company stocks; 2) focus on value stocks over growth stocks; 3) stay with institutions and target more on high-net-worth individuals; 4) expand tax-management funds business continuously, and keep expanding main business internationally to avoid country risks, and 5) continue with its current trading policies to reduce costs and increase returns.

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