Saturday, January 4, 2014

Dimensional Fund Advisors Philosophy

Dimensional Fund Advisors was recently featured as the cover story in the January 4, 2014 edition of Barron's Magazine. The article highlighted the consistent outperformance of Dimensional Funds, the repeatability of the firm's success, and the quiet and efficient manner with which the firm goes about its business. Also discussed was the relatively small group of Registered Investment Advisors that have access to Dimensional Funds and the vetting process those advisors must go through to gain that access.

Unfortunately, many investors have difficulty buying Dimensional Funds because Dimensional is loathe to offer their funds to the commission-oriented big wirehouses. Also, since the funds charge no commissions and offer the big wirehouses no 12b1 fees and no selling agreements, perhaps the wirehouses see a relationship with Dimensional Funds as "less than profitable." Why would a commission wirehouse offer funds that won't pay it a 12b1 fee when it could offer funds that contain not only 12b1 fees, but also handsomely high commissions?

Well, where the wirehouses lose, the investors win. Registered Investment Advisors that have gone through the Dimensional Funds vetting process successfully are able to offer their clients some of the most consistently high-ranking funds in the world. Because the funds are extremely low cost, and because the funds minimize things like trading activity, the investor maximizes his or her gain. 1% may not initially sound like a big deal, but for a $500,000 portfolio that means $5000 each and every year in portfolio outperformance.

Blue Haven Capital highly recommends that investors look for Registered Investment Advisors that have access to Dimensional Funds. The investor will most likely find himself or herself working with a firm that has embraced the low-cost approach, is comfortable with the Dimensional Funds 3 Factor Model, and works quietly (Dimensional Funds does zero advertising) and efficiently to maximize the odds of outstanding portfolio performance.