In two weeks I will be attending the Dimension Fund Advisors (DFA) introductory conference in Santa Monica. This is the next step in my ongoing conversations with DFA about using their products in client portfolios. For the uninitiated, DFA is (allegedly) choosy about working with advisors, and there is a somewhat lengthy “courtship” process before advisors are eligible to use DFA products with clients.
Some regular readers might be surprised at this since in the past I’ve been skeptical about DFA’s claimed performance advantage. My opinion there has not necessarily changed. What DFA may offer is better exposure to additional risk factors in some sectors of the market.
There are plenty of DFA-selling advisors making terrible apples-to-oranges comparisons of performance of DFA funds to other strategies but the reality is this: DFA was established based on peer-reviewed academic research that demonstrates that small cap stocks and value stocks may offer higher returns than market-cap weighted portfolios due to additional risk (volatility) associated with small/value stocks. Whether or not an investor (or their advisor) wants to take those risks is another discussion. (By the way, if you want a reasonable comparison of DFA to other strategies I highly recommend White Coat Investor’s take on the matter.)
In short, I have an obligation to evaluate the best possible options for my clients, and I’ve decided that the obligation extends as far as attending the conference. Of course as a financial professional, I value my independence more than most things, so I won’t be anyone’s acolyte in an attempt to curry favor. (I may also be the most skeptical human being on the planet.) So you shouldn’t expect me to come out chest-thumping and carrying a bronze bust of Eugene Fama while screaming about the superiority of DFA afterwards, but I’ll keep you posted.
Bason Asset Management 