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Dimensional Fund Advisors Summary

In: Business and Management

Submitted By Dialamo
Words 495
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Monday, January 27th, 2014

Case Summary #1
Dimensional Fund Advisors

The California based investment and advisory firm, Dimensional Fund Advisors, was founded in 1981 by Chicago University students. The founders created DFA based on academic findings that stocks with small market capitalization outperformed the market and large cap stocks over a long period of time. DFA focused on selling investment funds that incorporated a bunch of small cap stocks from major stock exchanges like the NYSE. Their initial small cap funds were devised by ranking the market cap of stocks on the NYSE, AMEX and NASDAQ from top to bottom. From there, they split the ranked stocks into ten groups called deciles. They then sold different funds that would replicate buying stocks from the bottom 5 deciles. Over the years, they became one of the biggest small cap stock owners, owning over 3% of stocks in the bottom two deciles. DFA bought stocks in large blocks. They constantly looked for bargains on the market and bought in bulk. They only accepted deals that would save them several percentage points below the current market value of securities they wanted to purchase. They did not rely on any fundamental analysis in their stock purchases. They just focused on buying the small cap stocks that fell into their deciles and made sure that they didn't buy too many stocks that fell into the same industry or sector. DFA strongly believed that their funds offered enough added value to include a small management fee, as they thought their strategies cut down tremendously on trading fees for the investor. DFA main client focus were pension and endowment funds. Not only did they sell funds, they also advised clients in investment decisions for a fee. DFA is a strong believer in EMH. They believe the markets are efficient and felt that their long run approach to investing would generate…...

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