April 2017
Why is Equius so "DFA centric"?
Jeff Troutner
Equius Partners

We're often asked by new clients (and too many investment advisors) why we use the asset class funds of Dimensional Fund Advisors almost exclusively to build and manage our clients' investment portfolios.

The simple answer is that they're the best mutual funds available for each of the core asset classes we include in portfolios. But let's dig a bit deeper

First, Dimensional pioneered "asset class investing" in the early 1990s based on groundbreaking research by Eugene Fama (University of Chicago) and Ken French (Dartmouth). Their suite of U.S. and foreign large cap and small cap "value" funds are designed to capture the risk/return premiums outlined in the Fama/French research in the most efficient and effective way while maintaining an acceptable amount of portfolio diversification. Since most of the funds we use were launched in 1993 and 1994, there is a proven track record of Dimensional's talent at managing highly structured asset class funds compared to their competitors (primarily Vanguard, which still uses an indexing methodology).

Second, Dimensional remains deeply committed to the academic research behind "factor investing" and has developed a world-class research department within the firm to challenge/enhance what they learn from the top academics. Most importantly, Dimensional has consistently turned the sound science of asset class investing into practical solutions that always consider taxes, transaction costs, and other fund expenses. Unlike most fund companies (and consistent with the Equius approach), decisions aren't made for marketing and business development reasons first. Instead, they consider whether a change benefits their clients first and then work to implement the change with the greatest positive impact.

Finally, Dimensional is focused. They do not deviate into areas of personal finance and investments they don't believe in (e.g., Vanguard's never-ending experiment with their clients' money in traditional actively-managed funds) or that distract them from being the best producers of asset class mutual funds. In my 30+ years in the investment business, I have never found a firm with more integrity and a commitment to "doing the right thing" than Dimensional.

None of this means that we agree with everything Dimensional does. They have, for example, a commodity fund that some of their larger advisors demanded. Since commodities have no expected return (they produce no earnings, pay no dividends, and yield no interest), we reject them as an asset class (consistent with Dimensional researchers, by the way) and do not include them in our clients' portfolios. We accept that this often places Equius at a competitive disadvantage with other advisors (since the mainstream media constantly touts commodities as good "alternative" investments). But we're confident avoiding commodity funds places our clients in a more favorable competitive advantage vis a vis their long-term portfolio returns.

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Created with Sketch. David Booth Chairman and Co-CEO, Dimensional Fund Advisors “This investment philosophy is about more than returns—it’s about a great client experience that can really help people relax.”