Chart of the Week: Dimensional Fund Advisors vs. Benchmarks



This week we are looking at one fund company with a stellar track record and looking at the ins and outs of their investment philosophy. The company is Dimensional Fund Advisors (DFA for short), which is one of the fastest growing large fund managers out there today.


Yesterday we looked at a quote from their founder and CEO about his first key to successful investing.


Now today in our chart of the week we look at how his company as applied that philosophy and how they (and their investors) have benefited. 


As we have mentioned, DFA has created a stellar track record of outperforming their benchmarks by sticking to their core investment philosophies (or as they call them, “Dimensions”). Investors who have put faith in DFA, and had the patience to let their long term strategies work, have seen better returns than their funds’ benchmarks.


Just how dominant have they been?


Of the 33 equity funds (US and International funds) they have that have been open for 10 years (and are not annuity funds), 26 have outperformed their benchmark over the last 10 years, 1 has equal performance of its benchmark and 6 have underperformed:

(click to enlarge)




Averaged out, their equity funds have outperformed their benchmark by 0.56% per year over the last 10 years. No small feat considering the majority of professional funds can not outperform at all.


0.56%, or 56 basis points, may not sound like much but remember the key to investing is finding a philosophy and sticking to it. Slow and steady wins the race, and DFA and investors in their funds are getting further and further ahead.


That “small” 56 basis point outperformance on an investment of $5,000 per year for 30 years leads to much higher returns over time.


Consider a 56 basis point outperformance on a fund that generates 6% returns each year. A $5,000 annual investment in that fund would return:



About a $46,000 difference! And the effects are compounded for larger investments or higher growth rates!



Sticking to their guns has paid off handsomely (consider the total outperformance in dollar terms with their $400 BILLION under management!).


So just how does DFA do it? What are the main principles of their investment philosophy? Our next article takes an in depth look at how DFA manages their funds.

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