One of our duties as your financial advisor is to design, manage, and continually reassess our investment strategy and managers. So it is with great excitement that we introduce a new mutual fund management firm to our mix, Dimensional Fund Advisors.
Over the past few months, we’ve undergone an extensive mutual due diligence process with Dimensional. That process entailed calls, webinars, analysis, and attendance at a two day conference in New York. The firm was founded in 1981 and is one of the largest asset management companies in the US, managing $240 billion. Different from many traditional Wall Street firms, Dimensional is the most academically oriented investment company we’ve encountered.
However, it’s possible you’ve never heard of Dimensional because their funds are not available to the retail investor, unlike PIMCO, Fidelity, Vanguard, Blackrock, etc. One of the unique aspects of Dimensional is that they only accept investments from large institutional investors (like the South Dakota Investment Council) or vetted fee-only financial advisors like KFG. As a result, they don’t have the marketing overhead the retail firms have. This allows them to keep their expense ratios well under industry norms. In the coming months, you will notice some of the managers in your portfolio[s] being replaced with Dimensional.
One aspect we really like about DFA funds is they are more global in nature and more expansive in nature in the number of securities and they offer a better exposure to micro caps. We will know be able to use one fund where we’ve used two or three funds. This will reduce your rebalancing and trading costs. So, in the future, we will use one global REIT fund and one US Equity fund instead of the two we use currently in each of those categories. We are also working to see if we can reduce our bond funds to one, too, rather than the three to five we currently use.
Our relationship with Dimensional, like any other manager, is completely independent. There are no compensation or legal agreements and we will access their funds via TD Ameritrade. As always, our responsibility remains squarely on doing what is in your best interest. We have the ability to use whichever investments give us the most reliability, confidence, and transparency toward that objective.