Prudent investing is a rational process. It involves deciding how much risk to take, then choosing asset classes to match an investor's preferred risk-return tradeoff. We build strategies designed to deliver precise risk dimensions to investors. But we are not a traditional investment manager—and traditional labels do not fit.
Structuring a strategy around compensated risk factors lends purpose to an investor's portfolio. Rather than analyzing individual securities, investing becomes a relatively simple matter of deciding how much to allocate to small, large, value, and growth stocks around the world—and how much term and credit exposure to target in fixed income. By focusing on what matters, Dimensional focuses your efforts.
Traditional managers do one of two things: Active managers focus on picking individual stocks, the antithesis of diversification; index managers hold many securities but mimic arbitrary benchmarks.
Dimensional chooses a different path. It structures strategies based on scientific evidence rather than on speculation or commercial indexes. Small cap strategies target smaller stocks more consistently. Value strategies target value returns with greater focus. As a result, investors achieve more consistent portfolio structure.
Traditional managers do one of two things: Active managers focus on picking individual stocks, the antithesis of diversification; index managers hold many securities but mimic arbitrary benchmarks.
Dimensional chooses a different path. It structures strategies based on scientific evidence rather than on speculation or commercial indexes. Small cap strategies target smaller stocks more consistently. Value strategies target value returns with greater focus. As a result, investors achieve more consistent portfolio structure.
Dimensional Management Compared to Traditional Portfolio Management
| DIMENSIONAL | TRADITIONAL ACTIVE MANAGEMENT |
INDEX MANAGEMENT |
Believes that, in liquid markets, prices reflect all available information |
Attempts to identify mispricing in securities on a consistent basis |
Allows commercial benchmarks to define strategy |
Focuses strategies on the dimensions of higher expected returns |
Often relies on forecasting techniques to pick securities and/or time markets |
Tethered to a benchmark, reducing flexibility |
|
Seeks to add value through portfolio design and implementation |
Generates higher expenses, trading costs, and excess risk |
Accepts lower returns and increased trading costs in favor of tracking |
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Implementing the Science