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Dimensional Fund Advisors (“Dimensional”) is a pioneer in multifactor investing and one of the most well-respected money managers in the field today. Their scientific approach to investing is rooted in a tremendous history of academia.

Ideas rooted in academia

For more than 35 years, Dimensional has been translating compelling academic research into practical, real-world investment solutions. Dimensional has forged deep working relationships with world-leading financial economists and Nobel laureates – including Eugene Fama, Kenneth French and Robert Merton*.

In fact, much of the firm’s approach is based on the ground-breaking academic research of Fama and French, who are also members of its board of directors of the general partner of Dimensional Fund Advisors LP. Professor Fama has been credited as one of the fathers of modern finance and is a Nobel laureate (2013).

Multifactor investing in practice

The opportunity for vigorous exchange between internal researchers and these lauded academics has allowed Dimensional to bring the ideas of financial science to life for investors.

Dimensional offers investment solutions built on the idea that combining specific factors – borne out by years of rigorous research – can produce better outcomes for investors over the long term.

Four factors distilled from years of academic research

Chart demonstrate the Market factor - shows that equities outperform T-bills 1927-2017Chart demonstrate the Size factor - shows that small-caps outperform large-caps between 1927-2017Chart demonstrate the Relative price factor - shows that value outperform growth 1927-2017Chart demonstrate the Profitability factor - shows that highly profitable companies outperform ow profitable companies 1964-2017
4 Chart source: John Hancock Investments, Morningstar/Ibbotson, Professor Kenneth R. French, mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html, 2016. The chart above shows historical geometric mean performance for different groupings of stocks within the broad equity universe. This universe, or market, includes stocks listed on the NYSE, AMEX, and NASDAQ exchanges. The research does not portray results of indexes. T-bill data is from Morningstar/Ibbotson. In order to assess returns of stocks with different characteristics, researchers Eugene Fama and Kenneth French grouped stocks according to size, relative price, and profitability. For groupings based on company size, stocks were ranked by market capitalization, where small cap represents stocks of companies in the bottom 30% of the universe and large cap represents stocks of companies in the top 30% of the universe. For groupings based on relative price, stocks were ranked by book-to-market equity ratios, where value represents stocks of companies in the top 30% of the universe and growth represents stocks of companies in the bottom 30% of the universe. For groupings based on profitability, stocks were ranked by operating profitability (annual revenues minus the cost of goods sold, interest expense, and selling, general, and administrative expenses, divided by book equity), where high profitability represents stocks of companies in the top 30% of the universe and low profitability represents stocks of companies in the bottom 30% of the universe. Fama and French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP. Diversification does not guarantee a profit or eliminate the risk of a loss. Selection of other periods may produce different results, including losses. Past performance does not guarantee future results. Profitability is a measure of current profitability, based on information from individual companies’ income statements.

 

An approach based on a belief in the markets

Dimensional’s strong belief in markets frees the team to think and act differently about investing. Rather than relying on forecasting or trying to outguess others, the firm draws information about expected returns from the market itself – letting the collective knowledge of the market’s millions of buyers and sellers set security prices.

Dimensional uses the information in market prices, combined with fundamental data, to systematically identify differences in expected returns among securities. The team at Dimensional takes a less subjective, more systematic approach to investing – an approach that’s implemented consistently and one that investors can understand and stick with, even in challenging market environments.

The goal: add value by building portfolios that target higher expected returns in a cost-effective manner.

What sets Dimensional apart

An investment process that draws on the academic community and implementing financial research in real-world portfolios are what sets Dimensional apart. In the words of one of Dimensional’s founders, David Booth: “In this process, we have the best minds, the people that have developed the research that leads to these conclusions about our dimensions. We’re very comfortable with our process and very pleased with the results we have achieved. The biggest beneficiaries of all this hopefully are the clients.”+

Image of Dimensional global firms at a glance, As of December 31, 2017, 36 years since founding, $723 billion Canadian in firmwide assets under management, 12 offices in eight countries, 1200 plus employees globally

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