The Science of Investing

A culture of academic inquiry has been Dimensional’s bedrock from the start. Our firm is driven by an evidence-based approach, Nobel Prize-winning insights, and decades of expertise pursuing higher returns while maintaining low costs and diversification.

Our investment process reflects years of innovation and refinement, and this has translated into better returns for investors.

Dimensional

75%

US equity and fixed income funds that outperformed benchmarks over 20 years

The Industry

14%

US equity and fixed income funds that outperformed benchmarks over 20 years

US domiciled mutual funds and US domiciled ETFs are not offered for sale outside the US. Past performance is no guarantee of future results.

Our commitment to research, rigour, and the pursuit of truth has helped transform the industry toward more transparent, data-driven solutions for investors. That commitment continues to propel Dimensional forward today.

On the Leading Edge Applying Financial Science

Dimensional’s investment approach is grounded in economic theory and backed by decades of empirical data. Our ongoing research to understand what drives returns and to uncover insights that are useful moving forward fuels innovation at the firm.

We hold research to a high standard and only act on findings we firmly believe can benefit investors.

Dimensional was founded around a set of ideas, and often we say these ideas are bigger than the firm itself. These are the people that came up with these ideas, and researched them, and created the opportunity for a firm like Dimensional to come along and implement those ideas. There are lots of people doing research in finance. There are lots of people looking for new ways to describe returns. What we have to do in our role at Dimensional is judge which of these are worth paying attention to. Dimensional, from the beginning, they apply the same type of rigor that you expect to see in scientific investigation. When people think about academic ideas they always have the other kind in mind, that big picture, eureka, that sort of moment. A lot of what we do is just incremental. What we're doing today follows naturally from what we're doing yesterday. Lots of people have ideas, but implementation ideas and really making it work and putting it together is much different from saying, "I can do that." We're all about the pursuit of truth. The right idea is the one that wins. Great research is research that you can structure strategies around. Great research solves problems for clients. I'm prone to say that I don't think any investment firm, at least that I know of, has the same commitment to the science.

This culture of uncompromising research emerged from top minds in finance, and it lives on in our daily work at the firm.

Driven by the Power of Markets

Markets do an excellent job adjusting to new information and incorporating the expectations of millions of buyers and sellers into prices—in real time.

Prices change based on what’s happening right now and what people think will happen in the future. That means that stock prices are a good representation of fair value and are always adjusting for a positive expected return. Markets have to work this way—otherwise, nobody would agree to invest.

If markets worked another way, opportunities would continually arise for investment managers to identify pricing “mistakes” and convert them into higher returns.

But more than 50 years of academic research show that the vast majority of managers consistently underperform benchmarks.

There's plenty of attention on AI and its ability to find patterns and vast amounts of data, but there's another, even smarter information processing machine one that's been around for 100s of years, the market. Every day, millions of trades take place in the market, totaling billions of dollars. The market takes in real time data about company performance, industry trends, global conditions, and much more. Insights people derive from AI get incorporated too. All this information impacts the price of the stock which changes based on what is happening now and what people think will happen. Buyers and sellers quickly respond to new information continually moving prices toward fair value. Some investors believe they can find pricing mistakes or predict where the market is going but that means competing against the collective knowledge of all those buyers and sellers. And there's no reliable evidence to show trying to out guess the market works. At Dimensional, rather than trying to find what the market got wrong, we use information and prices and expert implementation to put the power of the market, the ultimate AI, to work for investors.

Rather than trying to find what markets got wrong, at Dimensional, we use the information contained in prices to seek better returns and manage risk.

Trusting markets means we take a less subjective, more systematic approach to investing—an approach we can implement consistently around the world and across asset classes.

Adding Value at Every Turn

Our evidence-based approach guides us at every point in the investment process, from conducting research, to designing portfolios, to considering when and how to trade.

We build strategies that emphasise dimensions of the market that research shows have higher expected returns.

Our flexible process is another way we add value. As market prices change every day, a strategy that rebalances only once or twice a year, like most index funds, can leave returns on the table.

At Dimensional, we buy and sell securities based on up to date information on what can improve returns.

How would you say Dimensional differs from a pure index fund company? Indexing is pretty good. There's things you can do to improve upon that, and that's what we set about trying to show people. An index, every time they announce a change in the index then everybody knows what they're gonna buy and what they're gonna sell, and their trading costs could be pretty high to accomplish that. But if you have total flexibility in what you'll buy and what you sell and you can react to the market, you'll have that benefit. And this was a part of Dimensional from the start. If you're going out there and buying roses on Valentine's Day is that probably the highest price you're ever gonna pay for those roses? Yeah, most likely. And that's what indexes do. They're buying when everybody else is buying and the price goes up, price goes up. So it's just an expensive way to go acquire or sell shares. And so Dimensional says, well, why would you ever wanna buy it on Valentine's Day? Buy it when we can get a better price. Buy it at a lower price, you get a higher expected return. Look, we're like an index fund in the same philosophy, low cost, diversification. We're gonna try to beat the index, but not by trying to be clever and pick just the right stocks, but just be thoughtful about how do we go about actually implementing the purchase and sale of all these thousands of stocks that we're going to own. Because we're not tied to an index, we can use the information that's being presented to us in the marketplace. The market is gathering this information. People are gathering information, acting upon it. We think that there's value to having portfolio managers look at the portfolio weights every day, figuring out how the market's moving and incorporating that information real-time into the portfolios. That's what I'd say is the major difference over an index is the flexibility to rebalance the portfolios every single day. Why Dimensional can beat indexing is because it's not slavishly having to follow a particular mechanical rule. When they're compared to indexing, they have better performance. Our funds are designed to offer higher returns over time. It's not gonna be every year, but over time, we think we can do better. What we've demonstrated over 40 years is that taking advantage of flexibility has value. If you had one message to give to future investors, what would you say to them? Here's our set of beliefs. Here's our track record of implementing these ideas. And if those two things together work for you, we would love to have you as a client.

If we didn’t do better than index funds, we wouldn’t have a business.

David Booth

Founder and Chairman

Our long term track record shows the value our approach has delivered over indexing. What started with the launch of our first fund in 1981 still holds true today. Every dollar invested is backed by financial science and Dimensional’s commitment to providing an outstanding investment experience.

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A full range of investment solutions backed by financial science

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Equity

Broadly diversified, cost-effective equity solutions that improve upon indexing

Fixed Income

Flexible, systematic fixed income solutions to suit investor needs across a range of market conditions

ESG

Data-driven, climate-focused ESG solutions that maintain sound investment principles

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Disclosures

Performance data shown represents past performance and is no guarantee of future results.

RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.

Diversification neither assures a profit nor guarantees against loss in a declining market.

Eugene Fama is a member of the Board of Directors of the general partner of, and provides consulting services to, Dimensional Fund Advisors LP.

Robert Merton provides consulting services to Dimensional Fund Advisors LP.

Myron Scholes was an Independent Director of the Dimensional US Mutual Fund Board from 1981–2021.

Douglas Diamond is an independent director of the Dimensional ETF Trust and Dimensional’s US Mutual Fund Boards. Dimensional’s US Mutual Fund Boards refers to The DFA Investment Trust Company, DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc., and Dimensional Emerging Markets Value Fund.

THE SCIENCE OF INVESTING