Management
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 stock to hold versus bonds, and how small or large, and value- or growth-tilted the stocks should be. 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 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 Management |
Active Management |
Index Management |
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Assumes markets work. |
Assumes markets don't work. |
Assumes markets work with no liquidity cost. |
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Captures specific dimensions of risk identified by financial science. |
Attempts to beat the market through security selection and market timing. |
Allows commercial benchmarks to dictate strategy. |
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Minimizes transaction costs and enhances returns through portfolio design and trading. |
Generates higher turnover, transaction costs, and taxes due to speculative trading. |
Accepts high transaction costs and turnover in favour of tracking. |
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