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View on Dimensional Fund Advisors?

Retirement | SIPP Helpful? 9

Asked by GrumpyFox, submitted 11 October 2012.

Open Quote What are your views on the US firm, Dimensional Fund Advisors?

One claim to fame is their rigorous, highly structured approach to research and analysis, In UK, Standard Life offer a wrap facility, arranged by a select number of UK IFAs on behalf of UK investors. Can you comment on their investment style, fund management skills and performance? One attraction is their low transaction costs - at institutional rates, not retail.

On broader measures, how do they compare with the likes of BestInvest, H-L, Killick, et al., as a home for SIPP or ISA investment?
End Quote

Answered by Justin on 15 October 2012

Dimensional Fund Advisors are notable for three key reasons: their quasi index-tracking investment approach, only selling funds via financial advisers (to whom they don't pay sales commission) and having low fund annual management charges.

Dimensional quite sensibly takes the view that very few fund managers, if any, consistently outperform a benchmark index. So they instead more or less track indices while trying to add some value around the edges. Does it work? longer term performance in the US has generally been reasonable, but UK fund performance to date has been far from convincing:

Dimensional UK Core Equity: slightly underperformed FTSE All Share (but then so would a tracker after charges).
Dimensional UK Value: significantly underperformed FTSE 100.
Dimensional Global Core Equity: underperformed MSCI World (over last 3 years - fund launched in 2008).
Dimensional International Value: significantly underperformed MSCI World.
Dimensional Emerging Markets Core: outperformed S&P/IFCI Composite.
Dimensional Global Short Dated Bond: significantly underperformed FTSE ABG All Stocks.

Bear in mind that markets in recent years haven't always been kind to 'value' investors (i.e. those investing in companies they believe the market has undervalued). But nevertheless, these figures don't exactly make me want to rush and invest with Dimensional. Plus, as they only offer their funds via financial advisors I don't believe it's possible to buy them via mainstream fund platforms (someone please correct me if I'm wrong).

When comparing with the likes of Bestinvest and HL, Dimensional is quite a different proposition in that they manage their own funds rather than offer discounts on other funds across the marketplace. Yes, Bestinvest and HL do offer their own 'funds of funds' investment services, but this is a different (and more expensive) proposition compared to Dimensional.

If you want to use a financial adviser (who happens to sell Dimensional funds) and believe that value investing should do well over the next 5-10 years then I wouldn't rule out Dimensional. However, add in the adviser's fees and the overall cost could start to look somewhat higher.

If you're comfortable making your own investment decisions then perhaps consider one of the lower cost fund SIPP platforms - see our comparison here.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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