As Morningstar reported in a 2010 study, low-cost funds beat high-cost funds in every time period tested. But one aspect of cost that is often glossed over is transaction costs. Whereas actively managed funds buy and sell frequently and index funds are locked into when and how much they can trade, Dimensional Fund Advisors (DFA) incorporates a flexible trading strategy that allows them to wait for opportunities both on timing and size of trades. This yields lower purchase prices and higher sales prices, which translates into higher returns for investors. Dave Twardowski of DFA explains DFA’s trading strategy in the video Dimensional’s Flexible Trading Approach.
Note: CCM has accessed and utilized Dimensional funds for our client portfolios for more than fifteen years.