In a recent episode of Behind the Ticker, Rob Harvey, Vice President at Dimensional Fund Advisors (DFA), shared his personal journey into asset management and gave an in-depth look at DFA’s unique approach to building portfolios, particularly their work in the ETF space. Harvey described how he first encountered Dimensional while managing external asset managers at Cisco Systems, where their emphasis on evidence-based investing and disdain for market predictions immediately stood out. After attending a Dimensional conference and hearing academic legends like Eugene Fama and Ken French present, Harvey was convinced and eventually joined DFA, relocating to Austin, Texas.Harvey explained that DFA’s core mission is to help investors achieve their financial goals by providing investment solutions based on robust academic research, rather than focusing on marketing or chasing hot trends. He emphasized Dimensional’s long-standing partnership model with financial advisors, which prioritizes education, client communication, and long-term outcomes over product sales. This commitment to advisors and evidence-based investing remains central even as DFA expands its reach through ETFs, making their historically advisor-only strategies accessible to a broader audience without compromising their foundational principles.The conversation focused heavily on DFA’s investment philosophy, particularly their emphasis on factors like size, value, and profitability, which are systematically applied across all portfolios. Harvey noted that DFA is highly disciplined in vetting new research before incorporating it into their strategies, ensuring that any new factors—such as profitability, which was added in 2012—meet a high bar for robustness and persistence across time and markets. DFA’s portfolios are managed actively on a daily basis, providing flexibility to capture real-world developments in ways traditional index funds cannot, while maintaining low fees and broad diversification.Harvey also provided an overview of DFAI, Dimensional’s International Core Equity ETF. He described DFAI as a market-wide, low-tracking-error strategy that lightly tilts toward premiums like small size, value, and profitability, offering enhanced expected returns over a standard index fund. DFAI differs from traditional international index funds by including a broader set of securities, especially micro-caps, and by incorporating real-time momentum screens to avoid value traps and boost performance. Harvey positioned DFAI as an ideal core international equity holding for advisors seeking to move beyond passive indexing without sacrificing diversification or cost efficiency.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Rob Harvey covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
You will see more ETFs. You will see more mutual funds launch in the future. So you mentioned the firm is active. How do you guys think about that daily portfolio management process, really enhancing return and enhancing the approach compared to just buy and hold, let's just index.
And then you look at other stocks out there right now, what's doing really well in Europe, what's we're doing really well on DFI, defense stocks, they're doing really well. So if you have a portfolio that's focusing on smaller, deeper value of higher profit related securities, which is what we know drives returns in the equity space, but you're holding a defense stock that's in the top 5% in terms of the performance for the rest of the international market.
Market Context and Positioning
So that's a research piece. The product piece is also important. If we found ways to improve the microcap portfolio a little bit here a little bit there over time, that's great. But we're not necessarily serving investors or investors or clients as well as we could. If we know that we can also do things in other areas of the market that are also value ad. So you've seen not just in the product, wrapper, like ETF, like you mentioned, but also where are you going to be positioning yourself?
We're sick into our guns over time. So there's a consistency aspect too. That doesn't mean, again, that they're going to outperform every day, but I think that consistency and approach gives investors more confidence because they know what they're going to see when they take up the account statement. If value got crushed last year versus growth, you should expect us to see a value strategy underperform. That is part of your, that's part of the experience that you should anticipate, right?
Like, and what do you position yourself again? Historically, dimensional has been very much a component of the market. Those are flagship funds, like a value strategy or a small catcher. We do have market-wide strategies, but we're known for component strategies. Some of our most popular ETFs are low tracking error, high degree of overlap, market-wide portfolios with good implementation and very light tilt towards the premiums.
Part of the evolution of the firm has been on the research aspect. So I think about how the national's grown. There's been two key areas, I think, that I've been driving the growth. What is, how do you make your portfolio is better? Well, what you're asking about, which is the research and the other is, how do you offer investment solutions that better fit the needs of your clients? So I'll talk about the research piece first, which is, how do you improve your portfolios over time?
Notable Insights
"We do a lot and our approach, I think, is different from that of other asset managers because I think really, if you wanted to summarize it succinctly, you'd say dimensional goal is to help and clients reach their financial objectives by providing great investment solutions."
Key Takeaways
- Harvey positioned DFAI as an ideal core international equity holding for advisors seeking to move beyond passive indexing without sacrificing diversification or cost efficiency.
- The conversation explores important themes in portfolio construction relevant to today's advisor landscape.
- The conversation explores important themes in quantitative investing relevant to today's advisor landscape.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Rob Harvey highlights important considerations around quantitative investing. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of quantitative investing and portfolio construction discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Rob Harvey, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.