Dimensional Funds: Always Putting the Client First!
It’s no secret that Dimensional Funds has been increasingly gaining popularity. Though the company formed its institutional strategies in 1981, they often flew under the radar since people were more familiar with names such as Vanguard or Blackrock. Dimensional is more widely acknowledged for its practical application and influential financial research.
The firm initially launched its strategies based on research into the performance of small cap stocks. Later, a comprehensive analysis of stock price behavior for the entire universe of US companies deepened their strategy repertoire and Dimensional Funds set a new standard for performance measurement and portfolio design.
By virtue of dismissing stock picking and market timing, Dimensional is not an active investment manager, yet at the same time it is not an index manager. They developed their own definition of asset classes and are not restricted by the mandate of tracking. This flexibility has allowed Dimensional to add substantial value to their investors.
With that being said, Dimensional Fund Advisors has taken it a step further. A recent piece, “Report Chides Vanguard and Others for Being ‘Excessive CEO Pay Enablers’”, mentions how big mutual fund firms such as ING, Vanguard, and Blackrock, to name a few, tend not to vote against management-initiated compensation proposals at companies that are part of their funds’ portfolios. To read more… Vanguard for instance supported 98% of the votes and was the worst ranking fund shop. This was based on a study done by the AFSCME, which is the American Federation of State, County and Municipal Employers. They represent 1.6 million state and local government, healthcare and child care workers and retirees. Basically, even though these mutual funds have a lot of influence, they are not using it to the advantage of their investors. The largest mutual funds are the least likely to line up executive pay with performance. It’s just another example of Wall Street executives lining their own pockets. Sorry to say, they now have the help of the largest mutual fund companies as well.
Dimensional Fund Advisors, on the other hand, was among the fund families most likely to vote to rein in pay or who were consistently challenging executives’ pay. They vote 88% of the time for shareholder proposals that are designed to tie executive compensation to long-term performance. Not only that, Dimensional Fund Advisors also votes against all directors sitting on compensation committees at companies with pay problems. This comes as no surprise considering their philosophy is that you always want your client to have a meaningful investment experience. It’s no wonder Barron’s ranked them the #1 mutual fund company in the world!
About Charles Massimo
Recognized as industry expert and guest speaker at national industry conferences, Charles Massimo is a published author and media subject expert on topics ranging from wealth/asset management to investment and financial planning for high net worth families.