Dimensional Fund Advisors is a little known fund company that has gained notoriety over the past few years, but is still far from being a household name. This is by their own design; they do not market their products, and they are very selective when it comes to allowing advisors to use their funds. The advisors that do successfully go through Dimensional’s training and commit to their strategy are submitting to the idea that nobody can predict the future, so investors are best served when they focus on what they can control. One of the most important things for investors to control is their own behaviour, but it is easier said than done. Jumping in and out of the market based on rumours, the media, and behavioural biases can be extremely damaging to an investor’s long-term success, but it is common practice.

The following charts might demonstrate some of the value that the advisors using Dimensional funds provide to their clients.

The first chart shows the net cash flows from 2005-2014 into (out of) all Canadian domiciled funds contained in three Morningstar fund categories: US, International, and Canadian equity. The net cash flows have been highly volatile through time, which would be expected when investors are piling money into funds during periods of high returns and pulling dollars out during periods of poor performance.

The second chart shows net cash flows from 2005-2014 into three of Dimensional’s Canadian domiciled Core funds: US, International, and Canadian. Since 2005, Dimensional has seen consistent positive net cash flows into these broad asset class funds – this means that in each year, significantly more money went into the funds than came out. This cash flow data would be expected when investors are sticking to a long-term strategy and staying invested through varying market conditions.

Evidence of good financial advice

Source: Morningstar Direct, Dimensional Fund Advisors

This is not a demonstration of how great Dimensional funds are, it is a demonstration of the value that a small subset of advisors with a shared belief of how markets work has been able to provide to their clients. One of the most notable periods was in 2008, a time of severe market distress. While the aggregation of funds in the Morningstar categories displayed net outflows (investors were selling low), these Dimensional funds continued to see positive net inflows (investors were buying low). It is this type of discipline that results in long-term success for investors.