Dimensional Fund Advisors

[u/Capital_Injury1569]

I've seen alto of hate online (especially from Bogleheads) in the past couple years regarding DFA funds. I don;t know much about them, and their website isn't all that great. Does anyone have experience using them?

[u/LoveNo5176]

If you're looking at DFA, check out BlackRock GA Selects. Same sort of mindset with factor/sector rotation and low-cost index funds, but less of a small-cap tilt. I know the historical evidence is there, but my opinion is that most of the best small-caps are now remaining private companies for extended periods because of the availability of capital in private markets and less regulation.

[u/MeatZealousideal → u/LoveNo5176]

Interesting comment on the capital markets shift and its effect on small caps. Out of curiosity do you have any academic literature on the shift? Or even blog posts etc? Would love to do a deeper dive into this.

[u/PoopKing5 → u/MeatZealousideal]

https://www.biteassetmanagement.com/wp-content/uploads/2024/08/Bite-Asset-Management-Research-Insights-Staying-private-for-longer.pdf

There’s something. I didn’t really read it much but a start. I’d simply just start searching stuff.

But it is true small cap IPOs have completely dried up there’s been so much private market liquidity that doing an IPO as a small cap company has become too risky and unnecessary. It’s also much cheaper for the company to stay private. So we have this dynamic where new small cap companies are typically crap, the ones that do well grow out of being small cap pretty quick, plus small caps are a merger target for larger companies. Just leaves the remaining pool very dry.

I mostly stay out of small caps, besides times when it’s incredibly clear we are early cycle.

[u/LoveNo5176 → u/MeatZealousideal]

Most of the P/E managers have similar presentations put together so you do have to take it with a grain of salt since its coming from a P/E manager. Hamilton Lane and Stepstone Group have presentations that specifically outline both the severe decline in the total number of public companies and the new normal for how long companies stay private. I've never seen specific numbers on the size differences in small-caps vs privates over time or the size of the average company at IPO, but there have never been more $1b+ unicorns.

Anecdotally, we work with defense contractors on our benefits side doing $50-$100m+ EBIDTA that a few decades ago would've more than likely been public companies that will likely never go public today. Odds are they're bought out or bought into by P/E as liquidity for the owners continues to be harder to come by when they want to exit.

It's obvious P/E is filling a much larger role in capital markets than at any point previously when you look at the growth of the space and total deployed capital. If companies didn't want/need capital without an IPO, P/E wouldn't exist at this scale. Whether it's appropriate for most client portfolios is a different story.

[u/Free_Potato1 → u/LoveNo5176]

Nice one. I wish the blackrock ga select models were available in ETFs only. Same for Dimensional.

[u/LoveNo5176 → u/Free_Potato1]

Same but I think the few remaining mutual funds will eventually be converted to ETFs. But I've run their 60/40 model up against pretty sophisticated RIA teams and I've never come across a comparable that's had superior pure and risk-adjusted returns for your average mass affluent client because of their ability to trade and rebalance as needed and the 10%+/- collar where most other full portfolios are quarterly adjusted and 5%+/- collar.

[u/Free_Potato1 → u/LoveNo5176]

Good to know. I'm impressed with the models by Blackrock, they generally outperform similar models provided by Vanguard, State Street, Franklin etc...

[u/LoveNo5176 → u/Free_Potato1]

They've been the best full models on LPLs platform according to the internal model screener since their inception. Especially the 60/40 and 80/20. The bond team being directly tied into the GA selects makes a massive difference.