How Dimensional Is Going Beyond Indexing
Index funds are often viewed as low-cost, passive investments designed to avoid subjective decisions and to simply deliver the returns of an asset class. However, the providers who manage the benchmarks that are tracked by index funds must make a number of active decisions, and these decisions can have a notable impact on index funds’ returns.
In this five-part video series, we take a closer look at some of index investing’s inefficiencies. Joel Schneider, Deputy Head of Portfolio Management for North America, examines the implications of how indexes are constructed and managed—and explores what Dimensional believes is a better way to invest.
- Video 1: Active Decisions Can Impact Returns
- Video 2: Who Writes the Rules for Indexes?
- Video 3: Is the S&P 500 Index Passive?
- Video 4: Is Indexing Aligned with Your Goals?
- Video 5: Index Investing Is Good, Not Great
Active Decisions Can Impact Returns (Length: 1:34)
Index providers regularly make active investment decisions in the design and rebalancing of their indexes. These decisions may lead to significant differences in performance among the funds that track these indexes.
Who Writes the Rules for Indexes? (Length: 2:09)
Index rules about what assets to include and how to weight them can result in inconsistent coverage among indexes—which can affect investors’ returns.
Is the S&P 500 Index Passive? (Length: 2:58)
The S&P 500 is one of many indexes that engage in active stock selection, which can have an impact on index-fund investors’ returns. Tesla provides an instructive example.
Is Indexing Aligned with Your Goals? (Length: 3:10)
The goal of index funds is to minimize tracking error with the indexes they follow. But the companies that build indexes are generally not fiduciaries, so they are not prioritizing what’s best for investors. That misalignment can have costs.
Index Investing Is Good, Not Great (Length: 3:09)
We believe you can keep the good parts of indexing, like broad diversification and low fees, and improve on the bad parts with rules-based strategies that have a track record of beating benchmarks.