Understanding Dimensional, Part 5 of 7: How Dimensional’s Patient, Flexible Trading Approach Adds Value
By Peter C. Thoms, CFA (LinkedIn Profile)
Investors seeking to maximize their returns should also seek to reduce their trading costs. Dimensional’s patient, flexible approach to trading brings benefits to its investors. Please view the short video below to learn more.
All too often in the investment industry, funds sacrifice a significant amount of potential return by trading too much. The average mutual fund has a very high rate of portfolio turnover. While such turnover is not disclosed as a specific cost of owning a fund, shareholders pay for it dearly in the form of lower returns.
Dimensional conducts its trading in a prudent, shareholder-friendly manner and its portfolios feature very low turnover. In addition, its proactive, flexible and patient trading regimen seeks to neutralize as much as feasible the negative impacts of trading. Dimensional has built up its trading infrastructure over three decades and now operates four trading floors around the world (Austin, TX, Santa Monica, CA, Sydney, Australia and London) to monitor around-the-clock activity in global financial markets and the firm’s investment strategies. Dimensional has a particularly strong trading presence in more illiquid small-cap markets.
On any given day, there are many securities that Dimensional tracks that reach buy or sell points based on their pricing and underlying valuation fundamentals. However, traders at Dimensional are not under pressure to buy any particular security at any particular time. Because its trading is quantitatively-driven, the firm is agnostic as to whether it buys Security A or Security B on a particular day. It will only buy either when it can do so at a very favorable price. Dimensional seeks to capitalize on trading realities such as low liquidity and wide bid/ask spreads by employing a patient, flexible and price-sensitive trading strategy that exploits the eagerness of others to trade. As often as possible, Dimensional seeks to trade opportunistically in a cost-conscious, unhurried fashion from a position of negotiating strength.
Dimensional acts as a provider of liquidity to more eager traders in the marketplace. Accessing this liquidity can be expensive for traders on the other side of Dimensional’s trades and result in favorable prices for Dimensional.
For additional information about Dimensional’s trading strategy, please click here.
To learn more about Dimensional funds and how we employ them to construct low-cost, tax-efficient, value-focused portfolios for our clients, please visit us at: www.orionportfolios.com
For information and performance details about any particular Dimensional fund, please visit www.dfaus.com and click on “Strategies.”
Peter C. Thoms, CFA
Orion Capital Management LLC
1330 Orange Ave. Suite 302
Coronado, CA 92118
Tel: 619.435.1701
Email: [email protected]
About the Author:
Peter C. Thoms, CFA, is the founder and managing member of Orion Capital Management LLC, an independent Registered Investment Advisor based in Coronado, California. The firm manages assets for individuals, families, trusts, corporate pension plans and non-profit organizations.
Disclosure:
This document is for informational purposes only. Nothing in this report is to be construed as a specific investment recommendation. This document does not constitute the provision of investment advice, which is only provided by Orion Capital Management LLC under a written investment advisory agreement and only in states in which Orion Capital Management LLC is registered or is exempt from registration requirements. Orion is not a tax advisor and does not provide tax advice. For tax advice individuals should consult their CPA.
