Dimensional does not “pick stocks,” so how do they decide which stocks to buy?
Buying stocks for the funds is a detailed process but can be described in general terms. They create an eligible universe of all traded stocks of real operating companies. They then apply filters to exclude stocks that do not fit the asset class of the fund or that have specific pricing or trading concerns. The remaining stocks are eligible for purchase and are subject to rough market-capitalization target weights. They regularly monitor trading in the market place with real-time checks for current news that may impact prices, such as a looming takeover. Other than that, they’re generally indifferent among the stocks in the eligible universe, which allows them to trade opportunistically and take advantage of liquidity premiums that benefit client returns. For additional information regarding the investment strategies of each fund, please go to http://www.dfaus.com and read each fund’s prospectus and statement of additional information carefully.
