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7. DFA's small-stock funds managed to outperform small-stock indexes and most other small cap funds. What...

7. DFA's small-stock funds managed to outperform small-stock indexes and most other small cap funds. What are the main reasons for them to be able to do so?

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Answer #1

The main reasons for DFA small stock funds to outperform other indexes are:

  • DFA analyzed and realized that stocks which have a higher book to market value have a higher upside and consequently greater return expectations. So they invested in those stocks which led to its small-stock fund outperforming other benchmarks.
  • The DFA also have invested in stocks with a smaller market capitalization and are thus better positioned to target the dimensions of getting better stock return.
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