Small company stocks have been empirically proven to outperform large company stocks, and “value” stocks have been empirically proven to outperform “growth” stocks.

This phenomenon can partially be explained by risk (i.e, small companies are inherently riskier than large companies, so investors demand a premium for owning them).  However, the historical premium is larger than can be explained by risk alone, so including small cap and value stocks in a portfolio improves its risk-adjusted expected returns.

We attempt to efficiently capture these premiums for our clients by investing in mutual funds and ETFs managed by Dimensional Fund Advisors.  Dimensional mutual funds and ETFs are designed to capture the small and value premiums in the most intelligent, cost-effective, and tax-efficient manner available.