Passively Engineered Funds

Passively managed mutual funds are found in two different genres: index funds and passively engineered funds. The later is only available through a firm called

Dimensional Fund Advisors | www.dimensional.com

(DFA). DFA has never paid one dollar of commission to brokers, nor spent one dollar for advertising, allowing those savings to be passed along to the investor.
 
Similar to indexing, DFA’s passively engineered investment strategies share a common belief in efficient markets. Accordingly, neither style attempts to “beat the market” through superior stock selection. The difference between the two strategies is that passively engineered mutual funds are not designed to match the performance of established indexes. Indexes for equity or fixed income securities were often developed as arbitrary benchmarks of financial performance and were not intended to serve as blueprints for strategic investment strategies. Rather than mirror industry indexes, passively engineered funds are designed to capture specific risk factors and correlations that exist in the global capital markets.
 
Alternatively, a passively engineered approach places priority on minimizing trading costs and taxes rather than precisely replicating an index. At DFA, stocks are purchased in block trades when they become available at attractive prices, avoiding the problem of paying an unnecessary premium for certain stocks simply because they happen to appear in an industry index.