How Dimensional Is Going Beyond Indexing

Featuring Joel Schneider Deputy Head of Portfolio Management, North America

Index funds are often viewed as low-cost, passive investments designed to avoid subjective decisions and to simply deliver the returns of an asset class. However, the providers who manage the benchmarks that are tracked by index funds must make a number of active decisions, and these decisions can have a notable impact on index funds' returns.

In this five-part video series, we take a closer look at some of index investing's inefficiencies. Joel Schneider, Deputy Head of Portfolio Management for North America, examines the implications of how indexes are constructed and managed—and explores what Dimensional believes is a better way to invest.

Video 1: Active Decisions Can Impact Returns
Video 2: Who Writes the Rules for Indexes?
Video 3: Is the S&P 500 Index Passive?
Video 4: Is Indexing Aligned with Your Goals?
Video 5: Index Investing Is Good, Not Great

Active Decisions Can Impact Returns

Index providers regularly make active investment decisions in the design and rebalancing of their indexes. These decisions may lead to significant differences in performance among the funds that track these indexes.

(Length: 1:34)

Who Writes the Rules for Indexes?

Index rules about what assets to include and how to weight them can result in inconsistent coverage among indexes—which can affect investors' returns.

(Length: 2:09)

Is the S&P 500 Index Passive?

The S&P 500 is one of many indexes that engage in active stock selection, which can have an impact on index-fund investors' returns. Tesla provides an instructive example.

(Length: 2:38)

Is Indexing Aligned with Your Goals?

The goal of index funds is to minimize tracking error with the indexes they follow. But the companies that build indexes are generally not fiduciaries, so they are not prioritizing what's best for investors. That misalignment can have costs.

(Length: 2:49)

Index Investing Is Good, Not Great

We believe you can keep the good parts of indexing, like broad diversification and low fees, and improve on the bad parts with rules-based strategies that have a track record of beating benchmarks.

(Length: 3:09)

This article originally was posted on March 21, 2025. It is republished here with permission of Dimensional Fund Advisors LP. No further republication or redistribution is permitted without the consent of Dimensional Fund Advisors LP.

"Dimensional" refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.

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All videos are being provided for informational purposes only and should not be considered a solicitation, recommendation, or endorsement of any particular security, product or service, or considered to be investment or tax advice. There is no guarantee any investment strategies will be successful. Investing involves risks, including possible loss of principal. Past performance does not guarantee future returns. No investment decisions should be made solely based on the information in any of these videos. The views and opinions expressed herein are those of the participants and do not necessarily reflect the views of Index Fund Advisors, Inc. All opinions referenced within are as of the date of each video recording and are subject to change without notice. Information provided by third party sources is not endorsed or guaranteed by IFA. Where hypothetical back-tested performance is presented, please be sure to use the pause button at the end of the video to fully read the important disclosures including disclosures related to the use of this data. When charts and tables are used in this video, many may be viewed at a Video Resource section above.

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Index Fund Advisors, Inc. (IFA) is a fee-only advisory and wealth management firm that provides risk-appropriate, returns-optimized, globally-diversified and tax-managed investment strategies with a fiduciary standard of care.

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About the Author

Dimensional Fund Advisors

Dimensional is a global investment manager dedicated to implementing the great ideas in finance. Founded in 1981, Dimensional Fund Advisors has a long history of applying academic research to practical investing. Headquartered in Austin, Texas, Dimensional Fund Advisors has offices internationally in Canada, Australia, Japan, and Hong Kong.

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