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Rekenthaler Report

Ranking Smart Betas

Not all are equally bright.

Is There a Risk Factor?
Michael Edesess has done what few have dared: He has trashed Dimensional Fund Advisors. As evidenced by the title of his book, The Big Investment Lie, Edesess enjoys poking objects with a sharp stick. However, it's one thing to jab at hedge funds, a rose that long ago lost its bloom. It's quite another to take on DFA, which has never been more popular, either in reputation or in sales.

And take on he does. In the provocatively titled article, "Why DFA's New Research is Flawed," which appears in the publication Advisor Perspectives, Edesess accuses DFA of practicing quackery. The company might appear to follow only the most rigorous scientific principles, writes Edesess, as befits its stable of PhDs, its connection with The University of Chicago, and its citations of Gene Fama and Ken French, but in reality it conducts "spurious pseudo-mathematical" analysis that leads to "poorly constructed and poorly presented nonsense." The company, states Edesess, "has succumbed to a dreadful descent into scientism."