One Vanguard, Many DFAs
The mutual fund industry’s two indexing leaders have left different legacies.
The history of U.S. mutual fund indexing is Vanguard versus Dimensional Fund Advisors. In 1976, Vanguard introduced what was then called First Index Investment Trust, a fund that replicated the S&P 500. Five years later, DFA launched its U.S. 9-10 Small Company Fund. Every mutual fund indexing entrant since that time has been a historical footnote.
The companies are not only today’s two biggest mutual fund indexers (with Vanguard being substantially larger, of course) but also neatly encapsulate a key debate of indexing: Should indexers own the entire marketplace, on the theory that the wisest man is the man who realizes that he knows nothing and who therefore will not attempt what must surely fail? Or should they use academic research to shape their funds so that they hold some market segments but not others?
John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.