Rob Harvey

Rob Harvey's path to Dimensional Fund Advisors started at Cisco Systems, where he managed part of their Treasury operations including the share repurchase program and oversight of external asset managers. When Cisco fired a manager for getting Fed calls wrong year after year and opened a search for a replacement, Dimensional came in with a pitch nobody else offered: "We don't think predicting what the Fed is going to do is a worthwhile exercise. So we don't do it, and we don't think you should either." Harvey was intrigued. He flew to Santa Monica for a conference, sat in the front row while Ken French presented the three-factor model, and described the experience as "being in the front row seat of a Journey concert." He was sold. He finished his MBA and moved to Austin to work for DFA.

On this episode of Behind the Ticker, Rob talks with Brad about DFAI, the Dimensional International Core Equity ETF. It's a broad market-wide international equity fund with tilts toward small size, value, and profitability, built to replace an index fund while still delivering the premiums DFA's research identifies.

DFA's Investment Philosophy: Markets Work, But...

DFA's approach starts from a position of humility: markets work, prices contain information, and trying to predict what the Fed will do or where rates are going is not a productive exercise. But that doesn't mean you accept index returns. The research, pioneered by Eugene Fama and Ken French in partnership with Dimensional, identifies premiums in the market: small size, value, and profitability drive higher expected returns over time.

The evolution has been deliberate and slow by design. DFA did small-value investing for years before adding profitability in 2012. "There's a high bar for something coming into the portfolio," Harvey said. "We're not chasing the flavor of the week. We need a lot of data and a lot of confidence that it's going to work." The deep bench of PhDs and researchers is critical to maintaining that discipline. Harvey's boss, Marlene Lee, is a PhD who worked with Eugene Fama at the University of Chicago. Another colleague worked with Ken French at Dartmouth. "As a student that was interested in markets and finance, you know that name if you've read a textbook," Harvey said about French.

Active Daily Portfolio Management

DFA calls itself systematic rather than passive, and the distinction matters in practice. Harvey used a real-time example from the week of recording: with markets moving sharply amid tariff headlines, securities across the portfolio become mispriced relative to each other. DFA's daily portfolio management process exploits those moments. If a stock they want to own drops 15% while the market drops 5%, that's an opportunity to add. If a holding runs up, they can trim into strength. This is happening every single day, not at quarterly rebalances.

Momentum also plays a role, but not as a standalone factor tilt. If a defense stock in Europe is in the top 5% of performance for the international market and it also passes the value and profitability screens, they'll hold it a little longer rather than trim it mechanically. Momentum incorporates real-world information about how a stock got to where it is. "It's not as rigid as looking at only the premiums," Harvey explained. The key is that momentum is used to improve execution and timing, not as a separate factor bet.

DFAI as a Core Replacement

DFAI is built to replace the international index fund in a portfolio. It provides broad market coverage like an index fund, with low cost and high diversification, but achieves outperformance that an index fund structurally cannot deliver. Harvey was direct: "Index funds, you are guaranteeing yourself underperformance, or at the best case scenario, performing in line with the benchmark. If you're trying to outperform, you're fighting with one hand behind your back." The structural drag comes from forced buying and selling around index reconstitutions, something Dimensional avoids entirely.

The fund has broad coverage with light tilts toward the premiums. Some of DFA's most popular ETFs now are these market-wide, low-tracking-error portfolios rather than the deep-factor component strategies they were historically known for. It's all about turning the knobs differently based on risk preferences and how much tracking error an advisor is willing to accept. Harvey also mentioned DFA's conversion of mutual funds to ETFs in 2021 as a key moment. They converted $29 billion, one of the largest conversions in history, because the ETF wrapper is simply more efficient for investors.

Key Takeaways

• DFAI is a broad international equity ETF with tilts toward small size, value, and profitability, designed as a core index-fund replacement that can deliver outperformance without forced reconstitution trades.
• DFA manages assets systematically with daily portfolio management, exploiting short-term mispricings during market volatility rather than rebalancing quarterly.
• Profitability was added to the process in 2012 after extensive vetting. The bar for adding new factors is high: years of data and research required, no chasing the flavor of the week.
• Rob Harvey discovered DFA while working at Cisco after they fired a manager for repeatedly getting Fed calls wrong. He described seeing Ken French present the three-factor model as "being in the front row seat of a Journey concert."
• DFA converted $29 billion from mutual funds to ETFs in 2021, one of the largest conversions in history. The firm continues to expand its ETF lineup based on advisor demand for broader, lower-tracking-error products.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.