As financial advisors, our philosophy is grounded in evidence, discipline, and a long-term perspective. We don’t chase fads or try to outguess the market; instead, we rely on a systematic, academically-driven approach to build resilient portfolios.
Most investors are familiar with traditional index funds, like those that track the S&P 500. These funds offer low costs and broad diversification, which is a great starting point. But what if we could take the best parts of indexing—the discipline and diversification—while systematically targeting higher expected returns?
Instead of simply buying the entire market, our approach involves "tilting" portfolios toward specific areas of the market that, according to decades of academic research, have historically demonstrated higher returns. These are not speculative bets; they are broad, persistent, and sensible dimensions of the market. There are three key "tilts" we focus on:
1. The Profitability Factor (Profitable Companies)
This first element acts as a quality screen. Within any group of stocks—small or large, value or growth—companies with higher profitability have historically outperformed those with lower profitability. It makes sense: well-run, profitable companies are better equipped to navigate challenges and reinvest for future growth. By focusing on companies with strong underlying profitability, we add a layer of quality to the portfolio.1
2. The Relative-Price Factor (Value Companies)
A value stock is one that is trading at a low price relative to its fundamental value (its book value, earnings, or cash flow). In contrast, "growth" stocks have high prices relative to their fundamentals, reflecting high expectations for the future. Academic evidence shows that value stocks have historically provided higher long-term returns than growth stocks. Said another way, if two companies are identical in every way except one is more expensive, we find value in not overpaying for the expensive company. By tilting toward value, we aim to capture this "value premium."2
3. The Size Factor (Small Companies)
History has shown that over the long run, smaller companies have tended to deliver higher returns than their larger counterparts. While large, established companies can be stable, smaller companies often have more room to grow. By systematically overweighting smaller-cap stocks within a broadly diversified portfolio, we aim to capture this "size premium."2
Putting It All Together
No investment strategy wins every day, month, or year, and it’s important to understand that this is not stock picking. We aren’t trying to find the one winning small-cap stock or the one undervalued gem. Instead, we are tilting the entire portfolio of thousands of stocks with a deliberate, diversified emphasis on companies that are small, have attractive valuations, and are highly profitable.
Over the last 15 years, active managers of U.S. large-cap stocks have beaten their benchmark 19% of the time. However, over that same time period, funds using the “tilts” we just described have outperformed their benchmarks 80% of the time. To be clear, no investment strategy wins every day, month or year. As long-term investors, however, we aim to tilt the odds in our favor whenever possible.
Ultimately, our goal is not to chase fleeting trends but to build resilient, thoughtfully constructed portfolios designed to capture what the market has to offer over the long term. By grounding our strategy in decades of academic research and focusing on the dimensions of higher expected returns, we aim to provide a disciplined and durable path toward achieving your financial goals.
Sources
- Fama, Eugene F., and French, Kenneth R. (2015). "A Five-Factor Asset Pricing Model." The Journal of Finance.
- Dimensional Fund Advisors: Assessing the Relative Magnitude of Premiums, 2021
- Dimensional Fund Advisors: Dimensional vs. the Industry, 2025
Disclosures:
Stock investing includes risks, including fluctuating prices and loss of principal.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.
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