GameStop has been front and center in the financial news on account of the stock’s.

Significant price volatility over the past couple of months. The GameStop mania serves as an opportunity to highlight how Dimensional Fund Advisor’s (DFA) investment process is built to handle developments within markets, given that many of our portfolios held GameStop in January.

 

GameStop’s rise and fall in price was extreme. But DFA’s process is built to react systematically to the changes in stock prices that happen every day.

 

By late January, GameStop had increased in size and relative price rather dramatically. As the price of GameStop climbed, it quickly moved out of the small cap and value space, becoming a large cap stock. For a fund that has a small cap portfolio strategy, DFA considered that kind of exposure no longer fit.

 

To give you a comparison, an index-tracking approach does not have the same flexibility to respond to price changes. In short, holding an ETF would not allow you to take advantage of opportunities like this.

 

By February 3, DFA had completely sold GameStop from all Dimensional portfolios. They didn’t cash in at the very top, but their strategy and analysis made us come out as winners.

 

What some of you don’t know, is that DFA makes money on their lending program. On top of selling at a high, DFA also earned income from the Wall Street investors shorting GameStop. Before the sharp price increase in January, GameStop had been a high revenue earner in their lending program over the previous year due to its high cost to borrow.

 

This example highlights how DFA implements their daily process each and every day.

However, what they did with GameStop is not unique to this situation. DFA regularly uses new information about expected returns in a flexible manner to maintain consistent exposure to higher expected returns. GameStop is a case in point of how quickly prices can change and the importance of a robust implementation process that can be nimble and respond systematically.