The Right Building Blocks:

About Dimensional and Nobel Prize-winning Research

Who is Dimensional?

Dimensional Fund Advisors is a global investment manager dedicated to implementing the great ideas in finance. Guided by a firm belief in markets, the firm builds and manages strategies to help investors pursue higher expected returns. An enduring philosophy, strong client commitment, and deep working relationships with leading financial academics underpin Dimensional’s approach and form the foundation for new strategies.

Dimensional is headquartered in Austin, Texas, and has offices across North America, Europe, and Asia. As of 31 December 2018, the firm manages $576 billion for investors worldwide.

Dimensions of Return

Markets being efficient do not mean that all asset classes have the same expected return.

Through the research of Eugene Fama and Ken French, along with those of other leading academics, Dimensional has concluded that there are observable and persistent premiums to be found in certain dimensions of return, which can be harvested to give above-market returns over the long term.

For equities, these premiums are in small caps, value and profitability. For fixed income, they are in term and credit.

Simply put:

Since markets are efficient, Dimensional does not market time or stock pick, but diversify globally, so as to capture market-based return. But Dimensional aims to beat the market by tilting towards dimensions or factors such as small caps, value and profitability. There is good evidence of the persistence of such premiums. The illustration above shows the premiums for the US market, but a similar picture exists for the other Developed markets as well as Emerging Markets.

Efficient Market Hypothesis

One of the foundational pieces of academic research that have informed Dimensional’s portfolio strategies is the Efficient Market Hypothesis first put forward by Nobel Laureate Professor Eugene Fama in 1966.

The Hypothesis States:

  • Current prices incorporate all available information and expectations.
  • Current prices are the best approximation of intrinsic value.
  • Price changes are due to unforeseen events.
  • “Mispricings” can occur but not in predictable patterns that can lead to consistent outperformance.

The Hypothesis Does not State:

  • All investors are rational.
  • Prices are always right.
  • Prices should be stable.
  • Professional money managers can’t earn higher than market returns.

Cost

Cost-wise, Dimensional has managed to keep costs low for clients, despite not being technically a “passive” manage. Their strategies to manage costs include the following:

  • Trading is flexible and patient, executed such as to minimise slippage from going against momentum or causing adverse market movement.
  • They trade electronically for 99% of their trades to get the cheapest execution. It costs more when somebody has to pick up the phone.
  • Dimensional moved its head office from California to Texas to save costs.
  • Dimensional does not advertise or pay commissions of any kind.
  • Dimensional does not need to send analysts all over the world to do research on companies as they do not pick stocks.

Dimensional’s SGD funds for retail investors were registered in 2018. There is strong alignment between Dimensional and MoneyOwl’s investment philosophies, regarding the keys to a successful investing experience. MoneyOwl will be using Dimensional funds to construct our 5 portfolios.

Historical Performance of USD Share Class of Dimensional Funds

Below is the historical performance of the USD share class of the three Dimensional funds making up our portfolios.

Dimensional USD Core Equity

Fund Performance (as of December 2019)

Dimensional USD Global Short Fixed Income

Fund Performance (as of December 2019)

Dimensional USD Emerging Market Large Cap Core Equity

Fund Performance (as of December 2019)

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