Dimensional Global Core Equity SGD Acc |
Morningstar's Take
|25/07/2024by Monika Calay
| Dimensional Global Core Equity offers investors a unique approach to accessing developed-markets equities. Drawing on the academic research of Eugene Fama and Kenneth French, the fund provides exposure to stocks from 23 developed countries, with a distinctive tilt toward companies exhibiting specific characteristics. At its core, the fund's strategy revolves around overweighting stocks with lower valuations, smaller market capitalizations, and higher profitability. This approach is grounded in historical evidence suggesting that such stocks tend to outperform over extended periods. The fund's managers implement this strategy through a systematic process that begins by excluding the most expensive and least profitable companies from the investment universe. They then apply market-cap multipliers to weight the remaining stocks, resulting in a portfolio that reflects their desired factor exposures. This methodology yields a well-diversified portfolio typically comprising 7,000 to 9,000 holdings. The resulting fund profile shows a clear tilt toward smaller and more value-oriented companies compared with its benchmark. An interesting side effect of this approach is a slight bias toward North American stocks at the expense of European equities. The fund's performance has been solid, consistently ranking in the second quartile of its category on a risk-adjusted basis over three-, five-, and 10-year periods. It has demonstrated higher Sharpe ratios and better Morningstar Risk-Adjusted Returns than the Morningstar Category average over both short- and long-term horizons. The fund targets a tracking error range of 2% to 4% and is usually fully invested, with cash holdings generally below 1% of the portfolio. Dimensional's investment process is highly systematic, relying on current market prices and fundamental data rather than forecasting or traditional stock-picking methods. This approach limits the impact of individual portfolio managers but benefits from a stable and highly qualified team overseeing the strategy. The fund's strengths lie in its disciplined, research-based approach, broad diversification, consistent factor exposure, and cost-efficient implementation. Daily rebalancing helps maintain desired factor exposures, while the use of momentum and securities lending data may potentially enhance returns. However, the strategy is not without its weaknesses. Its reliance on historical factor premiums may be a disadvantage if these patterns don't persist. The fund may underperform when its targeted factors are out of favor and has limited flexibility to adapt to changing market conditions. Its higher tracking error and worse downside-capture ratio compared with its benchmark are also potential drawbacks. Additionally, sector biases--currently overweight in energy, materials, and consumer discretionary, but underweight in healthcare and technology--can lead to performance deviations from broad market-cap-weighted benchmarks. Investors should be aware of key risks, including factor risk tied to market, size, profitability, and value premiums, as well as sector allocation risk and potential underperformance during market downturns. Despite these challenges, the Dimensional Global Core Equity Fund's systematic approach, broad diversification, factor tilts, and competitive fee structure position it well to continue delivering superior risk-adjusted returns relative to its peers over the long term. While there have been no major changes to the investment philosophy, Dimensional's commitment to the ongoing refinement of its investment process suggests the fund will continue to evolve subtly to maintain its competitive edge. |
A diversified and comprehensive global equity fund.To find out how Morningstar rates a fund click here.
| Morningstar Pillars | |
| People | Above Average |
| Parent | High |
| Process | Above Average |
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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