Dimensional World Equity SGD Acc

Analyst Report
Morningstar's Take
|14/10/2024

by Eugene Gorbatikov
Dimensional World Equity offers a distinctive approach to investing in equities across both developed and emerging markets. Driven by the academic research of Eugene Fama and Kenneth French, the fund targets stocks with specific characteristics, aiming to provide exposure to companies with lower valuations, smaller market caps, and higher profitability. The fund systematically overweights these types of stocks, based on historical evidence suggesting that such factors tend to outperform over the long term.

The fund’s portfolio holds approximately 13,000 stocks, offering broad diversification. Compared with the MSCI All Country World Index, it places a stronger emphasis on smaller, more profitable stocks with lower relative prices. US and technology stocks are relatively underweight, and the portfolio’s top holdings are far less concentrated than the index, reducing potential concentration risk.

The fund has been consistently ranked above the majority of its peers on a risk-adjusted basis. It has delivered higher Sharpe ratios and better Morningstar Risk-Adjusted Returns than the Morningstar Category average over both short- and long-term horizons. Fund fees are among the lowest relative to rival active peers. The fund outperforms its prospectus benchmark when size and value factors work to its advantage, but its returns fall behind when those factors turn unfavorable.

The key strengths of the fund lie in its disciplined, research-based approach, extensive diversification, consistent factor exposure, and cost-effective trading. Daily rebalancing ensures that factor exposures are maintained, while the use of momentum, reversal, and securities lending data may potentially enhance returns.

However, the strategy’s 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 worse relative performance during market downturns is also a potential drawback. Additionally, sector biases, such as the significant technology underweighting, can cause deviations from broad market-cap-weighted benchmarks.
 
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Morningstar Pillars
PeopleAbove Average
ParentHigh
ProcessAbove 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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