Financial science implemented in markets
Since 1981, Dimensional has been working closely with Nobel Laureates and scientists such as Eugene Fama, Kenneth French, Myron Scholes, Robert Merton and more to apply academic research to practical investing, in order to target higher expected returns.
Today Dimensional is a top performing global fund manager and leader in quantitative investing, managing over S$900 billion in assets.
Endowus has selected Dimensional to implement the Factor Portfolios due to their long track record, implementation expertise and low cost.
Persistent and pervasive factors to target higher expected returns
A higher allocation to undervalued companies that have low prices relative to their fundamental value
Investing in companies with steady earnings, low leverage and solid balance sheets
Small size companies
Capturing excess returns of smaller firms (by market capitalisation) relative to their larger counterparts
at a glance
An evidence-based, systematic approach to investing
Made up of Dimensional funds, our Factor Portfolios adopt the same systematic rules-based approach to investing, that tilts towards value over growth, small companies over large companies, higher profitability quality over lower quality cyclicals and more.
Own the whole market with tilts to proven factors
Own the whole market with tilts to proven factors
Dimensional scientists Dr. Fama (Nobel Laureate widely recognised as the “father of modern finance”) and Dr. French together revolutionised investing with the Fama-French three and five factor models. The model showed that there are pervasive, persistent, and proven factors (characteristics of securities) that drive the expected returns of specific asset classes.
- Small size
- Value companies
- High profitability
Want to know more?
The Factor Portfolios are globally-diversified and systematically tilted towards proven factors of returns. Academic research by Nobel Laureate Eugene Fama and Ken French shows that there are persistent and proven factors that drive expected returns of specific asset classes. By structuring investments around factors linked to differences in expected returns, the investments have the potential to outperform markets in the long-term.
The Factor Portfolios are launched in partnership with Dimensional Fund Advisors ("Dimensional"), a global leader and pioneer in systematic factor-based investing. Dimensional traces its origin to academia back in 1981, dedicating itself to translating academic insights on factor returns to real world investment strategy. It was founded by David Booth, (famous for putting his name on the Chicago University Booth School of Business), and advised by Eugene Fama, the father of the "efficient market hypothesis".
Proven factors of returns for equities and fixed income
In equities, the proven factors of returns are:
Size: Smaller market cap companies tend to outperform those with larger market caps
Value: Cheaper companies (measured by valuation metrics such as Price to Book) tend to outperform more expensive companies
Quality: Companies of higher quality (measured by metrics such as profitability margin) tend to outperform less profitable companies
In fixed income, the proven factors of returns for fixed income are:
Term: Longer duration bonds tend to outperform shorter duration bonds when the term spread is high (interest rate difference between longer dated and shorter dated government bonds)
Credit: Lower quality bonds tend to outperform higher quality bonds when the credit spread (yield difference between a corporate bond and a government bond of the same maturity) is high
The Factors Portfolios are systematically tilted towards these proven factors of returns.
Capturing returns does not involve predicting which stocks, bonds, or market areas are going to outperform in the future. Rather, the goal is to hold well-diversified portfolios that emphasise dimensions of higher expected returns and have low turnover.
Factors investing strategy
Factors investing systematically gains exposure to the above set of factor premiums through a pure quantitative process. There is no qualitative overlay in the process, which means that fund managers make rules-based investing decisions.
Factors investing offers low-cost access to broad markets, which provides a base layer of expected returns from market returns (or “beta”). . On top of that, they also gain exposure to the proven factors of returns, which are expected to generate higher risk-adjusted returns than the market over time.
Existing clients with an Endowus account: Simply log in to your Endowus account via a web browser > Click on "Add goal" (located on the left sidebar) > Select "Pick an advised portfolio" > Select "Core" > Select “Factors” and follow the instructions on the screen.
The key differentiator for the Factor Portfolios is the purely factor-based investing process that is implemented systematically by Dimensional. While the Flagship Portfolios has some Dimensional funds included in the portfolio, it also has purely passive funds for equities and some actively managed funds for fixed income, and is designed to more passively track the global indexes. The Factor Portfolios also offers broad market exposure, but with quantitative and rules-based tilts towards proven factors of returns.
The Endowus Factor Portfolios, like Flagship and ESG, is a Core offering designed by the Endowus Investment Office as a multi-asset portfolio across the equities and fixed income risk spectrum. All Core offerings provide investors with a broad global market exposure that is commensurate with the broadest industry benchmark indexes. These are the MSCI All Country World Index (ACWI) for equities and the Bloomberg (Barclays) Global Aggregate Index for fixed income. The Factors Portfolio is also managed on a discretionary basis by the Endowus Investment Office.
As a discretionary portfolio, auto-rebalancing is turned on by default for the Factors Portfolios. This means that clients can rely on Endowus’ expertise to monitor, automatically rebalance and optimise the fund allocation so that your portfolio delivers the highest risk-adjusted returns for your intended goal and risk. If we find better-performing and/or lower-cost funds that can value-add to the Factor Portfolios, we will automatically change the funds in the portfolio. Please be assured that you will be transparently informed of any changes that happen to the funds in the Factor Portfolios.
The discretionary nature of the Factor Portfolios allows us to manage the portfolio more efficiently for you. We do not make tactical changes to the portfolio’s asset allocation according to economic or market conditions. We adopt a strategic and long-term asset allocation strategy, whereby we encourage clients to stay invested in a risk-appropriate asset allocation until they have achieved their investment objective.
Please note that if you opt out the auto-rebalancing feature in Preferences, the opt-out will not apply to the Factor Portfolios.