Webinar: Systematic investing with Dimensional
Endowus Insights

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Webinar: Systematic investing with Dimensional

Jun 2022
Jun 2020
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Dimensional Fund Advisors is a global investment manager and one of Endowus' key fund management partners.

In this session, Endowus' Chief Investment Officer & Chairman Samuel Rhee joins Dimensional Fund Advisors Joel Teasdel (Head of Wealth Management Asia ex Japan) and Dr. Wei Dai (Senior Researcher & VP) in an in-depth discussion of Dimensional's investment philosophy and systematic approach - how they structure broadly diversified portfolios that emphasize the dimensions of higher expected returns in both equities and fixed income products, while addressing the tradeoffs that arise when executing portfolios.

00:00 Intro

2:00 Introduction to Endowus

5:09 Introduction to new Cash/SRS Portfolio

8:37 Intro to Dimensional

11:00 Introduction to Dimensional Market Volatility and dangers of reacting to the market

36:46 Diversification and Disciplined

40:20 Dimensions of expected returns

48:28 Harvesting equity risk premiums and Harvesting fixed Income risk premiums

57:50 QnA

Extracted QnA

Q: What are your thoughts on Fama and French's recent paper which observed that size and value premiums seemed to have reduced in the last decade?

Dimensional: The last decade's worth of returns doesn't tell us anything statistically different. Ten years is a very short period of time from a statistical analytics perspective to try to infer anything from.

Think about it drawn from a bell-curve distribution: there is expected return and the expected value of that value premium, but there is a lot of uncertainty around that expected return. So for every month or year there is a realised premium drawn from that expected return distribution, when you look at different sample periods, the point estimate (sample average) will be different because there is a lot of noise in the distribution.

The conclusion of the paper is that in more recent periods, we've seen a smaller value premium on average, but that is not enough for us to reject the hypothesis that they might be coming from the same expected return distribution.

Q: What does "passive" investing mean?

Sam: Broadly speaking, passive investing means not being selective in the investment choices that we make. The ETFs that you may invest in can be trying to replicate an index that can have an extremely narrow investment mandate in terms of geography, sector. Buying an ETF doesn't equate to being passive in your investments.

Q: How does Dimensional ensure that portfolios minimise factor loadings to other unintended or undesirable factors such as Momentum?

Dimensional: We analyse and monitor many different factors, and we realised most do not produce consistent returns, so we focus on the 3 factors that specifically have consistently provided higher returns.

When considering our portfolios, the four dimensions (beta, size, value and profitability) are the most important because these are the long term drivers of expected returns and will influence our asset allocation. There are also other variables that tell us something about shorter-term expected return. For example, we see in the data that stocks that have outperformed their peers tend to outperform in the next few months.

There are also short term dimensions such as securities lending, and momentum that can give positive risk premiums. These short term dimensions can be priced in very quickly and also require increased transaction (and transaction costs) to capture the premiums.

We don't want to treat short-term variables as long-term variables. On a daily basis when we think about buying and selling stocks, we will consider both long and short-term considerations.

Q: How does Dimensional systematically manage your funds at such a low cost?

Dimensional: We aim to get the maximum return for our clients by focusing on the lowest cost. We have 22-26 traders around the world to get better execution prices.

Secondly, we try to squeeze down custodian prices.

We also do not spend money on activities that are not improving returns such as making macro calls or guessing which security is mispriced. We focus on delivering higher returns with our dimensions and the ability to execute it in a cost-efficient manner.

Investment involves risk. Past performance is not necessarily a guide to future performance or returns. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

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For Cash Smart Secure, Cash Smart Enhanced, Cash Smart Ultra: It is not a bank deposit and not capital guaranteed, and is subject to investment risks, including the possible loss of the principal amount invested. Investment products are not insured products under the provisions of the Deposit Insurance and Policy Owners Protection Schemes Act 2011 of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme. Interest rates are indicative and subject to change at any time.

Product Risk Rating: Please note that any product risk rating (the “PRR”) provided by us is an internal rating assigned based on our product risk assessment model, and is for your reference only. The PRR is subject to change from time to time. The PRR does not take into account your individual circumstances, objectives or needs and should not be regarded as advice or recommendation to purchase, hold or sell any fund or make any other investment decisions. Accordingly, you should not solely rely on the PRR in making your investment decision in the relevant Fund.

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