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Fund Rationale: Dimensional Global Targeted Value Fund

Dimensional Global Targeted Value Fund
SGD Institutional Class Accumulation Shares (ISIN: IE00BF20L986)

Introductory information
The Dimensional Global Targeted Value Fund (the “Fund”) aims to maximise long-term returns, investing primarily in securities of smaller companies and with cheaper valuations (“value stocks”) traded in global developed countries. The Fund is benchmarked against the MSCI World SMID Value Index. The Fund is suitable for investors seeking to maximise long-term total return, who believe in the long term risk premium of small cap and value stocks and are prepared to accept a high level of volatility. 

The Fund is a UCITS fund with net assets of SGD 3.5bn as of 30 June 2020. The inception date of the oldest share class of the Fund is 6 February 2008.  The inception date of the SGD institutional class accumulation shares is 25 July 2017.

 

Characteristics
The Fund provides broadly diversified exposure to small cap and value stocks traded in global developed countries. A company is considered small based on its market capitalisation, and securities are considered value stocks primarily because the company’s shares have a high book value in relation to their market value. In assessing value, the Investment Manager may consider additional factors such as price to cash flow or price to earnings ratios, as well as economic conditions and developments in the issuer's industry. As of June 2020, the Fund has 4335 holdings with a weighted average market capitalisation of S$5607 million, and an aggregate price to book ratio of 0.94. In addition, the Fund’s largest sector allocations are 24.06% in Financials, 19.94% in Industrials, 14.46% in Consumer Discretionary, 10.90% in Materials and 8.64% in IT. Geographically, the Fund allocates 61.11% to the United States, followed by 10.25% in Japan, 5.34% in the United Kingdom, 3.69% in Canada and 2.92% in Australia.

 

Background information and cost
The Fund has a unified all-in management fee of 50bps per annum (0.50% p.a.) and a total expense of 55bps per annum (0.55% p.a.) as of June 2020. As the fund scales, Dimensional and Endowus will continue to reduce the fees paid by the client for the underlying fund. Endowus do not charge an upfront sales charge or any other fees, other than the all-in Access Fee. 

Dimensional Investment Advisors are a global investment firm guided by deep convictions about the power of capital markets. They are a leader in applying advanced financial science to equity and fixed income investment strategies. By employing a rigorous and systematic investment approach, Dimensional seek to capture what the market offers in all its dimensions. For more than 30 years, Dimensional have translated research into real-world investment solutions for clients. Their clients include financial advisors, pension funds, retirement plans, college savings plans, insurance companies, endowments and foundations, and sovereign wealth funds. Dimensional manages USD 514bn firm-wide as of 30 June 2020.

 

Selection criteria for Endowus
Research by academics and practitioners show that over the long term, cheaper stocks outperform more expensive stocks, and smaller stocks outperform larger stocks - the expected return difference between cheap and expensive stocks and between small and large stocks are commonly known as “value premium” and “size premium”. Dimensional is a leading global investment firm that has been translating academic research as such into practical investment solutions since 1981. They have a disciplined and well-researched investment process, and a dynamic implementation process to capture proven drivers of expected returns, such as the value and size premium. 

The Fund therefore offers targeted and well-executed exposure to value and size premium, on top of broad market exposure. The value premium has experienced prolonged drawdown since early 2010s, and with the Dimensional’s fund offering a higher value exposure than the benchmark, the Fund’s oldest share class has underperformed the benchmark since its inception. However, performance since inception of the oldest share class is in our view too short to meaningfully assess the Fund’s historical performance. Dimensional created a systematic index (“Dimensional index”) to replicate the Fund - the Dimensional index has a 99% correlation with the oldest share class of the Fund and the historical track record of the index allows us to analyse the Fund characteristics over a longer period of time. Since the market benchmark’s inception in Feb 2004 and as of July 2020, the Dimensional index outperformed the market benchmark (5.5% vs 5.1% in SGD) despite the recent 12 years’ overall underperformance - this is evidence for the long term viability of value and size premium, and the recent value drawdown offers potential contrarian opportunity for those who believe that value premium will come back. 

Updated by Endowus: 24 Sept 2020 

** Disclaimer
Past performance should not be taken as an indication or guarantee of future performance and no representation or warranty, express or implied, is made regarding future performance. Any opinions expressed reflect a judgment at the original date of publication by us and are subject to change without notice.

The prospectus, profile statement, product highlight sheet, fund factsheet or other offer or product documents may contain references about the expected risk tolerance of their target investors. These are in no way indicative of how we at Endowus have assessed your risk tolerance based on your stated objectives and financial situation. Endowus accepts no responsibility for investment decisions made in response to the expected risk tolerance levels mentioned in the product or offer documents.