Regional Equities
Overview
Research by Fama and French, as well as other academics, shows that the size and value effects observed in US markets are also present outside the US. Dimensional Ltd.'s regional equity strategies aim to provide consistent, targeted exposure to market, size, and value factors. When combined in a diversified portfolio, they can reduce the risk of single-country exposure.
Dimensional Ltd. offers regional equity strategies through two fund families, as shown above. Dimensional Funds ICVC is an investment company with variable capital incorporated and registered in England and Wales under the Open Ended Investment Companies Regulations 2001. Dimensional Funds plc is an umbrella fund constituted under the laws of Ireland and authorised by the Irish Financial Services Regulatory Authority pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations of 2003.
UK and International Core Equity Strategies (ICVC)
Dimensional's United Kingdom Core Equity strategy seeks to buy the total UK market in proportions that provide lower exposure to the very largest companies in the UK market, resulting in a more broadly invested portfolio. The total UK market universe is defined as the total aggregate capitalization of eligible companies listed on the London Stock Exchange.
Dimensional's International Core Equity strategy seeks to provide broadly diversified coverage of developed markets outside the UK. The developed markets universe is comprised of the twenty-two countries in the MSCI World ex UK Index.
Traditional indices weight companies by market capitalisation, causing the largest companies to dominate. Dimensional's core equity strategies divide the UK market—and the international market on a country-by-country basis—into cells based on the market cap and book-to-market (BtM) ratio of each company. The weights of the cells are then adjusted to modestly increase exposure to small and value shares.
Owning a core portfolio reduces concentration in the largest companies in an index and provides targeted factor exposure. A smoother and broader exposure also reduces trading costs caused by style drift or the reconstitution of indices.
Regional Value Strategies (ICVC and plc)
Dimensional's United Kingdom Value, European Value, Pacific Basin Value, and International Value strategies, which are based on the Fama/French research in multifactor asset pricing, are designed to capture the expected return premia associated with companies with high book-to-market (BtM) ratios.
Our value portfolios are constructed by first ranking the total market universe by market cap and identifying those companies that fall within the defined size range in each country. Companies in these size ranges are then ranked by BtM ratio. Value stocks are those that have the highest BtM ratios in this ranking. The ranking excludes firms with negative or zero book values.
Regional Small Company Strategies (ICVC and plc)
Dimensional Ltd.'s parent company, Dimensional Fund Advisors, has been a pioneer in small company investing since 1981. Research has documented that small companies have provided higher returns than larger companies over the long term. Dimensional's objective is to deliver the expected return premium associated with small companies and provide the diversification benefits of investing across the size spectrum. We believe the best way to accomplish this is to invest in a broadly diversified cross section of small companies in major markets.
For the United Kingdom Small Company, European Small Company, Pacific Basin Small Company, and US Small Company strategies, Dimensional Ltd. defines small companies as those whose market capitalisation (price times shares outstanding) comprises the smallest 8%-10% of the total market universe, which consists of companies traded principally on the London Stock Exchange or on a United Kingdom over-the-counter market.
We also employ additional screening criteria. These are intended to eliminate closed-end investment companies, limited partnerships, companies in bankruptcy, and companies with qualified financial statements. We keep cash levels low, generally under 2%. New cash flow is managed so portfolios may remain fully invested. The market capitalisation ranking of eligible shares is examined regularly to determine which issues are eligible for purchase and which are sale candidates. We minimise transaction costs by keeping portfolio turnover low. We sell securities only when they have grown enough to steer overall portfolio composition away from its target.
Individual small companies worldwide are thinly traded. As a result, we follow trading procedures that have been developed and refined to trade small companies effectively and economically.
PRINCIPAL RISKS
Past Performance
Past performance of a fund does not necessarily indicate future performance.
When-Issued and Delayed-Delivery Securities
The value of securities purchased on a when-issued or delayed-delivery basis may fluctuate prior to their actual delivery. The yield available in the market when the delivery takes place may be higher than that obtained in the transaction itself, or the securities may not be delivered.
No Investment Guarantee Equivalent to Deposit Protection
An investment in a fund is not in the nature of a deposit in a bank account and is not protected by any government, government agency, or other guarantee scheme which may be available to protect the holder of a bank deposit account.
Convertible Securities
A fund may invest in debt securities and preferred stocks which carry the right to purchase common stock or other equity securities. Generally speaking, the interest or dividend yield of a convertible security is somewhat less than that of a non-convertible security of similar quality issued by the same company.
Charges to Capital
Certain fees and/or other charges in a fund may be charged against capital rather than income. This will enhance income returns but may constrain future capital growth.
Liabilities of Dimensional Funds ICVC or Dimensional Funds plc
If the assets of any sub-fund are insufficient to meet the liabilities attributed to it, the excess liabilities may have to be met out of the assets of the other sub-funds.
Share Currency Designation Risk (plc only)
A class of a Dimensional Funds plc fund may be designated in a currency other than the base currency of the fund. Changes in the exchange rate between the base currency and the designated currency may lead to a depreciation of the value of the shares as expressed in the designated currency.
Dimensional Fund Advisors Ltd. is authorised and regulated in the United Kingdom by the Financial Services Authority (FRN: 150100). For professional investors and advisers only. You should obtain relevant and specific professional advice before making any investment decision. Past performance is not an indication of future performance. Please read the Important Information.