UK Equities
Overview
Research by Fama and French, as well as other academics, shows that market, size, and value effects are robust around the world. Dimensional Ltd.'s UK equity strategies aim to provide consistent, targeted exposure to market, size, and value factors.
Core Equity Strategy
Dimensional's 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.
Traditional indices weight companies by market capitalisation, causing the largest companies to dominate. Dimensional's core equity strategy divides the market 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 reduce exposure to the largest companies, increasing exposure to the riskier small and value shares that research shows offer higher expected return. Our core portfolios select a cross-section of stocks consistent with this overall portfolio "shape."
Owning a core portfolio reduces concentration in the largest companies in an index and provides targeted factor exposure that can result in lower overall operating expenses and rebalancing costs compared to a core/satellite approach. A smoother and broader exposure also reduces trading costs caused by style drift or the reconstitution of indices.
Value Strategy
Dimensional Fund Advisors Ltd.'s UK value strategies, which are based on the Fama/French research in multifactor asset pricing, are designed to capture the expected return premiums associated with high book-to-market (BtM) ratios. Our value funds are constructed by first ranking the total market universe by market capitalisation and identifying those companies that fall within the relevant size range. Companies in this size range are then ranked by BtM ratio. Value shares are those that have the highest BtM ratios in this ranking. The ranking excludes firms with negative or zero book values.
Small Company Strategy
Dimensional Ltd.'s parent company, Dimensional Fund Advisors, has been a pioneer in small company investing since 1981. Research documents that small companies have provided higher returns than larger companies in 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.
Dimensional defines small companies as those whose market capitalisation (price times shares outstanding) comprises the smallest 8-10% of the total market universe.
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. On a monthly basis, the market capitalisation ranking of eligible shares is examined to determine which issues are eligible for purchase and which are sale candidates. We minimize transaction costs by keeping portfolio turnover low. We sell securities only when they have grown so much that they are affecting overall portfolio composition
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
Investment in these strategies carries with it a degree of risk including, but not limited to, the risks referred to below. Different risk considerations may apply to each strategy, and there can be no assurance that any strategy will achieve its investment objective.
The principal risks of investing in these funds are as follows: market risk, equities risk, small companies risk, value stocks risk, derivatives risk, and portfolio turnover risk. To more fully understand the risks related to an investment in the funds, investors should carefully read the prospectus of Dimensional Funds ICVC and in particular the section titled "Risk Factors."
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
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.
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.