Core Equities
The mutual funds managed by Dimensional Canada are available only to Canadian residents, through representatives authorized by us and affiliated with approved registered dealers.
The general investment approach and strategies we use to manage our core equity funds are described below. Specific information about the individual funds discussed can be found in the prospectus.
Core Equity Strategies
Equity markets offer a universe of investment opportunities. Dimensional applies the principles of financial science and insights gained from practical experience to organize that universe in ways that benefit investors. Dimensional's core equity technology seeks to capture these natural market forces in the broadest and most efficient way possible while delivering an expected return different from the market.
We achieve this difference by targeting the risk dimensions that financial science has identified as offering higher expected returns: size and value. The core technology precisely captures the dimensions not just at market extremities but throughout the market universe. Core's inclusive approach can minimize the costs associated with securities migrating from one region of the market to another. Core can also lessen the turnover and transaction costs normally associated with maintaining multiple asset class component strategies.
Dimensional's core equity strategies are designed to capture a broad and diverse mix of readily marketable common stocks in each market universe they target, with increased exposure to value and small cap stocks. Research documents that in the long term, small companies have provided higher expected returns than large companies and that companies with high book-to-market ratios (value stocks) have provided higher expected returns than companies with low book-to-market ratios (growth stocks). Dimensional has engineered its core equity technology to deliver these size and value premiums as comprehensively and efficiently as possible.
The total market is weighted by market capitalization (price times shares outstanding). Core equity strategies alter the weighting of stocks by considering both a company's market cap and its BtM ratio. As a result, exposure to the riskier small and value shares is increased. To balance out the greater small and value exposure and still include every stock in the market, the weight of large cap and growth stocks is reduced.
The core equity technology allows for varying degrees of small and value exposure. The US and international core equity strategies provide moderate exposure to the size and value factors. The US and international vector strategies provide a stronger exposure that excludes portions of the market that do not contribute to the targeting of higher expected returns.
Canadian Core Equity
The Canadian Core Equity Fund is designed to capture a broad and diverse mix of readily marketable common stocks of Canadian companies, with a tilt toward value and small stocks.
Dimensional uses the ratio of book equity to market equity (BtM) to identify value and growth stocks in the Canadian Core Equity Fund. When assessing value, Dimensional may also consider other factors such as a company's price-to-cash-flow ratio and price-to-earnings ratio. To tilt the Canadian Core Equity Fund away from the market portfolio toward value stocks, we increase the target weight on value stocks and reduce the target weight on growth stocks. The same process takes place to tilt the portfolio toward small stocks. As a result, popular indices such as the S&P/TSX Composite Index and the Canadian component of the MSCI World Index tend to have higher average market capitalizations and lower average BtM than does the Canadian Core Equity Fund.
US Core Equity
Dimensional Canada's US applied core equity strategy is designed to capture a broad and diverse group of readily marketable common stocks of US companies, with a modest tilt toward value and small stocks.
To tilt the US Core Equity Fund away from the market portfolio toward value and small cap stocks, we increase the target weight on value stocks and small stocks and reduce the target weight on growth stocks and large stocks. As a result, popular marketwide indices such as the Dow Jones Wilshire 5000 Index and the Russell 3000 Index tend to have higher average market capitalizations and lower average book-to-market or earnings-to-price ratios than does the US Core Equity Fund.
US Vector Equity
For investors seeking to increase the small or value tilts, the US Vector Equity Fund provides more pronounced exposures. To increase the tilts, the US Vector Equity Fund raises the target weight of value and small stocks and removes the largest US growth stocks from its eligible universe. This approach is more concentrated in the small and value asset classes and thus increases the risk level of the strategy.
International Core Equity
DFA Canada's international core equity strategy is designed to capture a broad and diverse group of readily marketable non-Canadian and non-US companies in countries in developed markets, with a modest tilt toward value and small stocks. Currently, the fund is authorized to invest in the developed markets of Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom; and the emerging markets of Brazil, Chile, China, the Czech Republic, Hungary, India, Indonesia, Israel, Malaysia, Mexico, the Philippines, Poland, South Africa, South Korea, Taiwan, Thailand, and Turkey.
To tilt the International Core Equity Fund away from the market portfolio toward value and small cap stocks, we increase the target weight on value stocks and small stocks and reduce the target weight on growth stocks and large stocks. As a result, popular marketwide indices such as the MSCI World Index tend to have higher average market capitalizations and lower average book-to-market or earnings-to-price ratios than does the International Core Equity Fund.
International Vector Equity
For investors seeking to increase the small or value tilts, the International Vector Equity Fund targets the same universe as the International Core Equity Fund but with more pronounced factor exposures. To increase the tilts, the International Vector Equity Fund raises the target weight of value and small stocks and removes the largest growth stocks from its eligible universe. This approach is also more concentrated in the small and value asset classes and thus increases the risk level of the strategy.
Tax Management
Dimensional manages capital gains but because the strategy's purpose is to serve both taxable and tax-exempt investors, a moderate amount of tax management is applied to the Funds. Although the goal is to defer the net realization of capital gains by harvesting losses and delaying the sale of some appreciated securities, the Fund is likely to realize and distribute some capital gains each year.