Silver rated global value ETF
Low-cost and efficient access to international equities with a strong value tilt.
Mentioned: Dimensional Global Value Active ETF (DGVA)
Dimensional Global Value Trust (ASX: DGVA) remains a fine choice within the value-oriented global equities cohort based on Dimensional’s trademark multifactor methodology. The adherence to a systematic process is backed by skilled management and optimized trade execution.
Dimensional follows a consistent and thorough approach to portfolio management. Managers are evaluated on their ability to adhere to the fund’s risk parameters, process improvements, and overall management efficacy, ensuring alignment with investor interests. Researchers set a high bar for factor introduction, favoring those that are sensible, robust, and persistent through time. Close collaboration between managers and traders ensures a cost-effective execution process.
Based on the research findings of acclaimed academics such as Eugene Fama and Kenneth French, the portfolio construction process begins with filtering out the smallest 10%-15% of companies in each country (measured by total market cap). Using a metric of price/book value, the fund identifies the cheapest stocks from the investment universe by targeting the bottom 30%. A profitability overlay is then applied, which moderates the value tilt and the resulting sector skews. This reduces volatility and risk in the portfolio by limiting the value bias and adding a quality constraint. To mitigate unnecessary turnover, the fund implements a flexible approach, incorporating momentum to ensure rising (or declining) stocks are not sold (or purchased) when the prices are showing directional movement.
The value orientation of the fund has led to a fickle historical record with intermittent bursts of outperformance. In general, value-tilted strategies have faced difficult times over the past decade. However, with a fee of 0.40%, the fund remains a strong contender to generate alpha over the long term, provided the investor is at ease with the accompanying volatility.
In all, the fund remains a strong pick within the world large-value Morningstar Category.
Dimensional showcases its expertise in applying theoretical principles to deliver a well-diversified value-style portfolio
Leveraging the research of renowned academics such as Eugene Fama and Kenneth French, Dimensional aims to identify risk factors that are cost-effective to capture sources of excess returns. Value has been the mainstay factor, while profitability was introduced in early 2014, as Dimensional’s research showed greater efficacy in terms of risk-return outcomes from the interaction effect between these two factors.
Dimensional doesn’t pick stocks but rather takes a highly diversified systematic approach to exploit each factor. Portfolio construction is driven by each stock’s relative market cap and a range of weightings Dimensional has assigned for each market segment based on the stock’s characteristics, such as price/book ratio. This ensures an overweighting in value and high-profitability stocks while excluding growth and low-profitability stocks. As a stock exhibits low profitability or develops growth traits, Dimensional will gradually sell out of the positions. This is a key method of reducing trading costs. The shop also considers momentum, delaying the purchase of downward momentum securities and delaying the disposal of securities with upward momentum that are eligible for sale.
Overall, the Above Average Process rating rests on Dimensional’s methodical application of its systematic investment process and its superior trading execution capabilities.
The portfolio has 600-plus holdings across more than 20 countries. Portfolio construction begins with filtering out the smallest 10%-15% of companies in each country (measured by total market cap). The fund targets value by selecting only the cheapest 30% of companies, measured by price/book ratio. This tilts the fund to more mid-cap names compared with many peers, making it more volatile.
Profitability is captured by tilting the portfolio toward high-profitability stocks (using an adjusted measure of operating income). The value tilt has led to sector biases relative to the MSCI World ex-Australia Index. For example, the fund is typically overweight in energy and underweight in technology. These biases get moderated to some degree owing to the profitability factor, yet they remain conspicuous. The profitability skew counters some of the fund’s value orientation against the MSCI index, since highly profitable stocks tend to trade at higher valuations.
