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This document describes five risk-rated model portfolios developed for the Wealth Options Broker Platform and based around modern portfolio construction methodologies which are implemented using a range of funds managed by Dimensional Fund Advisors (“Dimensional”), who we have chosen due to their disciplined, structured and evidence based approach to fund management.
These portfolios are based around equity and fixed income (bond) components, and employ active rebalancing rules to ensure consistent adherence to risk tolerances that match investor’s requirements, as you will have identified with your Financial Advisor.
The purpose of this document is to provide you with a clear understanding of the key features of these evidence based, risk rated portfolios and to assist you in determining whether they are suitable and appropriate for your needs, and whether they fit in with your investment objectives which you have identified with your Financial Advisor.
It is intended that the contents of this document assist you in making informed decisions about your money and, ultimately, grant you the peace of mind that a disciplined and evidence based investing experience is designed to bring you.
This document is designed to provide you with:
A clear understanding of how investment risk and return are related.
An understanding of the investment philosophies, strategies and processes in these portfolios.
Introduction to the Model Portfolios
Warning: It is vitally important that before you make any investment decision that you seek independent advice from a financial broker who can access your needs and make suitable recommendations.
Warning: These portfolios are not broadly available to the public or through broker channels, and only a select number of financial advisors are given access to these portfolios.
Wealth Options Ltd. (“Wealth Options”) has entered into an agreement with Conexim Advisors Ltd. (“Conexim”), where Wealth Options has arranged for Conexim to provide services to clients of regulated Intermediaries appointed by Wealth Options under certain agency agreements between Wealth Options and such Intermediaries. Details of the services are set out in the Wealth Options Broker Platform Terms of Business. Conexim has registered Wealth Options Broker Platform as a business name with the Irish Companies Registration Office in order to provide the services covered by these Terms.
The core beliefs embedded in these portfolios are based on over fifty years of academic research in financial economics, including portfolio theory and asset pricing. The Dimensional investment approach draws upon the work of renowned financial economists, including Nobel laureate Eugene Fama and Kenneth French.
Dimensional links real-world issues affecting investors with the research of leading financial economists.
Over time, a well-structured investment approach will add value with a higher consistency and confidence level han one based on instinct and prediction.
The approach is based on a long standing view of markets. The investment process is straightforward, well-defined, and consistent across all funds. This approach results in consistent exposure to identified asset classes.
These portfolios create strategies that offer focused exposure to the dimensions of higher expected returns. A set of disciplined portfolio construction principles enables us to pursue these dimensions. This requires a dynamic interaction among three essential activities: portfolio design, portfolio management, and portfolio implementation.
Some of the Dimensional funds utilised in these portfolios have more focused exposure to small stocks and low relative price stocks than most index or active managers.
Dimensional do not actively pick stocks or passively track commercial indexes but instead structure funds along the dimensions of higher expected return as identified through rigorous empirical research.
Evidence Based Investing
Portfolio
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Section 1: Investment Philosophy
Markets Work
People who invest in stock and bond markets are taking a risk with their capital and are therefore entitled to share any financial rewards - just as they should accept any losses.
This simple principle is followed in every corner of the world, from market stalls in developing countries, to the board rooms of the world’s largest corporations.
Capital markets are the best mechanism we have to calculate the value of an asset. Some investors and investment professionals believe they are able to price assets more accurately than the market, and use estimates based on their research and analysis to identify opportunities for profit on individual investments.
But however carefully they make their calculation; it is never more than an estimate upon which they base a prediction. Some estimates will be right; some estimates will be wrong and very few people are able to make consistently accurate estimates over a reasonable period of time so these portfolios do not use predictions about markets or prices in their approach.
This principle applies across our investment philosophy which means these portfolios do not buy individual stocks we think will outperform the market; or weight investments towards countries or regions we expect to do well. Instead these portfolios use investment funds with broad exposure to the whole market and allocate assets to countries in proportion to their relative size in the global market.
These portfolios therefore accept that the market provides an adequate rate of return. These portfolios do not try to beat the market with predictions; instead these portfolios harness the returns of the market through discipline and structure.
Risk and Return are Related
These portfolios demonstrate that it is impossible to improve your investment return without taking more risk.
In other words, the potential for financial loss you expose yourself to in taking a risk is also the reason you earn a return. There is desirable risk and non-desirable risk and higher exposure to the right risk factors leads to higher expected returns, but there is no guarantee of achieving this. Risk is the premium investors pay for the expectation of a greater return.
These portfolios have sought to identify which risks offer consistently higher expected returns and which do not, and offer you exposure to desirable risks in a structured, disciplined and cost effective way.
Diversification is essential
Diversification is the principle of spreading your investment risk. These investment portfolios therefore hold the shares and bonds of many companies and governments in many countries around the world. Because these portfolios are based around the effective pricing of capital markets, rather than individual predictions or judgments, these portfolios are able to invest our clients’ assets in many thousands of individual investments.
This means the negative and positive influence of each individual investment is reduced, producing, on aggregate, less risk in these portfolios.
Structure determines performance
These portfolios do not use predictions, estimates or judgments to construct investment portfolios; instead, these portfolios look to evidence based academic financial theory as a basis for portfolio construction.
These portfolios are based on the theory that markets work, but the aim is to achieve better than the average
rate of return from the market. Following the whole market or sections of it through index-tracking funds is a
worthwhile low-cost way to gain exposure to markets, but academic research identifies particular areas of the market that have reliably rewarded investors over time. These dimensions of higher expected return are explained later in this document in more detail and these portfolios are built around these dimensions. The aim of these portfolios is to beat the average market return, without taking the risk of relying on predictions or concentrating investments too narrowly.
Having identified strategies to achieve higher expected returns than the market average, these portfolios utilise certain Dimensional funds with the specific aim of maintaining the highest possible exposure to the identified dimension of higher expected return. When employed over time, this structure and discipline can enhance investment returns.
Once investors have been assisted in deciding upon a suitable investment strategy, these portfolios stick to it strictly and do not allow it to stray with market movements, by using rebalancing rules within the portfolios.
This helps investors remain disciplined. Staying invested through thick and thin is usually the best strategy for investors as timing exit and entry points is as unreliable as any other prediction of market movement.
Investment styles are often categorised as active or passive. An active investor is one who makes decisions about holding one investment over another. Passive investors are willing to accept the market rate of return and usually enjoy paying smaller fees than active investors.
The investment philosophy utilised in these portfolios are passive to the extent that these portfolios are not making judgments on the relative merits of one investment over another, but are not satisfied with passively accepting the average market return for investors. The investment process targets market-beating performance through structured exposure to dimensions of higher expected return, and uses methods of portfolio construction and implementation that enhance performance relative to passive approaches.
These portfolios are constructed believing that over a period of time of at least 5 years:
the average active investor should underperform the market because they are paying the highest fees; the average index investor should outperform the market because their fees are lower than the active investor; and
that this investment approach should outperform both due to reasonable fees, exposure to dimensions of higher expected return, and intelligent portfolio implementation.
Some investors try to achieve diversification by including in the portfolio dozens of different funds and/or fund managers. The problem for many investors that take this approach is that there is often a high degree of overlap between the different funds and this can give a false sense of diversification.
Active funds typically invest in relatively few stocks or bonds which mean that there is a concentration of risk. If one of the fund’s investments represents a large part of the total fund and that investment performs badly, then there will be significant effect on the performance of the fund.
Dimensional seeks to diversify as much as possible within each fund. As a result, this range of Model portfolios utilising Dimensional funds currently hold more than 11,000 individual stocks and bonds.
Section 2: Investment Considerations -
Active vs. Passive
Management fees, taxes, expenses and transaction costs incurred in the management of a portfolio have a direct impact on returns so managing costs is as important as managing investments. Good investment performance can be wiped out by high costs or a failure to seek tax efficiency. All other things beings equal, these portfolios seek the most cost-efficient route to market returns.
Passive investments generally cost less than the average actively managed investment by minimising trading costs and eliminating the costs of researching stocks.
The model portfolios we have selected have a range of between 0.15% and 0.46% annual management charges (“AMCs”), depending on the risk level required in the portfolio, as illustrated below.
Significantly, Dimensional also publish the audited ongoing charges figure (“OCF”), which is a total expense ratio for each of the funds. This means that all fees are known to the client in an open and transparent manner. The model portfolios below have a range of 0.21% to 0.62%, depending on the risk level required in the portfolio.
1. Weighted Average of Audited Ongoing Charges Figure 30th November 2012 – Actual Figures.
The funds’ respective prospectuses and reports and accounts may contain more complete and up to date information on risks, fees, distribution charges, and other expenses, which are distributed by Dimensional Fund Advisors Ltd. which is authorised and regulated by the Financial Conduct Authority. Past performance is no guarantee of future results.
Section 3: Cost Effective Fund
Manager Fees
2 3 4 5 6 Risk Rating
Euro Ultra Short Fixed Income Fund 80.0% 26.7% 16.0% 6.7% 0.0% Global Short Fixed Income Fund 0.0% 26.7% 15.0% 6.7% 0.0% Euro InflaƟon Linked Intermediate DuraƟon Fixed Income Fund 20.0% 26.7% 16.0% 6.7% 0.0% Global Core Equity Fund 0.0% 17.2% 45.6% 60.2% 21.5% Global Targeted Value Fund 0.0% 0.0% 0.0% 8.6% 64.5% Emerging Markets Value Fund 0.0% 2.8% 7.4% 11.2% 14.0%
Dimensional Model Portfolio Funds
Defensive Ultra Defensive Balanced EquityFocus TargetedEquity100% 100% 100% 100% 100%
0.15% 0.21% 0.26% 0.32% 0.46% 0.21% 0.32% 0.38% 0.45% 0.62%
Total Weighted Average Annual Management Charge ("AMC") Weighted Average Audited Ongoing Charges Figure ("OCF") 1
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment may go down as well as up.
Warning: Funds may be affected by changes in currency exchange rates.
Warning: If you invest in this product you may lose some or all of the money you invest.
Warning: These figures are estimates only. They are not a reliable guide to the future
performance of your investment.
The asset allocation decision framework utilised to construct the risk rated model portfolios is laid out below.
Step 1: Equity /Fixed Income Allocation
Each of the Model Portfolios allocate investments between Equity and Fixed Income Funds. Equity funds will have more volatility (hence more risk), whilst fixed income funds will have a lower volatility. The Model Portfolio split is laid out below:
Investors who supply capital to the markets expect a return for taking risk. Over time, markets have compensated higher-risk investments with greater long-term returns. These risks appear in three dimensions. First, stocks are riskier than fixed income instruments, such as treasury bills and government bonds, and have a greater expected return. Relative performance among stocks is driven by two additional dimensions: size and price. Small cap stocks are riskier than large cap stocks, and offer higher expected returns. Similarly, value stocks offer a higher expected reward than growth stocks. Many economists believe that small cap and value outperform because the market rationally discounts their prices to reflect underlying risk. These principles have been implemented in these portfolios by allocating a volatility/risk tolerance measure with each portfolio and then building an allocation that offers diversified exposure to the associated risk factors - first, through their stock/bond mix, and then by tilting their equity allocation toward small cap and value stocks.
Section 4: Modern Portfolio Construction
Step 1 Equity/Fixed
Income Allocation
Step 2 Equity Allocation: Geographic
Step 3 Equity Allocation: Risk Factors
Market
Value
Small Portfolio
Fixed Income
Other
Domestic/Foreign Global
Region
Emerging Equity
Equity Allocation
Fixed Income Allocation
Ultra Defensive
Defensive Balanced Equity Focused
Targeted Equity 100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
One aspect of the fixed income role in a portfolio is to reduce volatility. This is accomplished by employing: Shorter maturities with lower equity correlations.
High-quality issues.
A global approach that hedges all currencies.
Additionally, the model portfolios employ an inflation linked euro bond fund in four of the five portfolios.
Step 2: Geographic Allocation
Quite often we have seen Irish investors primarily exposed to Irish assets (primarily property and Irish stocks), with negative impacts, particularly from 2008 to 2013. We call this home market bias.
The model portfolios predominately target a global asset allocation in the equity allocations, and a mixed global and euro allocation in the fixed income allocation.
Dimensional funds offer calibrated exposures to asset classes across the dimensions of size and relative price around the world. The goal is to provide investors with global investment solutions that, at the total portfolio level, attempt to maximise returns for a desired risk level. The strategies span the breadth of equity and fixed income portfolios in the US, Europe and international developed markets, and emerging markets.
Dimensional makes case-by-case determinations about the suitability of investing in each emerging market, making considerations that include local market accessibility, government stability, and property rights, before making investments and to ensure important investment criteria are met so as to not unduly increase risk.
The below illustration, which lays out the world map by relative market capitalisation, illustrates the importance of building a globally diversified portfolio and avoiding a home market bias.
The above is represented In euros. Market cap data is free-float adjusted from Bloomberg Securities Data. Many nations not displayed due to constraints and . Totals may not equal 100% due to rounding. China market capitalisation excludes A-shares, which are generally only available to mainland China investors. 1. An example large cap stock provided for comparison.
World Market Capitalisation
€33.0 Trillion as of December 31, 2013Capitalisation over time (€ trillions):
Developed markets
Emerging markets Frontier markets
Step 3: Risk Factors in Equit y Markets
In order to get the best possible equity market return, we focus clients exposure on dimensions of higher expected return that various academics have identified, most notably Fama and French. Their research suggests that smaller companies and low-priced companies (that is companies whose book value is low relative to their market price) perform better than the market average over time.
Because risk and return are related, the higher expected return comes at a price and, as a consequence, investing in these companies is riskier than investing in the whole market. There are periods when these groups of shares underperform relative to the market, but over time, academic research indicates that these risk premiums have been worth paying for.
The equity allocations are adjusted between:
Market: –
The entire investible universe of equities within a particular region (e.g. individual countries, developed markets, emerging markets). Value stocks and small stocks are components of a market portfolio in their normal market-cap weights.
Small: -
Depending on the region in question, the view of the small company universe is approximately the bottom 12.5% of companies ranked by market capitalization. This results in a deeper capture of small companies than an index tracker.
Value: –
A ranking of all stocks in a ‘market’ by their Price to Book ratio (i.e. relative price) produces a continuum of relatively expensive or inexpensive securities. Those with the lowest Price to Book ratios would be classed as value companies, and those with the highest would be growth companies.A structured approach and focus on dimensions of higher expected returns
Traditional managers fall into two camps - active and indexing (passive). Active managers spend time and resources attempting to identify mis-pricing in the market, even though imbalances are not easily exploited consistently or cost-effectively. In addition to relatively high management fees, in most cases, an active manager’s stock picking and market timing efforts may result in poor diversification, frequent trading, and higher turnover, which can undermine asset class exposure and generate higher costs.
An index manager tracks the performance of an underlying index, but an emphasis on closely tracking the index results in forced trading at inopportune times. This tracking obligation drives a manager’s strategy and often results in higher transaction costs and price impact experienced around reconstitution dates. Following an index may not be the most efficient or robust way to capture an asset class. Indexes are not model portfolios. Rather, they are created to serve as proxies of a market segment to help compare performance.
There is a better way to capture an asset class, which results in broader diversification and deeper exposure to the underlying return dimension.
Rather than chasing returns through stock picking and market timing, Dimensional seeks to capture return dimensions identified through academic research. Unlike a pure indexing approach, the Dimensional asset class approach allows a flexible portfolio composition and gives traders more freedom to pursue value in the transaction process. This can result in lower costs, more precise asset class exposure, and enhanced returns.
The goal is to “improve the odds” of higher expected returns, and outperform active and index managers over an extended period of time using the modern portfolio construction methodology detailed above.
Active Managers Index Managers Dimensional
Section 5: Model Portfolios - Risk Ratings
The risk rating system we have based our portfolios on are detailed below.
Portfolio Name Risk Rating
Ultra Defensive 2 Defensive 3 Balanced 4 Equity Focus 5 Targeted Equity 6
The risk ratings above are largely based on the European Securities and Markets Authority (ESMA) risk rating methodology. ESMA is an independent committee of European regulators and they have produced a recommendation as to how investment firms should describe risk and return to the end customer.
The ESMA risk rating methodology is based upon the volatility of funds using weekly or monthly returns covering the previous 5 years. For example, investments such as equities that are highly likely to experience changes in their values are seen as volatile and are rated seven on the ESMA 1 -7 scale whereas cash is seen as having a low volatility and is rated a one on the scale.
It is worth noting that we have simulated volatility on these strategies over an 11 year period instead of the standard 5 year period when measuring the volatility of these portfolios and hence the portfolios are not exactly correlated with the ESMA methodology.
These ratings are intended as a guide only and you should always seek independent advice from your Financial Advisor before making any investment decisions.
The exact asset allocation within the Model Portfolios are detailed below for the five portfolios: There is a choice between the Accumulation version and the Distributing version of the portfolios The Accumulation versions of each of the funds reinvests any dividends.
The Distribution versions of each of the portfolios generates and retains cash dividends.
1. Weighted Average of Audited Ongoing Charges Figure 30th November 2012 – Actual Figures.
The funds’ respective prospectuses and reports and accounts may contain more complete and up to date information on risks, fees, distribution charges, and other expenses, which are distributed by Dimensional Fund Advisors Ltd. which is authorised and regulated by the Financial Conduct Authority. Past performance is no guarantee of future results.
Ultra Defensive Dimensional Model
Portfolio Funds (Accummulation) InceptionDate ISIN AMC
Euro Ultra Short Fixed Income Fund 03 May '11 IE00B4NL4501 0.15% 0.20% 80.0% 26.7% 16.0% 6.7% 0.0% Global Short Fixed Income Fund 25 Jan '07 IE0031719473 0.25% 0.37% 0.0% 26.7% 15.0% 6.7% 0.0% Euro InflaƟon Linked Intermediate DuraƟon Fixed Income Fund 30 Jun '11 IE00B3N38C44 0.15% 0.27% 20.0% 26.7% 16.0% 6.7% 0.0% Global Core Equity Fund 03 Sep '08 IE00B2PC0260 0.30% 0.43% 0.0% 17.2% 45.6% 60.2% 21.5% Global Targeted Value Fund 12 May '08 IE00B2PC0716 0.50% 0.66% 0.0% 0.0% 0.0% 8.6% 64.5% Emerging Markets Value Fund 10 Oct '05 IE00B0HCGV10 0.50% 0.72% 0.0% 2.8% 7.4% 11.2% 14.0%
OCF
Ultra
Defensive Defensive Balanced 1
100% 100% 100% 100% 100%
Total
Dimensional Model
Portfolios (Distributing) InceptionDate ISIN AMC OCF
Ultra
Defensive Defensive Balanced 1
Euro Ultra Short Fixed Income Fund 03 May '11 IE00B3T51D64 0.15% 0.20% 80.0% 26.7% 16.0% 6.7% 0.0% Global Short Fixed Income Fund 02 Mar '12 IE00B3QL0Y14 0.25% 0.37% 0.0% 26.7% 15.0% 6.7% 0.0% Euro InflaƟon Linked Intermediate DuraƟon Fixed Income Fund 02 Dec '11 IE00B3LNHS53 0.15% 0.27% 20.0% 26.7% 16.0% 6.7% 0.0% Global Core Equity Fund 20 Jun '11 IE00B3M0BZ05 0.30% 0.43% 0.0% 17.2% 45.6% 60.2% 21.5% Global Targeted Value Fund 02 May '12 IE00B6897102 0.50% 0.66% 0.0% 0.0% 0.0% 8.6% 64.5% Emerging Markets Value Fund 08 Apr '11 IE00B42THM37 0.50% 0.72% 0.0% 2.8% 7.4% 11.2% 14.0%
Equity Focus Targeted Equity Equity Focus Targeted Equity
100% 100% 100% 100% 100%
Once you have decided on the most suitable Portfolio in keeping with your investment objectives and attitude to risk, a portfolio management system is used to monitor investor assets and minimise drift of assets classes. A set of rebalancing rules has been designed to be implemented on a portfolio asset class drift basis (namely fixed income and equity).
The implementation rules are set to rebalance once an asset class drifts by more than +/- 3% (i.e. the % of Fixed Income asset vs. Equity assets moves by more than +/- 3%).
The information below is important and will be taken as consent to apply rebalancing rules on a
pre-authorised basis as detailed below should you apply for one of the portfolios.
By applying for an investment in these portfolios you are instructing Conexim Advisors Ltd (“Conexim”) to maintain the asset allocation discipline of you chosen Portfolio, and note that from time to time, Conexim will need to rebalance the holdings in your Portfolio back to their percentages allocations at the date of your original investment (“Original Asset Allocation”). You note that a rebalance will need to be effected on your behalf where the asset allocations in my Portfolio drift by more than +/- 3% on an asset class level (i.e. the % of fixed income vs. equity assets moves by +/- 3%). This pre-authorised rebalance to the Original Asset Allocation will normally be effected by Conexim at 10am (Irish time) on the first business day following the occurrence of Asset Allocation Drift (the “Rebalance Date”) provided the Asset Allocation Drift has still occurred at that time.
By applying for an investment in these portfolios you are explicitly instructing Conexim to effect, on the Rebalance Date, whatever number of sale and buy instructions of units in each of the funds in the Portfolio, based on the published net asset value of the funds on the Rebalance Date, as are required to restore each of the holdings in the Portfolio to the Original Asset Allocation.
You understand and acknowledge that you retain absolute discretion over all investment decisions and that you may by notice in writing to Conexim rescind this/these standing balancing instruction(s).
You understand that the above pre-authorised rebalancing instruction(s) is/are designed to maintain the asset allocation discipline of your chosen Portfolio after you have invested. You understand that the Original Asset Allocation may change due to market movements and the above pre-authorised rebalancing instruction is intended to restore your investment back to the Original Asset Allocation in order to keep your Portfolio consistent with the risk-return characteristics of the Portfolio you have selected.
Should you wish to change into a different Portfolio with different asset class allocations, this can be facilitated but will require a new instruction from you accepting the changes in the risk/return characteristics of the chosen portfolio.
Section 6: Portfolio Rebalancing
and Risk Management
Fixed Income 100 80.00 47.00 20.00 0.00
Equity 0.00 20.00 53.00 80.00 100.00 Rebalance if Defensive or Assets
iŌb
NA +/-3% +/-3% +/-3% NA
Ultra
Defensive Defensive
Equity
Focus TargetedEquity Balanced
Fixed Income Equity
This document describes five portfolio strategies utilising a range of Dimensional funds and the simulated performance and volatility data for each of the model portfolios is provided below covering the periods January 2002 to December 2013. This illustrates the historical performance and associated volatility of the strategies over an 11 year period. It is important that when you are considering this simulated performance and volatility data that you read the associated Sources and Description of Data and Disclosures provided to understand the reference data used.
Please note that Key Investor Information Documents (KIID) will be available to you on request for each investment fund held within your chosen Portfolio.
Simulated Growth of Wealth
Monthly: 01/2002 - 12/2013; Default Currency: EUR
Section 7: Simulated Portfolio Performance
0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 2.20
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
1.00
1-Year Total Return (%) -0.78 2.41 8.72 14.31 19.43
3-Year Annualized Return (%) 1.7 4.03 5.97 7.37 7.76
5-Year Annualized Return (%) 2.15 6.21 10.58 14.22 17.64
10-Year Annualized Return (%) 2.56 4.37 5.99 7.22 8.37
20-Year Annualized Return (%) N/A N/A N/A N/A N/A
Annualized Return (%)
01/2002-12/2013 2.7 4 4.65 5.15 6.39
Annualized Standard DeviaƟon (%)
01/2002-12/2013 1.23 3.37 7.87 11.98 16.05
Ultra
DefensiveDefensive Balanced EquityFocus TargetedEquity
Lowest 1-Year Return (%) -0.94% -8.59% -22.79% -33.44% -43.33%
(9/ 12-8/ 13) (1/ 08-12/ 08) (1/ 08-12/ 08) (1/ 08-12/ 08) (3/ 08-2/ 09)
Highest 1-Year Return (%) 4.56% 14.60% 32.41% 49.74% 71.58%
(2/ 02-1/ 03) (4/ 09-3/ 10) (4/ 09-3/ 10) (4/ 09-3/ 10) (4/ 09-3/ 10)
Lowest 3-Year Annualized 1.44% -1.33% -7.55% -12.85% -18.67%
(9/ 10-8/ 13) (3/ 06-2/ 09) (3/ 06-2/ 09) (3/ 06-2/ 09) (3/ 06-2/ 09)
Highest 3-Year Annualized 3.72% 8.43% 14.89% 21.75% 31.88%
(7/ 02-6/ 05) (3/ 09-2/ 12) (4/ 03-3/ 06) (4/ 03-3/ 06) (4/ 03-3/ 06)
See Standardised Performance Data & Disclosures for descriptions of the simulated data utilised.
Data Source for above Portfolio Back testing: Dimensional Returns Programme 2.3. Performance data represents past performance.
Past performance is not a guarantee of future results and current performance may be higher or lower than the performance shown.
Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio.
The Growth of Wealth Graph represents a hypothetical investment of 1 euro. Performance includes reinvestment of dividends and capital gains.
Warning: These figures are estimates only. They are not a reliable guide to the future performance of your investment.
Simulated Performance Summary Statistics
01/2002 - 12/2013; Default Currency: EUR
Growth of Wealth
Sources and Descriptions of Data
All Dimensional portfolio returns are net of all fees unless otherwise indicated.
All Dimensional trust returns are net of administrative fees only unless otherwise indicated.
Prior to April 2002, certain international equity portfolios charged a reimbursement fee to the purchasers of shares of those portfolios Ultra Defensive 11, 2001- 12, 2013 Ultra Defensive From 11/2001 To 12/2013.
Constructed under EUR
Period 1:
From 11/2001 (Earliest) To 12/2013 (Latest)
Rebalance: Per 1 Month
Barclays UK Government Inflation Linked 5-15 Year Bond Index: 10% Barclays France Government EMU HICP Linked Bond Index: 10%
Euro Short Term Rate: 80%
Currency: EUR
Defensive 11, 2001- 12, 2013 Defensive From 11/2001 To 12/2013.
Constructed under EUR
Period 1:
From 11/2001 (Earliest) To 12/2013 (Latest)
Rebalance: Per 1 Month
Barclays UK Government Inflation Linked 5-15 Year Bond Index: 13.3% Dimensional Global Large Value Index: 1.7%
MSCI World Index (gross div.): 13.78%
Citigroup World Government Bond Index 1-5 Years (hedged to EUR): 26.7% Barclays France Government EMU HICP Linked Bond Index: 13.3%
Dimensional Emerging Markets Value Index: 2.8% Dimensional Global Small Index: 1.72%
Euro Short Term Rate: 26.7%
Currency: EUR
Balanced 11, 2001- 12, 2013 Balanced From 11/2001 To 12/2013.
Constructed under EUR
Period 1:
From 11/2001 (Earliest) To 12/2013 (Latest)
Rebalance: Per 1 Month
Barclays UK Government Inflation Linked 5-15 Year Bond Index: 8% Dimensional Global Large Value Index: 4.56%
MSCI World Index (gross div.): 36.46%
Citigroup World Government Bond Index 1-5 Years (hedged to EUR): 15% Barclays France Government EMU HICP Linked Bond Index: 8%
Dimensional Emerging Markets Value Index: 7.42% Dimensional Global Small Index: 4.56%
Euro Short Term Rate: 16%
Currency: EUR
Equity Focus 11, 2001- 12, 2013 Equity Focus From 11/2001 To 12/2013.
Constructed under EUR
Period 1:
From 11/2001 (Earliest) To 12/2013 (Latest)
Rebalance: Per 1 Month
Barclays UK Government Inflation Linked 5-15 Year Bond Index: 3.3% Dimensional Global Large Value Index: 10.3%
MSCI World Index (gross div.): 48.18%
Citigroup World Government Bond Index 1-5 Years (hedged to EUR): 6.7% Barclays France Government EMU HICP Linked Bond Index: 3.3%
Dimensional Emerging Markets Value Index: 11.2% Dimensional Global Small Index: 10.32%
Euro Short Term Rate: 6.7%
Currency: EUR
Targeted Equity 01, 1999- 12, 2013 Targeted Equity From 01/1999 To 12/2013.
Constructed under EUR
Period 1:
From 01/1999 (Earliest) To 12/2013 (Latest)
Rebalance: Per 1 Month
MSCI World Index (gross div.): 17.2% Dimensional Global Large Value Index: 34.4% Dimensional Emerging Markets Value Index: 14% Dimensional Global Small Index: 34.4%
Currency: EUR
Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end access our website at www.dimensional.com. Average annual total returns include reinvestment of dividends and capital gains. DFA is an investment advisor registered with the SEC. Consider the investment objectives, risks, and charges and expenses of the Dimensional funds carefully before investing. For this and other information about the Dimensional funds, please read the prospectus carefully before investing. Prospectuses are available by calling Dimensional Fund Advisors collect at (310) 395-8005; on the Internet at www.dimensional.com; or, by mail, DFA Securities Inc., c/o Dimensional Fund Advisors, 1299 Ocean Avenue, Santa Monica, CA 90401.
Mutual funds distributed by DFA Securities Inc.
Prior to April 1, 2002, the following reimbursement fees may have been charged to purchasers of the respective portfolios: International Small Company Portfolio 0.675%; Continental Small Company Portfolio 1.00%; Japanese Small Company Portfolio 0.50%; Pacific Rim Small Company Portfolio 1.00%; International Small Cap Value Portfolio 0.675%; Emerging Markets Small Cap Portfolio 1.00%; Emerging Markets Value Portfolio 0.50%; Emerging Markets Portfolio 0.50%. Prior to April 1998, the reimbursement fee for the International Small Company Portfolio was 0.70% and the reimbursement fee for the International Small Cap Value Portfolio was 0.70%. Prior to July 1995, the reimbursement fees were as follows: International Small Cap Value Portfolio 1.00%; Continental Small Company Portfolio 1.50%; Japanese Small Company Portfolio 1.00%; Pacific Rim Small Company Portfolio 1.50%; UK Small Company Portfolio 1.50%; Emerging Markets Portfolio 1.50%. Returns for these portfolios are presented net of these reimbursement fees.
All reimbursement fees are based on the net asset value of the shares purchased. The standardized returns presented reflect deduction, where applicable, of the reimbursement fees for the portfolios. Non-standardized performance data reported by Dimensional Fund Advisors Inc. does not reflect deduction of the reimbursement fee. If reflected, the fee would reduce the performance quoted.
Principal Risks
The principal risks of investing in the Dimensional funds may include one or more of the following: market risk, small companies risk, risk of concentrating in the real estate industry, foreign securities and currencies risk, emerging markets risk, banking concentration risk, interest rate risk, risk of investing for inflation protection, risk of municipal securities, and/or fund of funds risk. To more fully understand the risks related to an investment in the funds, investors should carefully read each fund's prospectus. Investments in foreign issuers are subject to certain considerations that are not associated with investments in US public companies. Investments of the International Equity, Emerging Markets Equity and the Global Fixed Income Portfolios will be denominated in foreign currencies. Changes in the relative values of these foreign currencies and the US dollar, therefore, will affect the value of investments in the Portfolios. However, the Global Fixed Income Portfolios will utilize forward currency contracts to minimize these changes. Further, foreign issuers are not generally subject to uniform accounting, auditing, and financial reporting standards comparable to those of US public corporations and there may be less publicly available information about such companies than comparable US companies. Also, legal, political, or diplomatic actions of foreign governments, including expropriation, confiscatory taxation, and limitations on the removal of securities, property, or other assets of the Portfolios, could adversely affect the value of the assets of these Portfolios. Securities of small companies are often less liquid than those of large companies. As a result, small company stock and the funds which invest in them may fluctuate relatively more in price. Although securities of larger firms fluctuate relatively less, economic, political and issuer specific events will cause the value of all securities and the funds which invest in them to fluctuate as well. Additionally: DFA Real Estate Securities Portfolio is concentrated in the real estate industry. The Portfolio's exclusive focus on the real estate industry may cause its risk to approximate the general risks of direct real estate ownership. Its performance may be materially different from the broad US equity market.
Fixed Income Portfolios
The net asset value of a fund that invests in fixed income securities will fluctuate when interest rates rise. An investor can lose principal value investing in a fixed income fund during a rising interest rate environment.
Risk of Banking Concentration
Focus on the banking industry would link the performance of the DFA One-Year Fixed Income and/or the Two-Year Global Fixed Income Portfolios to changes in performance of the banking industry generally. For example, a change in the market's perception of the riskiness of banks compared to non-banks would cause the Portfolio's values to fluctuate.
Inflation Protected Securities Portfolio: Inflation –protected securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in the Portfolio’s value. If interest rates rise due to reasons other than inflation, the Portfolio’s investment in these securities may not be protected to the extent that the increase is not reflected in the securities’ inflation measures. The Portfolio may also suffer a loss during periods of sustained deflation.
Short Term Muni Bond Portfolio : Municipal Bonds may be subject to income risk, which is the risk that falling interest rates will cause the Portfolio's income to decline, and interest rate risk, which is the risk that bond prices overall will decline over short or even long periods because of rising interest rates. The Portfolio may also be affected by: call risk, which is the risk that during periods of falling interest rates, a bond issuer will call or repay a higher-yielding bond before its maturity date; credit risk, which is the risk that a bond issuer will fail to pay interest and principal in a timely manner; and tax liability risk, which is the risk of noncompliant conduct by a bond issuer, resulting in distributions by the Portfolio being taxable to share-holders as ordinary income. Finally, there is legislative or regulatory risk, which is the risk that new federal or state legislation may adversely affect the tax-exempt status of securities held by the Portfolio, or that there could be an adverse interpretation by the Internal Revenue Service or by state tax authorities.
Global Equity, Global 60/40, Global 25/75 Portfolios: Fund of Funds Risk
The investment performance of each Portfolio is affected by the investment performance of the Underlying Funds in which the Portfolio invests. The ability of a Portfolio to achieve its investment objective depends on the ability of the Underlying Funds to meet their investment objectives and on the Advisor's decisions regarding the allocation of the Portfolio's assets among the Underlying Funds. There can be no assurance that the investment objective of any Portfolio or Underlying Fund will be achieved. Through their investments in the Underlying Funds, the Portfolios are subject to the risks of the Underlying Funds investments. The risks of the Underlying Funds may include Market Risk, Small Company Risk, Risks of Concentrating in the Real Estate Industry, Emerging Markets Risk, Interest Rate Risk, Credit Risk, and Risks of Banking Concentration
Definitions of Statistical Terms
Average Returns (arithmetic mean) is a measure of the “middle performance” of the fund, computed by adding up all the returns and dividing by the number of periods. Standard Deviation measures how different the actual fund returns are from its average performance (see above). The closer the actual returns are to the average, the smaller the standard deviation. Standard deviation is a measure of volatility, generally associated with the risk of investments.
Correlation measures the degree to which the performance of two funds moves in tandem, and the direction of their association (one goes up, the other goes up as well – positive correlation). Correlation plays an important part in diversification.
Auto-correlation is a specific application of correlation (see above). In this case, the comparison is not between two different funds, but rather returns of the same fund between different periods. For example, an auto-correlation of two periods would show the correlation in returns two periods apart (March-January, April-February, May-March, etc).
Covariance measures the trend of common movement in returns between two funds. A positive covariance shows the fund’s returns moving in the same direction, whereas a negative covariance shows the funds moving in opposite direction (when one goes up, the other one goes down). Covariance plays a role in determining portfolio volatility.
Regression analysis examines the statistical connection between a variable of interest and one or more factors used to explain its variation. For example, if the variable of interest is student test scores, regression could be used to show the connection to factors such as time spent studying or IQ.
R-squared is used in regression analysis to determine to what degree the variation in the changing series of interest is explained by the factors used to explain it. R-squared ranges from 0 (no explanatory power), to 1 (virtually all variation is explained by the analysis). In the example above, if test scores is the variable of interest, while IQ and study time are the factors used to explain it, then an R-squared of .9 would indicate that 90% of the variation in test scores can be explained by these two factors.
Standard Error is a measure of precision when calculating various statistical terms. Generally, the higher the standard error, the lower the statistical strength of that estimation.
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