Process / 
Integration Example: Core Equity

An example of Dimensional's approach to investing is its core equity strategies. Applying a multifactor framework to an overall portfolio, the core approach offers an integrated investment solution in equities.

Engineered as integrated, multifactor portfolios, the core strategies help investors achieve broad diversification and targeted factor exposure, while minimizing the frictions inherent in asset class investing. The design seeks to efficiently capture the compensated dimensions of returns that capital markets provide. 

 

More Efficient Market Coverage
The market, sorted along size and value/growth.
More Efficient Market Coverage
  • Plotted in two dimensions, the market appears as a massive, diverse array of investment opportunities. Red areas indicate held securities.
  • Often when using traditional index funds in a portfolio, overlapping areas and gaps can occur, since attempts to achieve diversification and risk factor exposure result in redundant or inefficient allocations.
  • Core Equity maintains factor exposure without redundancy via an integrated structure and broad diversification. Each security is held once, efficiently weighted.
For illustrative purposes only.

Each core strategy targets the entire stock market as its eligible universe. But unlike traditional approaches, the securities are not held in their market value proportions. The portfolios increase the relative weight of small cap and value stocks, where expected returns are greater. Because the architecture is seamlessly integrated and includes the full range of securities, the costs normally associated with maintaining multiple vehicles are greatly reduced.

By smoothing away the redundant holdings and filling in the missing securities, the core strategies form a strong foundation that can increase the coherence of any allocation. Like all Dimensional strategies, they are designed to capitalize on opportunities presented by broad economic factors, opening new and flexible solutions to everyday investment challenges.

 

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Year-to-date and average annual total returns.