“The fact that no single company makes up a big percentage of the portfolio is probably one of the main elements of risk control,” Umland said. “If something unforeseen happens to one of the companies we invest in on the negative side, it won’t have a big impact.”
Taiwan, Turkey
Dimensional, based in Austin, Texas, limits the fund’s exposure to any one country at 15 percent at the time of investment. Small caps Taiwan accounted for 15 percent of the fund’s holdings as of March 31, the largest allocation, and South Korea and China made up more than 14 percent each. Brazil equaled 9.2 percent. Other countries in which the fund invests include Malaysia, South Africa, Turkey and Poland.
The Dimensional fund beat 93 percent of peers over the past five years, before accounting for price swings, according to data compiled by Bloomberg. So far in 2014, it did better than 96 percent of similar funds.
Limited variation in country and industry weightings can hold back the fund, which in 2013 “significantly underperformed” some of the peers that it’s surpassed this year, Patricia Oey, a senior analyst at investment data provider Morningstar Inc. in Chicago, said by e-mail.
Transparent Markets
“An actively managed fund might see more variation in country and sector weightings,” Oey said. “As a result, the DFA fund may outperform its peers at times, and underperform at other times, depending on the DFA fund’s relative country and sector weights.”
Umland and Chi’s investment strategy reflects a philosophy, stretching across Dimensional’s equity funds, of avoiding stock picking, thereby reducing the research costs that accompany it. Founded in 1981, Dimensional had more than $375 billion in assets under management globally by June 30, making it the eighth-largest U.S. mutual fund company, according to Morningstar.
Seventeen percent of the cash was invested in emerging- market equities as of March 31, data on the company’s website show.
“At the core of the philosophy is the idea that we think that in liquid, transparent markets, prices do a good job of reflecting available information,” Umland said. If sufficiently transparent and liquid, the market, rather than individuals, is best placed to determine the value of stocks.