HEAD-TO-HEAD: Dimensional versus Ninety One

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Investment approach

The Dimensional fund uses a formal model, operated by a dedicated team of traders.

“It is focused on smaller, cheaper [measured by price/book], and more-profitable companies; companies that are large, pricey and unprofitable are typically underweighted or avoided,” said Liu. “As a result, the portfolio diversifies risk, has low turnover, and leans towards securities identified as outperformance drivers.”

Low turnover is promoted because changes in market prices usually reflect changes in the target weightings. Its flexible trading helps minimise trading costs. Specialist traders, using superior software technology, work positions and have the flexibility to substitute stocks with similar characteristics.

This diversified and wide-ranging portfolio captures most stocks from developed markets (around 7,600 individual holdings), and to balance between maintaining sector diversification and targeting expected returns, the managers generally limit any sector’s weight (at purchase) to its market weight plus 10%, according to Liu.

The team also include a momentum factor in the process, avoiding buying or selling too early if a stock has negative or positive momentum.

Technology is its largest sector weight, followed by financial services. Currently, 66% of the portfolio is allocated to US stocks, according to the most recent fund factsheet.

The Ninety One strategy aims to outperform the MSCI ACWI index through a bottom-up, style-agnostic approach.

The managers, led by Mark Beedon, use “quantitative contributions from Investec’s proprietary 4Factor model and qualitative inputs from the fund managers and analysts,” said Liu.

The model ranks over 3,500 companies worldwide on: earnings, which considers momentum; value, including cash flow return on investment; strategy, identifying strong management teams; and technicals, which focuses on a stock’s price trend, according to Liu.

The team of analysts then use qualitative scrutiny to identify whether the stock is a strong buy, a medium buy, or should not bought at all. Portfolio construction is largely bottom-up, and is not determined by the benchmark.

Breedon usually constructs a style-agnostic portfolio of 70-90 companies based in both developed and developing markets, with a tilt towards mid-cap stocks.

“Individual stock positions are determined by the manager’s conviction in the company, the volatility of the stock, and the effect on the risk/return characteristics of the portfolio as a whole,” said Liu.

Top sector weights are information technology and financials; the portfolio also has a 16.6% allocation to emerging markets.

Fund characteristics

Sector allocation:

Source: Fund factsheets, *31 March 2021, **31 May 2021

Country allocation:

Source: Fund factsheets, *31 March 2021, **31 May 2021

Top 10 holdings:

Source: Fund factsheets, *31 March 2021, **31 May 2021

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