International Equities
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Value Strategy DFA International Value Fund Class A DFA International Value Fund Class F |
Small Cap Strategy DFA International Small Cap Fund Class A DFA International Small Cap Fund Class F |
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| Applied Core Equity Strategy DFA International Core Equity Fund Class A DFA International Core Equity Fund Class F |
The mutual funds managed by DFA Canada are available only to Canadian residents, through representatives authorized by us and affiliated with approved registered dealers.
The general investment approach and strategies we use to manage our international equity funds are described below. Specific information about the individual funds discussed can be found in the prospectus.
Overview
Research by Fama and French, as well as other academics, shows that the size and value effects observed in US markets are also present outside the US. DFA Canada's international equity strategies seek to provide consistent, targeted exposure to both size and value factors, while reducing the risk of single-country exposure.
Developed International Markets
DFA Canada's international portfolios are designed to provide diversified exposure to the higher cost-of-capital dimensions of returns. The firm uses efficient trading techniques to capture components of market risk while minimizing transaction costs.
Individual small companies worldwide are thinly traded, so careful execution is essential to portfolio performance. Dimensional is able to trade twenty-four hours a day through its headquarters in Los Angeles and offices in London and Sydney. By making contact with local brokers in the markets where we invest, Dimensional ensures awareness of local market details and trading idiosyncrasies, thereby minimizing transaction costs.
Currently, the DFA International Value Fund is authorized to invest in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
Applied Core Equity Strategy
DFA Canada's international applied core equity strategy is designed to capture a broad and diverse group of readily marketable non-Canadian and non-US companies in countries with developed markets as listed above, with a modest tilt toward value and small stocks.
Based on the research of Fama and French on the sources of risk and expected return, the applied core equity strategy is designed in part to capture a portion of the return premiums associated with small stocks and value stocks. Research documents that small companies and companies selling at low prices relative to their economic fundamentals have provided higher expected returns than large or growth companies in the long term.
Dimensional Fund Advisors uses the ratio of book equity to market equity (BtM) to identify value and growth stocks in the DFA International Core Equity Fund. When assessing value, Dimensional Fund Advisors may also consider other factors such as a company's price-to-cash-flow ratio and price-to-earnings ratio. To tilt the DFA International Core Equity Fund away from the market portfolio toward value stocks, we increase the target weight on value stocks and reduce the target weight on growth stocks. The same process takes place to tilt the portfolio modestly toward small stocks. As a result, popular marketwide indices such as the MSCI World Index tend to have higher average market capitalizations and lower average book-to-market or earnings-to-price than does the DFA International Core Equity Fund.
Increasing the Tilt
In an investment strategy, in order to increase the small or value tilts that the DFA International Core Equity Fund provides, an allocation of DFA Canada's International Small Cap Fund or International Value Fund could be added. Based on the relative weights of each component, such an allocation mix would be more concentrated in the small and value asset classes and would increase the risk level of an investment strategy.
International Value
Dimensional's value strategy, which is based on the Fama/French research in cross-sectional variation in stock returns, is designed to capture the return premia associated with companies with high book-to-market (BtM) ratios. When assessing value, Dimensional Fund Advisors may also consider other factors such as a company's price-to-cash-flow ratio and price-to-earnings ratio. The criteria Dimensional Fund Advisors uses for assessing value may change from time to time.
Currently, Dimensional Fund Advisors first ranks the firms in each country or region by market cap and identifies those companies that fall within the defined size range. Each resulting list of stocks is then ranked by BtM ratio, excluding firms with negative or zero book values, utilities, and others; and a breakpoint is determined.
Companies in each country with a BtM ratio greater than the country or regional BtM breakpoint are generally eligible for purchase. A hold or buffer range of companies with BtM ratios outside the breakpoint is maintained to minimize turnover and transaction costs.
International Small Cap
Academic research documents that small companies have provided higher expected returns than large companies in the long term. DFA Canada seeks to deliver the international small capitalization asset class return and diversification benefits by investing in a broadly diversified cross section of small companies in the major international markets.
Dimensional trades international small company stocks through its US, London, and Sydney offices. Where possible, the firm leverages its expertise in trading US small cap stocks, adopting a similar patient and careful style of trading.
To define the eligible buy list of stocks for the DFA International Small Cap Fund, Dimensional Fund Advisors first ranks the firms in each country or region by market cap and identifies those companies that fall within the defined size range. Dimensional's methodology to define small cap stocks allows flexibility to adjust the size break with market fluctuations in order to avoid size drift while minimizing turnover. As a result, DFA Canada's international small cap funds will typically have a lower average market cap than that of competitors' funds or of benchmarks.