US Equities
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Value Strategy DFA US Value Fund Class A DFA US Value Fund Class F |
Small Cap Strategy DFA US Small Cap Fund Class A DFA US Small Cap Fund Class F |
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| Applied Core Equity Strategy DFA US Core Equity Fund Class A DFA US 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 US equity funds are described below. Specific information about the individual funds discussed can be found in the prospectus.
Applied Core Equity Strategy
DFA Canada's US applied core equity strategy is designed to capture a broad and diverse group of readily marketable common stocks of US companies, 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 US 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 US 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 Dow Jones Wilshire 5000 Index and the Russell 3000 Index tend to have higher average market capitalizations and lower average book-to-market or earnings-to-price than does the DFA US Core Equity Fund.
Increasing the Tilt
In an investment strategy, in order to increase the small or value tilts that the DFA US Core Equity Fund provides, an allocation of DFA Canada's US Small Cap Fund or US 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.
Value Strategy
DFA Canada's value strategies, which are based on the Fama/French research in cross-sectional variation in stock returns, are designed to capture the return premiums associated 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, to define the eligible buy list of stocks for the DFA US Value Fund, Dimensional Fund Advisors first ranks the total market universe by market cap and identifies those companies that fall within the defined size range. The resulting list of stocks is then ranked by BtM ratio, excluding firms with negative or zero book values, utilities, and others; and a BtM breakpoint is determined. Companies in the total market universe with a BtM ratio greater than the 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.
Small Cap Strategy
DFA Canada's parent company, Dimensional Fund Advisors, has been a pioneer in small stock investing since 1981. Research documents that small companies have provided higher expected returns than large companies in the long term. Dimensional's objective is to deliver the size premium and provide the diversification benefits of investing in small companies worldwide. We believe the best way to accomplish this is to invest in a broadly diversified cross section of small companies in major international markets.
Currently, the DFA US Small Cap Fund generally purchases US operating companies with market capitalization below the market cap of the 1,000th largest US operating company.
We also employ additional screening criteria. These criteria may eliminate REITs, closed-end investment companies, limited partnerships, companies in bankruptcy, ADRs, over-the-counter stocks with fewer than four market makers, and other securities. New cash flow is monitored so portfolios may remain fully invested. On a regular basis, we examine the market capitalization of eligible stocks to determine which issues are eligible for purchase and which are sale candidates. We use a hold or buffer range for companies that grow larger than the defined size breakpoint, in order to minimize transaction costs and keep portfolio turnover low.
Most small companies worldwide are thinly traded. Over the past twenty years, we have developed and refined procedures that allow us to trade these companies effectively and economically.
Tax Management
Where practical, DFA Canada seeks to maximize the after-tax value of an investment by managing the Funds in a manner that aims to defer the realization of net capital gains where possible and to manage dividend income.