Dimensional Global Small Company Trust DGSM is a top-notch strategy for investors seeking a well-diversified small-cap portfolio encompassing various developed-markets ex-Australia. The ETF has earned a Gold Medallist rating from our analysts.  

Plying a proven factor-based methodology at a competitively low fee, the fund continues to earn our conviction on its ability to outperform its Morningstar Category index over the long term.

Resting on the research of renowned academics such as Eugene Fama and Kenneth French, the strategy is overweight in stocks with lower valuations, smaller market caps, and higher profitability. Research shows that stocks with these characteristics have tended to outperform over the long term.

The managers exclude the most expensive and unprofitable companies and apply market-cap multipliers to go under- or overweight in the remaining stocks, depending on how well they possess the desired characteristics. True to its mandate, the resulting portfolio has an overweighting in micro-caps and negligible exposure to large caps. The use of market-cap multipliers to weight holdings limits fund turnover. It has also led to a modest bias to the United States relative to category peers, which has played in the fund's favor. Indeed, the fund has delivered competitive long-term returns, surpassing the category index and its peers since inception.

Investment process

This approach was motivated by academic research demonstrating that these characteristics have historically been associated with higher returns. The portfolio covers more than 99% of the small-and micro-cap stocks listed across 23 developed countries.

Companies that exhibit the opposite characteristics are underweight or, in some cases, excluded. Dimensional Fund Advisors portfolio managers use this in combination with market cap in their weighting approach, which promotes low turnover because changes in market prices usually mirror changes in the target weights.

Dimensional exercises patience when dealing, focusing on price rather than execution speed, and acts as a supplier of liquidity. The dedicated trading team has considerable flexibility, such that it may choose to delay purchases of stocks that have exhibited negative momentum and delay the profit-taking of those that have shown positive momentum. The flexible trading approach helps to minimize trading costs.

This diversified and broad portfolio captures most of the global developed small-cap segment. With its underlying portfolio, the fund holds around 4,400 stocks. Owing to its tilt toward smaller- and micro-cap companies, the average market cap as of Dec. 31, 2024, was around AUD 6.9 billion, less than half of the category average. The portfolio holds more than 65% in small and micro-caps versus the average peer’s 43%, respectively. The small-cap and value tilts have led to sector biases in the portfolio relative to the MSCI World Small Cap Index category benchmark.

Although the fund sits in the small-blend area of the Morningstar Style Box, the methodology lends a value bias to the portfolio compared with the more growth-oriented peer. As of December 2024, industrials are the fund’s largest sector exposure (20.0%), followed by financial services (16.6%), consumer cyclicals (15.2%), and technology (14.0%). Companies from the US account for more than 72%, followed by Japan (7%), the United Kingdom (4%), and Canada (3%). As of Dec. 31, 2024, the fund is overweight in the US and underweight in all other regions compared with the average peer.

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