Investors are rewarded in proportion to the risk they take. Framing decisions around compensated risk factors in the equity and bond markets connects investors to the forces that create opportunities to build wealth over time. Financial science offers insight into these risks.
Evidence from practicing investors and academics alike points to an undeniable conclusion: Returns come from risk. Gain is rarely accomplished without taking a chance, but not all risks carry a reliable reward. Financial science over the last fifty years has brought us to a powerful understanding of the risks that are worth taking and the risks that are not.
Everything we have learned about expected returns in the equity markets can be summarised in three dimensions. The first is that stocks are riskier than bonds and have greater expected returns. Relative performance among stocks is largely driven by the two other dimensions: small/large and value/growth. Many economists believe small cap and value stocks outperform because the market rationally discounts their prices to reflect underlying risk. The lower prices give investors greater upside as compensation for bearing this risk.
Dimensional approaches fixed interest primarily as a strategy to maximise overall portfolio benefit. Shorter-term, high-quality debt instruments tend to have less risk. Dimensional engineers lower-risk bond strategies so investors can temper their total portfolio volatility or take more risk in equities, where expected returns are greater.
Three Equity Factors
Size and Value Matter
Regional view 
World
Europe
UK
US
In British pounds.
Dimensional UK Large Value Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1955 - December 1993: UK Large Value Index Source: Elroy Dimson, Stefan Nagel and Garrett Quigley "Capturing the value premium in the UK", Financial Analysts Journal 2003, 59(6): 35-45. UK Market is the FTSE All-Share Index, data published with the permission of FTSE. Dimensional UK Large Growth Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1955 - December 1993: 1955 - December 1993: Source: Nagel (LBS)
Dimensional UK Small Value Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1955 - December 1993: 1955 - December 1993: Source: Nagel (LBS) Dimensional UK Small Cap Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. July 1981 - December 1993: Simulated by Dimensional from StyleResearch securities data. January 1970-June 1981: Elroy Dimson and Paul Marsh, Hoare Govett Smaller Companies Index 2009, ABN-AMRO / Royal Bank of Scotland, January 2009. Dimensional UK Small Growth Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1955 - December 1993: 1955 - December 1993: Source: Nagel (LBS)
Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Compound returns have an assumed rate of return, are hypothetical, and are not representative of any specific type of investment. Standard deviation is one method of measuring risk and performance, and is presented as an approximation.
Dimensional UK Large Value Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1955 - December 1993: UK Large Value Index Source: Elroy Dimson, Stefan Nagel and Garrett Quigley "Capturing the value premium in the UK", Financial Analysts Journal 2003, 59(6): 35-45. UK Market is the FTSE All-Share Index, data published with the permission of FTSE. Dimensional UK Large Growth Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1955 - December 1993: 1955 - December 1993: Source: Nagel (LBS)
Dimensional UK Small Value Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1955 - December 1993: 1955 - December 1993: Source: Nagel (LBS) Dimensional UK Small Cap Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. July 1981 - December 1993: Simulated by Dimensional from StyleResearch securities data. January 1970-June 1981: Elroy Dimson and Paul Marsh, Hoare Govett Smaller Companies Index 2009, ABN-AMRO / Royal Bank of Scotland, January 2009. Dimensional UK Small Growth Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1955 - December 1993: 1955 - December 1993: Source: Nagel (LBS)
Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Compound returns have an assumed rate of return, are hypothetical, and are not representative of any specific type of investment. Standard deviation is one method of measuring risk and performance, and is presented as an approximation.
In US dollars.
US value and growth index data provided by Fama/French (ex utilities). The S&P data are provided by Standard & Poor's Index Services Group. US Small Cap Index is the CRSP 6-10 Index. CRSP data provided by the Center for Research in Security Prices, University of Chicago.
Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Compound returns have an assumed rate of return, are hypothetical, and are not representative of any specific type of investment. Standard deviation is one method of measuring risk and performance, and is presented as an approximation.
US value and growth index data provided by Fama/French (ex utilities). The S&P data are provided by Standard & Poor's Index Services Group. US Small Cap Index is the CRSP 6-10 Index. CRSP data provided by the Center for Research in Security Prices, University of Chicago.
Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Compound returns have an assumed rate of return, are hypothetical, and are not representative of any specific type of investment. Standard deviation is one method of measuring risk and performance, and is presented as an approximation.
In USD
Dimensional Global Large Value Index: 1994-present: simulated by Dimensional from Bloomberg securities data. 1975-1993: data provided by Fama/French.
Dimensional Global Small Cap Index: 1994-present: simulated by Dimensional from Bloomberg securities data. July 1981-December 1983: Dimensional US Small Cap Index and Dimensional International Small Cap Index combined using StyleResearch Small Portfolio Weights. 1970-June1980: 50% Dimensional US Small Cap Index, 50% Dimensional International Small Cap Index. Global Market is the MSCI World Index, MSCI data copyright MSCI 2010, all rights reserved.
Emerging Markets Value and Small Cap data provided by Fama/French from IFC securities data. Emerging Markets "Market" is the MSCI World Index, MSCI data copyright MSCI 2010, all rights reserved.
Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Compound returns have an assumed rate of return, are hypothetical, and are not representative of any specific type of investment. Standard deviation is one method of measuring risk and performance, and is presented as an approximation.
Dimensional Global Large Value Index: 1994-present: simulated by Dimensional from Bloomberg securities data. 1975-1993: data provided by Fama/French.
Dimensional Global Small Cap Index: 1994-present: simulated by Dimensional from Bloomberg securities data. July 1981-December 1983: Dimensional US Small Cap Index and Dimensional International Small Cap Index combined using StyleResearch Small Portfolio Weights. 1970-June1980: 50% Dimensional US Small Cap Index, 50% Dimensional International Small Cap Index. Global Market is the MSCI World Index, MSCI data copyright MSCI 2010, all rights reserved.
Emerging Markets Value and Small Cap data provided by Fama/French from IFC securities data. Emerging Markets "Market" is the MSCI World Index, MSCI data copyright MSCI 2010, all rights reserved.
Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Compound returns have an assumed rate of return, are hypothetical, and are not representative of any specific type of investment. Standard deviation is one method of measuring risk and performance, and is presented as an approximation.
In Euro and German Mark.
Dimensional Europe Large Value Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. January 1975-December 1993: data provided by Fama/French. Europe Market is the MSCI Europe Index, MSCI data copyright MSCI 20010, all rights reserved. Dimensional Europe Large Growth Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. January 1975-December 1993: data provided by Fama/French.
Dimensional Europe Small Value Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. April 1981-December 1993: Dimensional UK Small Value Index and Dimensional Europe ex UK Small Value Index combined using StyleResearch Small Value Country Weights. Dimensional Europe Small Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. July 1981-December 1993: Dimensional Europe ex UK Small Cap Index and Dimensional UK Small Cap Index combined using StyleResearch Small Portfolio Weights. Dimensional Europe Small Growth Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1981 - December 1993: data provided by Styleresearch.
Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Compound returns have an assumed rate of return, are hypothetical, and are not representative of any specific type of investment. Standard deviation is one method of measuring risk and performance, and is presented as an approximation.
Dimensional Europe Large Value Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. January 1975-December 1993: data provided by Fama/French. Europe Market is the MSCI Europe Index, MSCI data copyright MSCI 20010, all rights reserved. Dimensional Europe Large Growth Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. January 1975-December 1993: data provided by Fama/French.
Dimensional Europe Small Value Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. April 1981-December 1993: Dimensional UK Small Value Index and Dimensional Europe ex UK Small Value Index combined using StyleResearch Small Value Country Weights. Dimensional Europe Small Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. July 1981-December 1993: Dimensional Europe ex UK Small Cap Index and Dimensional UK Small Cap Index combined using StyleResearch Small Portfolio Weights. Dimensional Europe Small Growth Index: January 1994 - Present: Simulated by Dimensional from Bloomberg securities data. 1981 - December 1993: data provided by Styleresearch.
Indexes are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Compound returns have an assumed rate of return, are hypothetical, and are not representative of any specific type of investment. Standard deviation is one method of measuring risk and performance, and is presented as an approximation.
Two Fixed Interest Factors
Dimensional Fund Advisors Ltd. is authorised and regulated in the United Kingdom by the Financial Services Authority (FRN: 150100). You should obtain relevant and specific professional advice before making any investment decision. Past performance is not an indication of future performance. Please read the Important Information.
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Power in Numbers