It seems like the Dimensional World Equity Fund has consistently underperformed as compared to the MSCI All Country World Index since inception, whether is it in GBP or SGD. Why does Endowus use it?

The question is bang-on. My view is you need only S&P500, global index and Nasdaq US. By not investing in US, one is betting against US. I am not sure anyone can be rich by doing that? Now, for Dimension- I personally can't understand why such funds exits in planet earth. I get perturbed when I have to go through ten pager docs on 'equity' fund logic and see a 'bond' level returns.

Hi Anon, to understand why EndowUs uses Dimensional Fund Advisor for the equity allocation, we need to see Fama French 3 factor model.

The current underperformance is only a recent issue. Basically the empirical research shows 3 things.

1) Small companies beat large companies over a long period of time.

2) Value stocks beat growth stocks over a long period of time.

3) Profitable companies beat non profitable companies every time.

What has happened over the last decade and a bit more is that the size premium (small vs large) and the value premium (value vs growth) hasn't showed up.

In the last decade or so, large cap growth has been winning.

This could be a new normal, but we don't have enough data for it.

Possibly due to globalisation and passive indexing which favours lather companies due to how indices are market cap weighted.

But the 90+ years of previous data shows that these dimensions will still prevail.

Thus, taking a long term view with tilting your portfolio towards small cap value stocks unlike the index benchmark which is market weighted and thus tilts towards large cap growth, can still give you out performance over a decade or two decades long.