Glenn Crane

Australians wanting a one-stop, low-cost, sustainable and systematic investment solution now can access model portfolios from Dimensional Fund Advisors via separately managed accounts (SMAs) available through Macquarie Wrap.

Dimensional, a global systematic asset manager, has brought together its global equity and fixed interest sustainability solutions into three automatically rebalanced model portfolios, ranging from a 100% high growth option, to an 80%-20% growth-defensive split and a traditional 60%-40% balanced allocation.

At an all-up cost of just 50 basis points, these are fully integrated environmental, social and governance portfolios. They have the dual objective of delivering meaningful environmental and social outcomes, while outperforming benchmarks via a systematic investment approach.

Sustainable fund assets grew by 12% globally in the second quarter to $US2.25 trillion, according to Morningstar, with Australia among the fastest growing markets. Also growing in popularity locally are SMAs, which offer greater control, transparency, tax optimisation and cost-effectiveness.

“More and more investors in Australia are wanting to invest sustainably without compromising good investment outcomes and while keeping costs low,” says Dimensional’s Australian CEO Glenn Crane. “So these solutions set within that structure are going to make sense for a lot of people.”

At a time of rising compliance costs and other regulatory imposts, the SMA structure also offers significant efficiencies for financial advisors, who do not require a special licence to use them or need to issue ongoing statements of advice to clients accessing the portfolios.

Once the investor is in the SMA, rebalancing occurs automatically and is administered by the wrap platform. No additional documentation is required.

The investment approach in the model portfolios is consistent with Dimensional’s underlying funds, providing a systematic focus to pursuing higher expected returns across global equity and fixed interest markets, while maintaining broad diversification and managing costs.

The ESG filters seek to substantially reduce portfolio exposure to greenhouse gas emissions and reserves, while targeting a range of social considerations – including gambling, tobacco, child labour, nuclear weapons and factory farming. Added to this is strong governance oversight.

“Our aim is to target specific sustainability characteristics that investors can understand and compare to industry standards,” Crane says. “We believe this approach enables more transparent reporting on investment and sustainability metrics relative to benchmarks.”

Dimensional recently was named by the Responsible Investment Association Australasia as a “responsible investment leader” – a designation preserved for managers with a commitment to responsible investment, a systematic process to ESG, strong stewardship and a record of allocating capital to benefit stakeholders.

Founded in the US 1981 and present in Australia since 1994, Dimensional is a wholesale asset manager with a long history of applying academic research to practical investing. The company now manages more than $800 billion from 13 offices globally, including about $45 billion for clients in Australia and New Zealand. Its clients are institutional investors such as super funds and independent advisors.

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Glenn Crane

Global asset manager Dimensional is adding to its popular sustainability suite in Australia and New Zealand with the launch of one of the first funds locally to apply an environmental, social and governance filter to emerging markets.

The clamour by investors in Australia and New Zealand for investment solutions based on environmental, social and governance (ESG) goals so far has mainly focused on the developed markets. But that is now changing with the launch of a new strategy targeting emerging markets.

Dimensional Fund Advisors, a global asset management firm, on Friday launches its Emerging Markets Sustainability Trust, allowing local investors to pursue targeted sustainability goals in emerging markets within a broadly diversified, cost-effective and systematic investment framework.

The strategy is the latest in a series of sustainability themed solutions launched in the Australian and NZ markets by Dimensional, which had the second highest inflows of any manager into ESG strategies in the first quarter of 2021, according to Morningstar’s fund flows report.

Dimensional Australia chairman and CEO Glenn Crane said the addition of emerging markets coverage to the sustainability suite was a logical extension for the firm, which sets the reduction of exposure to greenhouse gas emissions as the primary target for these strategies.

“Many of our clients want transparent, effective investment solutions that focus on climate change in a measurable way,” Crane said. “With many emerging markets having higher emissions than developed markets, this means clients can have a meaningful impact across their total portfolio.”

The new emerging markets fund is expected to invest in more than one thousand individual securities across 24 eligible countries in emerging markets, which account for about 13% of total global market capitalisation and whose economies account for about a third of global GDP.

The strategy is designed to meaningfully reduce exposure to greenhouse gas emissions and potential emissions from fossil fuel reserves, within a robust investment framework that emphasises securities with higher expected returns, maintains broad diversification and keeps costs low.

The fund also systematically evaluates firms on additional environmental criteria such as land use, biodiversity, toxic spills, and palm oil, while filtering for social issues such as child labour, cluster munitions, tobacco and factory farming identified by clients as priorities.

The approach is consistent with the rest of Dimensional’s sustainability suite, which incorporates global developed equity markets, Australian equities and global bonds. The firm also offers a single diversified 70/30 balanced sustainability fund built from the component ESG vehicles.

Dimensional is known as a low-cost, systematic manager that grounds its approach in decades of research and a rigorous approach to data. The new fund will have a management fee of just 60 basis points, making it among the most cost-effective on the Australian market.

“In everything we do, we are guided by financial science and our clients’ changing needs,” Crane said. “This is really just the latest evolution of an approach that goes back decades.”

Founded in the US 1981 and present in Australia since 1994, Dimensional has a long history of applying academic research to practical investing. The company now manages more than $800 billion from 13 offices globally, including about $45 billion for clients in Australia and New Zealand.

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