Dimensional Global Core Equity Trust NZD Hedged Class

Enhanced due diligence for the quarter ended 31 December 2021

Enhanced due diligence trigger

An enhanced due diligence (EDD) on a fund may be required for any number of reasons. Please refer to the CIC Policy and Procedures Manual for more detail.

Fund: Dimensional Global Core Equity Trust NZD Hedged Class (“the trust”)

Custom Benchmark: Consilium GCOR Expectation (NZD) (“the benchmark”)

The trigger for this analysis was short term tracking error (Appendix 2)

Fund return: 7.57%, Custom Benchmark return: 5.24%, Deviation: +2.33%, Tolerance: ±1.16%

Enhanced due diligence checklist

Has the investment mandate changed? (Appendix 2) relative performance attributable to known risk tilts and/or exclusions? (Appendix 3, 4)

Conclusion

Our analysis highlighted that the outperformance in the December quarter relative to the custom benchmark was attributable to structural elements of the trust in particular the reduced exposure to small companies since 2020 This change occurred when the 5th factor in the Fama/French 5 factor model –reinvestment – was implemented The custom benchmark has not been reflecting this reduced exposure and needs to be modified

The attribution analysis shows that against the MSCI World ex Australia Index the fund underperformed the market, with this underperformance resulting from the size and value tilts taken by the trust

We remain satisfied the identified risk exposures are consistent with the latest trust mandate, and we identified no unexpected or unexplained risks.

Based on all the above, the committee was satisfied that the Dimensional Global Core Equity Trust passed this EDD review While the CIC will review the custom benchmarks with their latest findings following the completion of the 2022 Phase One SAA review.

For further information please see the appendix on the following pages

Appendix: Supporting analysis

Custom benchmark

The style benchmark used to measure this trust’s expected quarterly returns is a custom index created by the CIC. This custom index includes consideration of the expected risk tilts from the trust rather than just a broad market return which was assumed when previously using the MSCI World ex Australia Index (NZD)

The factor exposures to construct the custom index have been evaluated from a multiple regression performed in May 2020. For this trust, the custom index is specified in table 1 below

Risk Free 1.00x Ken French Risk Free Rate

Market 1.00x Ken French Market factor minus Ken French Risk Free Rate

Size 0.15x Ken French Developed Market Size Factor

Value 0.15x Ken French Developed Market Value Factor

Profitability nil

Source: Consilium calculations, Ken French Five Factor Model

This is the average return on the three Ken French small portfolios minus the average return on the three Ken French big portfolios.

This is the average return on the two Ken French value portfolios minus the average return on the two Ken French growth portfolios.

Using a custom index for attribution analysis or analysis of relative fundamentals such as aggregate price to book or weighted average market capitalisation poses a difficulty. As the custom index is not maintained by an index provider there is no average underlying company exposures for the custom index and so attribution analysis or analysis of relative fundamentals is impossible.

When performing these analyses, we instead employ the closest benchmark available for which these analyses can be completed. For this trust that is the MSCI World ex Australia Index (NZD).

Upon review the CIC propose to update the Custom benchmark expectation following recent findings in the 2021 Strategic Asset Allocation Review.