Our Investment Beliefs
By leveraging the most advanced financial science, patient long-term investors are well positioned for investment success based on the known trends affecting the world in the coming decades.
Academic research has identified key dimensions – small cap premium, value premium and profitability premium – which point to differences in expected returns. These dimensions can be leveraged in cost-effective portfolios, which have consistently outperformed their benchmarks over the long run.
PRACTICE SMART DIVERSIFICATION
Diversification helps reduce risk, but diversifying within the domestic US market is not enough. By holding a globally diversified portfolio, investors are well positioned to capture returns wherever they occur.
AVOID STOCK PICKING AND MARKET TIMING
You never know which market segments will outperform from year to year. And, the market’s pricing power makes it difficult for investors who try to outsmart other participants through stock picking or market timing. As evidence, very few actively managed equity funds survived and outperformed their benchmarks over a recent 10-year period.
AVOID UNNECESSARY FOSSIL FUEL ENERGY RISKS
Since it is well known that carbon dioxide and methane emissions cause the Earth to warm, fossil fuel energy markets represent the Ground Zero of climate change risk. As such, they may be increasingly vulnerable to shocks in confidence and sudden changes in market perceptions driven by events in the political and natural environment, as well as rapid advances in alternative energy technology.
If properly constructed, the expected impact of a low carbon strategy on returns is neutral to positive for long-term investors.*
Macroclimate’s equity strategy is powered by ultra-low-carbon Sustainable versions of Dimensional Core Equity Portfolios. Since these funds have similar exposure to the drivers of returns as Dimensional’s Unfiltered versions, expected returns are similar over the long term.
As climate change effects intensify, downside risks of carbon-intensive assets may escalate.** We believe that patient long-term investors are likely to be rewarded for minimizing those unnecessary risks.
* Versus “unfiltered” but otherwise similar benchmarks. Past performance is no guarantee of future results.
** Carbon-related investments are subject to both real and perceived political risks, which are unknowable, as well as unpredictable, potentially catastrophic changes in the physical world that might affect investor sentiment (favorably or unfavorably).