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			Size and Value Effects Are Strong Around the World The size and BtM effects appear in both US and international markets—strong evidence that the risk factors are systematic across the globe.
			The Randomness of Returns (3 Slides) This example features annual performance of major asset classes in the Canadian, US, international, and emerging markets between 1993 and 2008.
			Equity Returns of Developed Markets (2 Slides) While stock markets around the world often outperform the Canadian market, this performance is unpredictable and at times extreme.
			Risk and Return are Related The difference in returns among portfolios is largely determined by relative exposure to the market, small cap stocks, and value stocks. Stocks offer higher expected returns than fixed income due to the higher perceived risk of being in the market. Many economists further believe that small cap and value stocks outperform large cap and growth because the market rationally discounts their prices to reflect underlying risk. The lower prices give investors greater upside as compensation for bearing this risk.
			Fees Matter Active managers seek to beat the market through stock selection and market timing. They generally charge higher fees than passive managers as compensation for their perceived “skill.”
			World Market Capitalization Viewing the world map by relative market capitalization illustrates the importance of building a globally diversified portfolio and avoiding a home market bias.
			Warren E. Buffett Warren Buffett, who built his fortune buying individual stocks, acknowledges the benefits of passive management.
			Distribution of the US Size, Value, & Market Premium (3 Slides) Histograms quantify the distribution of annual returns for the US market and both small cap and value stocks. Since 1927, the risk premiums for all three have been positive in a majority of years.
			The Importance of Diversification Many Canadians concentrate most of their investment holdings in their home stock market. They choose Canadian stocks and mutual funds—or use several brokers who focus on Canadian equity investing. Yet, many of these investors may not consider their portfolios to be undiversified. From a global perspective, limiting one’s investment universe to a single stock market is a concentrated strategy with possible risk and return implications.
			Bull and Bear Markets (5 Slides) Recent Canadian S&P/TSX Composite, S&P 500 Index, MSCI EAFE (net div) and MSCI World Index (net div) and market history shows that bull market cycles last longer than bear market cycles, and produce cumulative gains that more than offset losses experienced during bear markets.
			Canadian Pension Fund Asset Allocation Institutional pension funds hold aggregate positions in many asset classes. They also recognize that short-term asset class returns are not obvious outcomes, and that large tactical asset shifts are in fact very difficult to successfully complete consistently over time.
			Performance of the S&P/TSX Composite Index (2 Slides) The harsh reality of market efficiency has not stopped speculators and other traders from attempting to predict the future. On paper, market timing offers a seductive prospect: By predicting market direction ahead of time, a trader might capture only the best-performing days and avoid the worst.
			Missing Opportunity This graph shows that a few outperforming stocks may account for a disproportionately large share of the US market’s return in a given year.
			Precision in Portfolios The consulting style box displays a size/BtM grid that is a traditional tool used to identify asset class characteristics of portfolio holdings.
			Yearly Observations of the US Size, Value, and Market Premiums (3 Slides) The US small cap, value, and market premiums are well documented over the long term, but annual performance is neither consistent nor predictable.
			Five Year Moving Average of the US Size, Value, and Market Premiums (3 Slides) Over five-year return periods, the US small cap, value, and market premiums are more consistent, although history also shows periods of under-performance.
			Ten Year Moving Average of the US Size, Value, and Market Premiums (3 Slides) Since 1927, the US market, size, and value premiums have been significantly positive over most ten-year return periods, although history also shows periods of under-performance.
			Fixed Income vs. Large Stocks The third slide in this format compares the performance of short-term fixed income instruments to the S&P 500 Index.
			Value Stocks vs. Large Stocks The following three slides underscore the importance of maintaining a long-term perspective in a structured portfolio and committing to one’s asset allocation.
			Small Stocks vs. Large Stocks The size effect also proves itself over longer holding periods. The chart applies the same format to illustrate that risk factor compensation is also working in the small cap arena.
			US Value Performance Following a Run (2 Slides) An extended run of 3, 4, or 5 years for US small cap or value stocks offers little insight into future performance of each risk factor relative to large cap and growth stocks.
			Average US Small Cap Premiums Following Multi-Year Runs (2 Slides) A multi-year run for US small cap or value stocks may not increase the likelihood of underperformance of each risk factor in the following year.
			Earnings vs. Returns Within equity markets, the size and value risk factors seem to explain most of the differences in expected returns among broadly diversified portfolios are size and value factors.
			Efficient Markets Hypothesis Professor Eugene F. Fama of the University of Chicago performed extensive research on stock price patterns. In 1966, he developed the Efficient Markets Hypothesis, which asserts that current securities prices reflect all available information and expectations.
			Innovations in Finance (2 Slides) Financial science is a relatively young academic field. But the theories, research, and applications have significantly influenced investment methodology over the last half century.
			Historical Asset Class Returns 1927 - 2008 This year's Dimensional Fund Advisor’s annual survey of investment returns focuses on global markets. Along with updated traditional matrices for Canadian equities and fixed income, the book features a fold-out illustration of the total equity investment opportunities available worldwide.